WIPRO LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Rs. in millions, except share and per share data, unless otherwise stated)
1. The Company overview
Wipro Limited (“Wipro” or the ”Parent Company”), together with its subsidiaries and equity accounted investees (collectively, “the Company” or the “Group”) is a leading India based provider of IT Services, including Business Process Outsourcing (“BPO”) services, globally. Further, Wipro has other businesses such as IT Products, Consumer Care and Lighting and Infrastructure engineering.
Wipro is a public limited company incorporated and domiciled in India. The address of its registered office is Wipro Limited, Doddakannelli, Sarjapur Road, Bangalore - 560 035, Karnataka, India. Wipro has its primary listing with Bombay Stock Exchange and National Stock Exchange in India. The Company’s American Depository Shares representing equity shares are also listed on the New York Stock Exchange. These consolidated financial statements were authorized for issue by Audit Committee on May 16, 2012.
2. Basis of preparation of financial statements
(i) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and its interpretations (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
(ii) Basis of preparation
These consolidated financial statements have been prepared in compliance with IFRS as issued by the IASB. Accounting policies have been applied consistently to all periods presented in these financial statements.
The consolidated financial statements correspond to the classification provisions contained in IAS 1(revised), “Presentation of Financial Statements”. For clarity, various items are aggregated in the statements of income and statements of financial position. These items are disaggregated separately in the Notes to the consolidated financial statements, where applicable. The accounting policies have been consistently applied to all periods presented in these consolidated financial statements.
All amounts included in the consolidated financial statements are reported in millions of Indian rupees (Rs. in millions) except share and per share data, unless otherwise stated. Due to rounding off, the numbers presented throughout the document may not add up precisely to the totals and percentages may not precisely reflect the absolute figures.
(iii) Basis of measurement
The consolidated financial statements have been prepared on a historical cost convention and on an accrual basis, except for the following material items which have been measured at fair value as required by relevant IFRS:-
a. Derivative financial instruments; and
b. Available-for-sale financial assets;
(iv) Convenience translation (unaudited)
The accompanying consolidated financial statements have been prepared and reported in Indian rupees, the national currency of India. Solely for the convenience of the readers, the consolidated financial statements as of and for the year ended March 31, 2012, have been translated into United States dollars at the certified foreign exchange rate of US$1 = Rs. 50.89, as published by Federal Reserve Board of Governors on March 30, 2012. No representation is made that the Indian rupee amounts have been, could have been or could be converted into United States dollars at such a rate or any other rate.
(v) Use of estimates and judgment
The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.
Estimates and underlying assumptions are reviewed on a periodic basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:
a) Revenue recognition: The Company uses the percentage of completion method using the input (cost expended) method to measure progress towards completion in respect of fixed price contracts. Percentage of completion method accounting relies on estimates of total expected contract revenue and costs. This method is followed when reasonably dependable estimates of the revenues and costs applicable to various elements of the contract can be made. Key factors that are reviewed in estimating the future costs to complete include estimates of future labor costs and productivity efficiencies. Because the financial reporting of these contracts depends on estimates that are assessed continually during the term of these contracts, recognized revenue and profit are subject to revisions as the contract progresses to completion. When estimates indicate that a loss will be incurred, the loss is provided for in the period in which the loss becomes probable. To date, the Company has not incurred a material loss on any fixed-price and fixed-timeframe contract.
b) Goodwill: Goodwill is tested for impairment at least annually and when events occur or changes in circumstances indicate that the recoverable amount of the cash generating unit is less than its carrying value. The recoverable amount of cash generating units is determined based on higher of value-in-use and fair value less cost to sell. The calculation involves use of significant estimates and assumptions which includes revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rate, future economic and market conditions.
c) Income taxes: The major tax jurisdictions for the Company are India and the United States of America. Significant judgments are involved in determining the provision for income taxes including judgment on whether tax positions are probable of being sustained in tax assessments. A tax assessment can involve complex issues, which can only be resolved over extended time periods. Though, the Company considers all these issues in estimating income taxes, there could be an unfavorable resolution of such issues.
d) Deferred taxes: Deferred tax is recorded on temporary differences between the tax bases of assets and liabilities and their carrying amounts, at the rates that have been enacted or substantively enacted. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable profits during the periods in which those temporary differences and tax loss carry-forwards become deductible. The Company considers the expected reversal of deferred tax liabilities and projected future taxable income in making this assessment. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced.
e) Business combination: In accounting for business combinations, judgment is required in identifying whether an identifiable intangible asset is to be recorded separately from goodwill. Additionally, estimating the acquisition date fair value of the identifiable assets acquired and liabilities assumed involves management judgment. These measurements are based on information available at the acquisition date and are based on expectations and assumptions that have been deemed reasonable by management. Changes in these judgments, estimates, and assumptions can materially affect the results of operations.
f) Other estimates: The preparation of financial statements involves estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period. Specifically, the Company estimates the uncollectability of accounts receivable by analyzing historical payment patterns, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required. Similarly, the Company provides for inventory obsolescence, excess inventory and inventories with carrying values in excess of net realizable value based on assessment of the future demand, market conditions and specific inventory management initiatives. If market conditions and actual demands are less favorable than the Company’s estimates, additional inventory provisions may be required. In all cases inventory is carried at the lower of historical cost and net realizable value. The stock compensation expense is determined based on the Company’s estimate of equity instruments that will eventually vest.
3. Significant accounting policies
(i) Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial statements of the Parent Company and entities controlled by the Parent Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account.
All intra-company balances, transactions, income and expenses including unrealized income or expenses are eliminated in full on consolidation.
Equity accounted investees
Equity accounted investees are entities in respect of which, the Company has significant influence, but not control, over the financial and operating policies. Generally, a Company has a significant influence if it holds between 20 and 50 percent of the voting power of another entity. Investments in such entities are accounted for using the equity method (equity accounted investees) and are initially recognized at cost.
(ii) Functional and presentation currency
Items included in the consolidated financial statements of each of the Company’s subsidiaries and equity accounted investees are measured using the currency of the primary economic environment in which these entities operate (i.e. the “functional currency”). These consolidated financial statements are presented in Indian Rupee, the national currency of India, which is the functional currency of Wipro Limited and its domestic subsidiaries and equity accounted investees.
(iii) Foreign currency transactions and translation
a) Transactions and balances
Transactions in foreign currency are translated into the respective functional currencies using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the exchange rates prevailing at reporting date of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income and reported within foreign exchange gains/(losses), net within results of operating activities. Gains/losses relating to translation or settlement of borrowings denominated in foreign currency are reported within finance expense except foreign exchange gains/losses on short-term borrowings, which are considered as a natural economic hedge for the foreign currency monetary assets are classified and reported within foreign exchange gains/(losses), net within results from operating activities. Non monetary assets and liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of transaction.
b) Foreign operations
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations that have local functional currency are translated into Indian Rupee using exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and held in foreign currency translation reserve (FCTR), a component of equity. When a foreign operation is disposed off, the relevant amount recognized in FCTR is transferred to the statement of income as part of the profit or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the exchange rate prevailing at the reporting date.
c) Others
Foreign currency differences arising on the translation or settlement of a financial liability designated as a hedge of a net investment in a foreign operation are recognized in other comprehensive income and presented within equity in the FCTR to the extent the hedge is effective. To the extent the hedge is ineffective, such difference are recognized in statement of income. When the hedged part of a net investment is disposed off, the relevant amount recognized in FCTR is transferred to the statement of income as part of the profit or loss on disposal. Foreign currency differences arising from translation of intercompany receivables or payables relating to foreign operations, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of net investment in foreign operation and are recognized in FCTR.
(iv) Financial Instruments
a) Non-derivative financial instruments
Non derivative financial instruments consist of:
- financial assets, which include cash and cash equivalents, trade receivables, unbilled revenues, finance lease receivables, employee and other advances, investments in equity and debt securities and eligible current and non-current assets;
- financial liabilities, which include long and short-term loans and borrowings, bank overdrafts, trade payable, eligible current liabilities and non-current liabilities.
Non derivative financial instruments are recognized initially at fair value including any directly attributable transaction costs. Financial assets are derecognized when substantial risks and rewards of ownership of the financial asset have been transferred. In cases where substantial risks and rewards of ownership of the financial assets are neither transferred nor retained, financial assets are derecognized only when the Company has not retained control over the financial asset.
Subsequent to initial recognition, non derivative financial instruments are measured as described below:
A. Cash and cash equivalents
The Company’s cash and cash equivalent consist of cash on hand and in banks and demand deposits with banks, which can be withdrawn at anytime, without prior notice or penalty on the principal.
For the purposes of the cash flow statement, cash and cash equivalents include cash on hand, in banks and demand deposits with banks, net of outstanding bank overdrafts that are repayable on demand and are considered part of the Company’s cash management system.
B. Available-for-sale financial assets
The Company has classified investments in liquid mutual funds, equity securities, other than equity accounted investees and certain debt securities (primarily certificate of deposits with banks) as available-for-sale financial assets. These investments are measured at fair value and changes therein are recognized in other comprehensive income and presented within equity. The impairment losses, if any, are reclassified from equity into statement of income. When an available for sale financial asset is derecognized, the related cumulative gain or loss in equity is transferred to statement of income.
C. Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except for those maturing later than 12 months after the balance sheet date which are presented as non-current assets. Loans and receivables are initially recognized at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade receivables, unbilled revenues, cash and cash equivalents and other assets.
b) Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets, liabilities, net investment in foreign operations and forecasted cash flows denominated in foreign currency.
The Company limits the effect 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.
Derivatives are recognized and measured at fair value. Attributable transaction cost are recognized in statement of income as cost.
A. Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized in other comprehensive income and held in cash flow hedging reserve, a component of equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in the statement of income and reported within foreign exchange gains/(losses), net within results from operating activities. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the statement of income upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, such cumulative balance is immediately recognized in the statement of income.
B. Hedges of net investment in foreign operations
The Company designates derivative financial instruments as hedges of net investments in foreign operations. The Company has also designated a combination of foreign currency denominated borrowings and related cross-currency swaps as a hedge of net investment in foreign operations. Changes in the fair value of the derivative hedging instruments and gains/losses on translation or settlement of foreign currency denominated borrowings designated as a hedge of net investment in foreign operations are recognized in other comprehensive income and within equity in the FCTR to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in the statement of income and reported within foreign exchange gains/(losses), net within results from operating activities.
C. Others
Changes in fair value of foreign currency derivative instruments not designated as cash flow hedges or hedges of net investment in foreign operations are recognized in the statement of income and reported within foreign exchange gains/(losses), net within results from operating activities.
Changes in fair value and gains/(losses) on settlement of foreign currency derivative instruments relating to borrowings, which have not been designated as hedges are recorded in finance expense.
(v) Equity and share capital
a) Share capital and share premium
The Company has only one class of equity shares. The authorized share capital of the Company is 2,650,000,000 equity shares, par value Rs. 2 per share. Par value of the equity shares is recorded as share capital and the amount received in excess of par value is classified as share premium.
Every holder of the equity shares, as reflected in the records of the Company as of the date of the shareholder meeting shall have one vote in respect of each share held for all matters submitted to vote in the shareholder meeting.
b) Shares held by controlled trust (Treasury shares)
The Company’s equity shares held by the controlled trust, which is consolidated as a part of the Group are classified as Treasury Shares. The Company has 14,841,271 treasury shares as of March 31, 2011 and 2012, respectively. Treasury shares are recorded at acquisition cost.
c) Retained earnings
Retained earnings comprises of the Company’s prior years’ undistributed earnings after taxes. A portion of these earnings amounting to Rs. 1,144 is not freely available for distribution.
d) Share based payment reserve
The share based payment reserve is used to record the value of equity-settled share based payment transactions with employees. The amounts recorded in share based payment reserve are transferred to share premium upon exercise of stock options by employees.
e) Cash flow hedging reserve
Changes in fair value of derivative hedging instruments designated and effective as a cash flow hedge are recognized in other comprehensive income (net of taxes), and presented within equity in the cash flow hedging reserve.
f) Foreign currency translation reserve
The exchange difference arising from the translation of financial statements of foreign subsidiaries, differences arising from translation of long-term intercompany receivables or payables relating to foreign operations, changes in fair value of the derivative hedging instruments and gains/losses on translation or settlement of foreign currency denominated borrowings designated as hedge of net investment in foreign operations are recognized in other comprehensive income, and presented within equity in the FCTR.
g) Other reserve
Changes in the fair value of available for sale financial assets is recognized in other comprehensive income (net of taxes), and presented within equity in other reserve.
h) Dividend
A final dividend, including tax thereon, on common stock is recorded as a liability on the date of approval by the shareholders. An interim dividend, including tax thereon, is recorded as a liability on the date of declaration by the board of directors.
(vi) Property, plant and equipment
a) Recognition and measurement
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses, if any. Cost includes expenditures directly attributable to the acquisition of the asset. Borrowing costs directly attributable to the construction or production of a qualifying asset are capitalized as part of the cost.
b) Depreciation
The Company depreciates property, plant and equipment over the estimated useful life on a straight-line basis from the date the assets are available for use. Assets acquired under finance lease and leasehold improvements are amortized over the shorter of estimated useful life of the asset or the related lease term. The estimated useful life of assets are reviewed and where appropriate are adjusted, annually. The estimated useful lives of assets for the current and comparative period are as follows:
| Category | Useful life |
| Buildings | 30 to 60 years |
| Plant and machinery | 2 to 21 years |
| Computer equipment and software | 2 to 6 years |
| Furniture, fixtures and equipment | 3 to 10 years |
| Vehicles | 4 years |
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Subsequent expenditure relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the Company and the cost of the item can be measured reliably.
Deposits and advances paid towards the acquisition of property, plant and equipment outstanding as of each reporting date and the cost of property, plant and equipment not available for use before such date are disclosed under capital work- in-progress.
(vii) Business combination, Goodwill and Intangible assets
Business combinations are accounted for using the purchase (acquisition) method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the date of an acquisition. Transaction costs incurred in connection with a business combination are expensed as incurred.
The cost of an acquisition also includes the fair value of any contingent consideration. Any subsequent changes to the fair value of contingent consideration classified as liabilities are recognized in the consolidated statement of income.
a) Goodwill
The excess of the cost of an acquisition over the Company’s share in the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities is recognized as goodwill. If the excess is negative, a bargain purchase gain is recognized immediately in the statement of income.
b) Intangible assets
Intangible assets acquired separately are measured at cost of an acquisition. Intangible assets acquired in a business combination are measured at fair value as at the date of an acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and impairment losses, if any.
The amortization of an intangible asset with a finite useful life reflects the manner in which the economic benefit is expected to be generated and consumed. Intangible assets with indefinite lives comprising of brands are not amortized, but instead tested for impairment at least annually and written down to the recoverable amount as required.
The estimated useful life of amortizable intangibles are reviewed and where appropriate are adjusted, annually. The estimated useful lives of the amortizable intangible assets for the current and comparative periods are as follows:
| Category | Useful life |
| Customer-related intangibles | 2 to 11 years |
| Marketing related intangibles | 20 to 30 years |
(viii) Leases
a) Arrangements where the Company is the lessee
Leases of property, plant and equipment, where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lower of the fair value of the leased property and the present value of the minimum lease payments. Lease payments are apportioned between the finance charge and the outstanding liability. The finance charge is allocated to periods during the lease term at a constant periodic rate of interest on the remaining balance of the liability.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases are recognized in the statement of income on a straight-line basis over the lease term.
b) Arrangements where the Company is the lessor
In certain arrangements, the Company recognizes revenue from the sale of products given under finance leases. The Company records gross finance receivables, unearned income and the estimated residual value of the leased equipment on consummation of such leases. Unearned income represents the excess of the gross finance lease receivable plus the estimated residual value over the sales price of the equipment. The Company recognizes unearned income as financing revenue over the lease term using the effective interest method.
(ix) Inventories
Inventories are valued at lower of cost and net realizable value, including necessary provision for obsolescence. Cost is determined using the weighted average method.
(x) Impairment
a) Financial assets
The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. If any such indication exists, the Company estimates the amount of impairment loss.
A. Loans and receivables
Impairment losses on trade and other receivables are recognized using separate allowance accounts. Refer Note 2 (v) for further information regarding the determination of impairment.
B. Available for sale financial asset
When the fair value of available-for-sale financial assets declines below acquisition cost and there is objective evidence that the asset is impaired, the cumulative loss that has been recognized in other comprehensive income, a component of equity in other reserve is transferred to the statement of income. An impairment loss may be reversed in subsequent periods, if the indicators for the impairment no longer exist. Such reversals are recognized in other comprehensive income.
b) Non financial assets
The Company assesses long-lived assets, such as property, plant, equipment and acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. If any such indication exists, the Company estimates the recoverable amount of the asset. The recoverable amount of an asset or cash generating unit is the higher of its fair value less cost to sell (FVLCTS) and its value-in-use (VIU). If the 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 recognized in the statement of income. If at the reporting date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the impairment losses previously recognized are reversed such that the asset is recognized at its recoverable amount but not exceeding written down value which would have been reported if the impairment losses had not been recognized initially.
Intangible assets with indefinite lives comprising of brands are not amortized, but instead tested for impairment at least annually at the same time and written down to the recoverable amount as required.
Goodwill is tested for impairment at least annually at the same time and when events occur or changes in circumstances indicate that the recoverable amount of the cash generating unit is less than its carrying value. The goodwill impairment test is performed at the level of cash-generating unit or groups of cash-generating units which represent the lowest level at which goodwill is monitored for internal management purposes. An impairment in respect of goodwill is not reversed.
(xi) Employee Benefit
a) Post-employment and pension plans
The Group participates in various employee benefit plans. Pensions and other post-employment benefits are classified as either defined contribution plans or defined benefit plans. Under a defined contribution plan, the Company’s only obligation is to pay a fixed amount with no obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits. The related actuarial and investment risks fall on the employee. The expenditure for defined contribution plans is recognized as an expense during the period when the employee provides service. Under a defined benefit plan, it is the Company’s obligation to provide agreed benefits to the employees. The related actuarial and investment risks fall on the Company. The present value of the defined benefit obligations is calculated using the projected unit credit method.
The company has the following employee benefit plans:
A. Provident fund
Employees receive benefits from a provident fund, which is a defined benefit plan. The employer and employees each make periodic contributions to the plan. A portion of the contribution is made to the approved provident fund trust managed by the Company; while the remainder of the contribution is made to the government administered pension fund. The Company is generally liable for any shortfall in the fund assets based on the government specified minimum rates of return.
B. Superannuation
Superannuation plan, a defined contribution scheme is administered by Life Insurance Corporation of India and ICICI Prudential Insurance Company Limited. The Company makes annual contributions based on a specified percentage of each eligible employee’s salary.
C. Gratuity
In accordance with the Payment of Gratuity Act, 1972, the Company provides for a lump sum payment to eligible employees, at retirement or termination of employment based on the last drawn salary and years of employment with the Company. The gratuity fund is managed by the Life Insurance Corporation of India (LIC), HDFC Standard Life, TATA AIG and Birla Sun-life. The Company’s obligation in respect of the gratuity plan, which is a defined benefit plan, is provided for based on actuarial valuation using the projected unit credit method. The Company recognizes actuarial gains and losses immediately in the statement of income.
b) Termination benefits
Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date, or to provide termination benefit as a result of an offer made to encourage voluntary redundancy.
c) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are recorded as expense as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans, if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
d) Compensated absences
The employees of the Company are entitled to compensated absences. The employees can carry forward a portion of the unutilized accumulating compensated absences and utilize it in future periods or receive cash at retirement or termination of employment. The Company records an obligation for compensated absences in the period in which the employee renders the services that increases this entitlement. The Company measures the expected cost of compensated absences as the additional amount that the Company expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting period. The Company recognizes accumulated compensated absences based on actuarial valuation. Non-accumulating compensated absences are recognized in the period in which the absences occur. The Company recognizes actuarial gains and losses immediately in the statement of income.
(xii) Share based payment transaction
Employees of the Company receive remuneration in the form of equity settled instruments, for rendering services over a defined vesting period. Equity instruments granted are measured by reference to the fair value of the instrument at the date of grant. In cases, where equity instruments are granted at a nominal exercise price, the intrinsic value on the date of grant approximates the fair value. The expense is recognized in the statement of income with a corresponding increase to the share based payment reserve, a component of equity.
The equity instruments generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants (accelerated amortization). The stock compensation expense is determined based on the Company’s estimate of equity instruments that will eventually vest.
(xiii) Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset, if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. Provisions for onerous contracts are measured at the present value of lower of the expected net cost of fulfilling the contract and the expected cost of terminating the contract.
(xiv) Revenue
The Company derives revenue primarily from software development and related services, BPO services, sale of IT and other products.
a) Services
The Company recognizes revenue when the significant terms of the arrangement are enforceable, services have been delivered and the collectability is reasonably assured. The method for recognizing revenues and costs depends on the nature of the services rendered:
A. Time and materials contracts
Revenues and costs relating to time and materials contracts are recognized as the related services are rendered.
B. Fixed-price contracts
Revenues from fixed-price contracts, including systems development and integration contracts are recognized using the “percentage-of-completion” method. Percentage of completion is determined based on project costs incurred to date as a percentage of total estimated project costs required to complete the project. The cost expended (or input) method has been used to measure progress towards completion as there is a direct relationship between input and productivity. If the Company does not have a sufficient basis to measure the progress of completion or to estimate the total contract revenues and costs, revenue is recognized only to the extent of contract cost incurred for which recoverability is probable. When total cost estimates exceed revenues in an arrangement, the estimated losses are recognized in the statement of income in the period in which such losses become probable based on the current contract estimates.
‘Unbilled revenues’ represent cost and earnings in excess of billings as at the end of the reporting period. ‘Unearned revenues’ represent billing in excess of revenue recognized. Advance payments received from customers for which no services have been rendered are presented as ‘Advance from customers’.
C. Maintenance contract
Revenue from maintenance contracts is recognized ratably over the period of the contract using the percentage of completion method. When services are performed through an indefinite number of repetitive acts over a specified period of time, revenue is recognized on a straight-line basis over the specified period unless some other method better represents the stage of completion.
In certain projects, a fixed quantum of service or output units is agreed at a fixed price for a fixed term. In such contracts, revenue is recognized with respect to the actual output achieved till date as a percentage of total contractual output. Any residual service unutilized by the customer is recognized as revenue on completion of the term.
b) Products
Revenue from products are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
c) Multiple-element arrangements
Revenue from contracts with multiple-element arrangements are recognized using the guidance in IAS 18, Revenue. The Company allocates the arrangement consideration to separately identifiable components based on their relative fair values or on the residual method. Fair values are determined based on sale prices for the components when it is regularly sold separately, third-party prices for similar components or cost plus, an appropriate business-specific profit margin related to the relevant component.
d) Others
The Company accounts for volume discounts and pricing incentives to customers by reducing the amount of revenue recognized at the time of sale.
Revenues are shown net of sales tax, value added tax, service tax and applicable discounts and allowances. Revenue includes excise duty.
The Company accrues the estimated cost of warranties at the time when the revenue is recognized. The accruals are based on the Company’s historical experience of material usage and service delivery costs.
(xv) Finance expense
Finance expense comprise interest cost on borrowings, impairment losses recognized on financial assets, gains / (losses) on translation or settlement of foreign currency borrowings and changes in fair value and gains / (losses) on settlement of related derivative instruments except foreign exchange gains/(losses), net on short-term borrowings which are considered as a natural economic hedge for the foreign currency monetary assets which are classified as foreign exchange gains/(losses), net within results from operating activities. Borrowing costs that are not directly attributable to a qualifying asset are recognized in the statement of income using the effective interest method.
(xvi) Finance and other income
Finance and other income comprises interest income on deposits, dividend income and gains / (losses) on disposal of available-for-sale financial assets. Interest income is recognized using the effective interest method. Dividend income is recognized when the right to receive payment is established.
(xvii) Income tax
Income tax comprises current and deferred tax. Income tax expense is recognized in the statement of income except to the extent it relates to a business combination, or items directly recognized in equity or in other comprehensive income.
a) Current income tax
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for the period. The tax rates and tax laws used to compute the current tax amount are those that are enacted or substantively enacted by the reporting date and applicable for the period. The Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and liability simultaneously.
b) Deferred income tax
Deferred income tax is recognized using the balance sheet approach. Deferred income tax assets and liabilities are recognized for deductible and taxable temporary differences arising between the tax base of assets and liabilities and their carrying amount in financial statements, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profits or loss at the time of the transaction.
Deferred income tax asset are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
Deferred income tax liabilities are recognized for all taxable temporary differences except in respect of taxable temporary differences associated with investments in subsidiaries, associates and foreign branches where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
The Company offsets deferred income tax assets and liabilities, where it has a legally enforceable right to offset current tax assets against current tax liabilities, and they relate to taxes levied by the same taxation authority on either the same taxable entity, or on different taxable entities where there is an intention to settle the current tax liabilities and assets on anet basis or their tax assets and liabilities will be realized simultaneously.
(xviii) Earnings per share
Basic earnings per share is computed using the weighted average number of equity shares outstanding during the period adjusted for treasury shares held. Diluted earnings per share is computed using the weighted-average number of equity and dilutive equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive.
New Accounting standards adopted by the Company:
The Company adopted IAS 24 (revised 2009) “Related Party Disclosures” (“IAS 24”) effective April 1, 2011. The purpose of the revision is to simplify the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition. Adoption of IAS 24 (revised 2009), did not have a material effect on these consolidated financial statements.
New Accounting standards not yet adopted by the Company:
In October, 2010, the IASB issued an amendment to IFRS 7 “Disclosures – Transfers of financial assets”. The purpose of the amendment is to enhance the existing disclosures in IFRS 7 when an asset is transferred but is not derecognized and introduce new disclosures for assets that are derecognized but the entity continues to have a continuing exposure to the asset after the sale. The amendment is effective for fiscal years beginning on or after July 1, 2011. Earlier application is permitted. The Company is evaluating the impact, these amendments will have on the Company’s consolidated financial statements.
In December, 2011, the IASB issued an amendment to IFRS 7 “Disclosures – offsetting financial assets and financial liabilities”. The amended standard requires additional disclosures where financial assets and financial liabilities are offset in the balance sheet. These disclosures would provide users with information that is useful in (a) evaluating the effect or potential effect of netting arrangements on an entity’s financial position and (b) analyzing and comparing financial statements prepared in accordance with IFRSs and U.S. GAAP. The amendment is effective retrospectively for fiscal years beginning on or after January 1, 2013. Earlier application is permitted. The Company is evaluating the impact, these amendments will have on the Company’s consolidated financial statements.
In November 2009, the IASB issued the chapter of IFRS 9 “Financial Instruments relating to the classification and measurement of financial assets”. The new standard represents the first phase of a three-phase project to replace IAS 39 Financial Instruments: Recognition and Measurement (IAS 39) with IFRS 9 Financial Instruments (IFRS 9). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial assets (its business model) and the contractual cash flow characteristics of the financial assets. In October 2010, the IASB added the requirement relating to classification and measurement of financial liabilities to IFRS 9. Under the amendment, an entity measuring its financial liability at fair value, can present the amount of fair value change in the liability attributable to change in the liabilities credit risk in other comprehensive income. Further the IASB also decided to carry-forward unchanged from IAS 39 requirements relating to de-recognition of financial assets and financial liabilities. IFRS 9 is effective for fiscal years beginning on or after January 1, 2015. Earlier application is permitted. The Company is evaluating the impact, these amendments will have on the Company’s consolidated financial statements.
In May 2011, the IASB issued IFRS 10” Consolidated Financial Statements”. The new standard establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces the consolidation requirements inSIC-12 “Consolidation—Special Purpose Entities” and IAS 27 “Consolidated and Separate Financial Statements”. IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 10 is effective for fiscal years beginning on or after January 1, 2013. Earlier application is permitted. The Company is evaluating the impact, these amendments will have on the Company’s consolidated financial statements.
In May 2011, the IASB issued IFRS 13 “Fair Value Measurement”. The new standard defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies when other IFRSs require or permit fair value measurements. It does not introduce any newrequirements to measure an asset or a liability at fair value or change what is measured at fair value in IFRSs or address how to present changes in fair value. IFRS 13 is effective for fiscal years beginning on or after January 1, 2013. Early application is permitted. The Company is evaluating the impact, these amendments will have on the Company’s consolidated financial statements.
InJune 2011, the IASB issued Amendment to IAS 1 “Presentation of Financial Statements” that will improve and align the presentation of items of other comprehensive income (OCI) in financial statements prepared in accordance with International Financial Reporting Standards (IFRSs). The amendments require companies preparing financial statements in accordance with IFRSs to group together items within OCI that may be reclassified to the profit or loss section of the income statement. The amendments will also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements. This amendment is effective for fiscal years beginning on or after July 1, 2012. Earlier adoption is permitted. The Company is evaluating the impact, these amendments will have on the Company’s consolidated financial statements.
In June 2011, the IASB issued IAS 19 (Amended) “Employee Benefits”. The new standard has eliminated an option to defer the recognition of gains and losses through re-measurements and requires such gain or loss to be recognized through other comprehensive income in the year of occurrence to reduce volatility. The amended standard requires immediate recognition of effects of any plan amendments. Further it also requires asset in profit or loss to be restricted to government bond yields or corporate bond yields, considered for valuation of Projected Benefit Obligation, irrespective of actual portfolio allocations. The actual return from the portfolio in excess of such yields is recognized through Other Comprehensive Income. The amendment is effective retrospectively for fiscal years beginning on or after January 1, 2013. Earlier adoption is permitted. The Company is evaluating the impact, these amendments will have on the Company’s consolidated financial statements.
In December, 2011, the IASB issued an amendment to IAS 32 “Offsetting financial assets and financial liabilities”. The purpose of the amendment is to clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. This includes clarifying the meaning of “currently has a legally enforceable right to set-off” and also the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendment is effective retrospectively for fiscal years beginning on or after January 1, 2014. Earlier application is permitted. The Company is evaluating the impact these a mendments will have on the Company’s consolidated financial statements.
4. Property, plant and equipment
| Land | Buildings | Plant and machinery* | Furniture fixtures and equipment | Vehicles | Total | |
| Gross carrying value: | ||||||
| As at April 1, 2010 | Rs. 2,794 | Rs. 19,359 | Rs. 46,657 | Rs. 9,855 | Rs. 2,929 | Rs. 81,594 |
| Translation adjustment | 17 | 117 | 337 | 68 | 11 | 550 |
| Additions | 943 | 3,533 | 8,360 | 1,692 | 117 | 14,645 |
| Disposal / adjustments | - | (41) | (1,145) | (591) | (458) | (2,235) |
| As at March 31, 2011 | Rs. 3,754 | Rs. 22,968 | Rs. 54,209 | Rs. 11,024 | Rs. 2,599 | Rs. 94,554 |
| Accumulated depreciation/impairment: | ||||||
| As at April 1, 2010 | Rs. - | Rs. 1,998 | Rs. 30,995 | Rs. 5,497 | Rs. 2,004 | Rs. 40,494 |
| Translation adjustment | - | 50 | 231 | 45 | 14 | 340 |
| Depreciation | - | 493 | 5,500 | 1,271 | 455 | 7,719 |
| Disposal / adjustments | - | (39) | (1,077) | (375) | (354) | (1,845) |
| As at March 31, 2011 | Rs. - | Rs. 2,502 | Rs. 35,649 | Rs. 6,438 | Rs. 2,119 | Rs. 46,708 |
| Capital work-in-progress | 7,248 | |||||
| Net carrying value as at March 31, 2011 | Rs. 55,094 | |||||
| Gross carrying value: | ||||||
| As at April 1, 2011 | Rs. 3,754 | Rs. 22,968 | Rs. 54,209 | Rs. 11,024 | Rs. 2,599 | Rs. 94,554 |
| Translation adjustment | 30 | 389 | 1,951 | 229 | 26 | 2,625 |
| Additions | 445 | 2,113 | 10,096 | 1,729 | 69 | 14,452 |
| Acquisition through business combination.. | 58 | 15 | 279 | 51 | 9 | 412 |
| Disposal / adjustments | (44) | (159) | (960) | (523) | (621) | (2,307) |
| As at March 31, 2012 | Rs. 4,243 | Rs. 25,326 | Rs. 65,575 | Rs. 12,510 | Rs. 2,082 | Rs. 109,736 |
| Accumulated depreciation/impairment: | ||||||
| As at April 1, 2011 | Rs. - | Rs. 2,502 | Rs. 35,649 | Rs. 6,438 | Rs. 2,119 | Rs. 46,708 |
| Translation adjustment | - | 136 | 1,233 | 132 | 21 | 1,522 |
| Depreciation | - | 649 | 6,537 | 2,077 | 281 | 9,544 |
| Disposal / adjustments | - | (28) | (622) | (381) | (536) | (1,567) |
| As at March 31, 2012 | Rs. - | Rs. 3,259 | Rs. 42,797 | Rs. 8,266 | Rs. 1,885 | Rs. 56,207 |
| Capital work-in-progress | 5,459 | |||||
| Net carrying value as at March 31, 2012 | Rs. 58,988 |
*Including net carrying value of computer equipment and software amounting to Rs. 4,397 and Rs. 7,463 as at March 31, 2011 and 2012, respectively.
Interest capitalized by the Company was Rs. 66 and Rs. 63 for the year ended March 31, 2011 and 2012, respectively. The capitalization rate used to determine the amount of borrowing cost capitalized for the year ended March 31, 2011 and 2012 are 4.23% and 11.07%, respectively.
5. Goodwill and Intangible assets
The movement in goodwill balance is given below:
| Year ended March 31, | ||
| 2011 | 2012 | |
| Balance at the beginning of the year | Rs. 53,802 | Rs. 54,818 |
| Translation adjustment | 962 | 7,207 |
| Acquisition through business combination, net | 54 | 5,912 |
| Balance at the end of the year | Rs. 54,818 | Rs. 67,937 |
The Company has recognized additional goodwill as a result of earn-out provisions from business combinations consummated in fiscal years 2006 and 2007 (contingent consideration) amounting to Rs. 54 and Rs. 207 during the year ended March 31, 2011 and 2012, respectively.
Goodwill as at March 31, 2011 and 2012 has been allocated to the following reportable segments:
| Segment | As at March 31, | |
| 2011 | 2012 | |
| IT Services | Rs. 39,098 | Rs. 49,809 |
| IT Products | 472 | 546 |
| Consumer Care and Lighting | 13,475 | 15,354 |
| Others | 1,773 | 2,228 |
| Total | Rs. 54,818 | Rs. 67,937 |
The goodwill held in the Infocrossing, Healthcare and Unza cash generating units (CGU) are considered significant in comparison to the total carrying amount of goodwill as at March 31, 2012. The goodwill held in these CGUs are as follows:
| CGUs | As at March 31, | |
| 2011 | 2012 | |
| Infocrossing | Rs. 11,592 | Rs. 13,221 |
| Healthcare | 9,959 | 11,358 |
| Unza | 12,492 | 14,173 |
The movement in intangible assets is given below:
| Intangible assets | |||
| Customer related | Marketing related | Total | |
| Gross carrying value: | |||
| As at April 1, 2010 | Rs. 1,932 | Rs. 3,464 | Rs. 5,396 |
| Translation adjustment | 11 | (105) | (94) |
| Additions | - | 36 | 36 |
| As at March 31, 2011 | Rs. 1,943 | Rs. 3,395 | Rs. 5,338 |
| Accumulated amortization and impairment: | |||
| As at April 1, 2010 | Rs. 392 | Rs. 993 | Rs. 1,385 |
| Translation adjustment | - | (48) | (48) |
| Amortization | 341 | 109 | 450 |
| As at March 31, 2011 | Rs. 733 | Rs. 1,054 | Rs. 1,787 |
| Net carrying value as at March 31, 2011 | Rs. 1,210 | Rs. 2,341 | Rs. 3,551 |
| Gross carrying value: | |||
| As at April 1, 2011 | Rs. 1,943 | Rs. 3,395 | Rs. 5,338 |
| Translation adjustment | 123 | 171 | 294 |
| Acquisition through business combination | 864 | - | 864 |
| Additions | - | 97 | 97 |
| As at March 31, 2012 | Rs. 2,930 | Rs. 3,663 | Rs. 6,593 |
| Accumulated amortization and impairment: | |||
| As at April 1, 2011 | Rs. 733 | Rs. 1,054 | Rs. 1,787 |
| Translation adjustment | - | 65 | 65 |
| Amortization | 429 | 83 | 512 |
| As at March 31, 2012 | Rs. 1,162 | Rs. 1,202 | Rs. 2,364 |
| Net carrying value as at March 31, 2012 | Rs. 1,768 | Rs. 2,461 | Rs. 4,229 |
Net carrying value of marketing-related intangibles includes indefinite life intangible assets (brands and trade-marks) of Rs. 660 and Rs. 1,745 as of March 31, 2011 and 2012, respectively.
The assessment of marketing-related intangibles (brands and trade-marks) that have an indefinite life were based on a number of factors, including the competitive environment, market share, brand history, product life cycles, operating plan and macroeconomic environment of the geographies in which these brands operate.
Amortization expense on intangible assets is included in selling and marketing expenses in the statement of income.
As of March 31, 2012, the estimated remaining amortization period for customer-related intangibles acquired on acquisition are as follows:
| Acquisition | Estimated remaining amortization period |
| Citi Technology Services Limited | 2.75 years |
| Wipro Yardley FZE and Wipro Yardley Consumer Care Private Limited | 8 years |
| Science Application International Corporation | 1.25 – 8.25 years |
| R.K.M Equipamentos Hidraulicos Ltd | 8.125 years |
Goodwilland indefinite life intangible were tested for impairment annually in accordance with the Company’s procedure for determining the recoverable value of such assets. For the purpose of impairment testing, goodwill is allocated to a CGU representing the lowest level within the Group at which goodwill is monitored for internal management purposes, and which is not higher than the Group’s operating segment. The useful life of the trademark and brand in respect of the acquired Wipro Yardley FZE, Wipro Yardley Consumer Care Private Limited, Chandrika and Northwest has been determined to be indefinite life intangible assets. For the purpose of impairment testing, indefinite life intangibles in Wipro Yardley FZE and Wipro Yardley Consumer Care Private Limited are allocated to the Yardley businesses and the indefinite life intangibles in Chandrika and Northwest are allocated to Consumer Care India businesses. The recoverable amount of the CGU is the higher of its FVLCTS and its VIU. The FVLCTS of the CGU is determined based on the market capitalization approach, using the turnover and earnings multiples derived from observed market data. The VIU is determined based on discounted cash flow projections. Key assumptions on which the Company has based its determination of VIUs include:
a) Estimated cash flows for five years based on formal/approved internal management budgets with extrapolation for the remaining period, wherever such budgets were shorter than 5 years period.
b) Terminal value arrived by extrapolating last forecasted year cash flows to perpetuity using long-term growth rates. These long-term growth rates take into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector.
c) The discount rates used are based on the Company’s weighted average cost of capital as an approximation of the weighted average cost of capital of a comparable market participant, which are adjusted for specific country risks.
d) Value-in-use is calculated using after tax assumptions. The use of after tax assumptions does not result in a value-in-use that is materially different from the value-in-use that would result if the calculation was performed using before tax assumptions. The before tax discount rate is determined based on the value-in-use derived from the use of after tax assumptions.
| Assumptions | Year ended March 31, | |
| 2011 | 2012 | |
| Terminal value long-term growth rate | 2.5%-6% | 3%-6% |
| After tax discount rate | 10%-17% | 10%-16% |
| Before tax discount rate | 12.3%-19.5% | 11.4%-20.8% |
Based on the above, no impairment was identified as of March 31, 2011 and 2012 as the recoverable value of the CGUs exceeded the carrying value. Further, none of the CGU’s tested for impairment as of March 31, 2011 and 2012 were at risk of impairment. An analysis of the calculation’s sensitivity to a change in the key parameters (Revenue growth, operating margin, discount rate and long-term growth rate) based on reasonably probable assumptions, did not identify any probable scenarios where the CGU’s recoverable amount would fall below its carrying amount.
6. Business combination
Science Applications International Corporation
On June 10, 2011, the Company acquired the global oil and gas information technology practice of the Commercial Business Services Business Unit of Science Applications International Corporation Inc along with 100% of the share capital in SAIC Europe Limited and SAIC India Private Limited. On July 2, 2011 the Company also acquired 100% of the share capital of SAIC Gulf LLC (hereafter the acquisitions are collectively referred to as ‘oil and gas business of SAIC’). The oil and gas business of SAIC provides consulting, system integration and outsourcing services to global oil majors with significant domain capabilities in the areas of digital oil field, petro-technical data management and petroleum application services, addressing the upstream segment. The Company believes that the acquisition will further strengthen Wipro’s presence in the Energy, Natural Resources and Utilities domain. The goodwill of Rs. 5,309 comprises of value of expected synergies arising from the acquisition. The purchase consideration of Rs. 7,536 was settled in cash.
The following table summarizes the recognized amounts of assets acquired and liabilities assumed:
| Descriptions | Pre-acquisition carrying amount | Fair value adjustments | Purchase price allocated |
| Cash and cash equivalents | Rs. 541 | - | 541 |
| Trade receivables | 1,170 | - | 1,170 |
| Property, plant and equipment | 75 | - | 75 |
| Customer - related intangibles | - | 756 | 756 |
| Other assets | 288 | - | 288 |
| Current tax assets | 82 | - | 82 |
| Trade payables and accrued expenses | (602) | - | (602) |
| Unearned revenues | (76) | - | (76) |
| Deferred income taxes, net | 54 | (61) | (7) |
| Total | Rs. 1,532 | Rs. 695 | Rs. 2,227 |
| Goodwill | 5,309 | ||
| Total purchase price | Rs. 7,536 |
None of the goodwill, other than goodwill relating to business purchase in the U.S. (Rs. 2,703), is expected to be deductible for income tax purposes.
The gross and fair value of trade receivables included in other assets above amounts to Rs. 1,170. None of the trade receivable has been impaired and it is expected that full contractual amount can be collected.
From the date of acquisition, the oil and gas business of SAIC have contributed Rs. 6,792 of revenue and Rs. 243 of profit before tax for the period of the Company.
If the acquisition had occurred on April 1, 2011, management estimates that the annual consolidated revenue for the Company would have been Rs. 373,798 and the annual profit before taxes for the year for the Company would have been Rs. 69,935. The pro-forma amounts are not necessarily indicative of the results that would have occurred if the acquisitions had occurred on dates indicated or that may result in the future.
7. Available for sale investments
Available for sale investments consists of the following:
| As at March 31, 2011 | As at March 31, 2012 | |||||||
| Cost* | Gross gain recognized directly in equity | Gross loss recognized directly in equity | Fair Value | Cost* | Gross gain recognized directly in equity | Gross loss recognized directly in equity | Fair Value | |
| Investment in liquid and short-term mutual funds and others | Rs. 37,013 | Rs. 126 | Rs. (49) | Rs. 37,090 | Rs. 32,635 | Rs. 96 | Rs. (25) | Rs. 32,706 |
| Certificate of deposits | 12,189 | 17 | (14) | 12,192 | 9,267 | - | (12) | 9,255 |
| Total | Rs. 49,202 | Rs. 143 | Rs. (63) | Rs. 49,282 | Rs. 41,902 | Rs. 96 | Rs. (37) | Rs. 41,961 |
* Available for sale investments include investments amounting to Rs. Nil and Rs. 400 as of March 31, 2011 and 2012, respectively, on which there is a lien.
8. Trade receivables
| As at March 31, | ||
| 2011 | 2012 | |
| Trade receivables | Rs. 64,221 | Rs. 83,076 |
| Allowance for doubtful accounts receivable | (2,594) | (2,748) |
| Rs. 61,627 | Rs. 80,328 | |
The activity in the allowance for doubtful accounts receivable is given below:
| Year ended March 31, | ||
| 2011 | 2012 | |
| Balance at the beginning of the year | Rs. 2,327 | Rs. 2,594 |
| Additions during the year, net | 399 | 393 |
| Uncollectable receivables charged against allowance | (132) | (239) |
| Balance at the end of the year | Rs. 2,594 | Rs. 2,748 |
9. Inventories
Inventories consist of the following:
| As at March 31, | ||
| 2011 | 2012 | |
| Stores and spare parts | Rs. 1,125 | Rs. 1,271 |
| Raw materials and components | 3,217 | 4,144 |
| Work in progress | 1,109 | 1,410 |
| Finished goods | 4,256 | 3,837 |
| Rs. 9,707 | Rs. 10,662 | |
10. Cash and cash equivalents
Cash and cash equivalents as of March 31, 2010, 2011 and 2012 consist of cash and balances on deposit with banks. Cash and cash equivalents consist of the following:
| As at March 31, | |||
| 2010 | 2011 | 2012 | |
| Cash and bank balances | Rs. 24,155 | Rs. 27,628 | Rs. 41,141 |
| Demand deposits with banks(1) | 40,723 | 33,513 | 36,525 |
| Rs. 64,878 | Rs. 61,141 | Rs. 77,666 | |
(1)These deposits can be withdrawn by the Company at any time without prior notice and without any penalty on the principal.
Cash and cash equivalent consists of the following for the purpose of the cash flow statement:
| As at March 31, | |||
| 2010 | 2011 | 2012 | |
| Cash and cash equivalents (as per above) | Rs. 64,878 | Rs. 61,141 | Rs. 77,666 |
| Bank overdrafts | (1,322) | (242) | (464) |
| Rs. 63,556 | Rs. 60,899 | Rs. 77,202 | |
11. Other assets
| As at March 31, | ||
| 2011 | 2012 | |
| Current | ||
| Interest bearing deposits with corporates(1) | Rs. 4,240 | Rs. 8,410 |
| Prepaid expenses | 4,620 | 5,507 |
| Due from officers and employees | 1,110 | 1,681 |
| Finance lease receivables | 2,411 | 2,003 |
| Advance to suppliers | 1,407 | 1,868 |
| Deferred contract costs | 1,503 | 1,659 |
| Interest receivable | 393 | 1,123 |
| Deposits | 603 | 227 |
| Balance with excise and customs | 1,570 | 1,543 |
| Non-convertible debentures | 815 | 45 |
| Others | 1,072 | 1,677 |
| Rs. 19,744 | Rs. 25,743 | |
| Non current | ||
| Prepaid expenses including rentals for leasehold land | Rs. 2,423 | Rs. 3,422 |
| Finance lease receivables | 4,839 | 5,710 |
| Deposits | 1,680 | 2,507 |
| Non-convertible debentures | - | 84 |
| Others | 41 | 58 |
| Rs. 8,983 | Rs. 11,781 | |
| Total | Rs. 28,727 | Rs. 37,524 |
(1) Such deposits earn a fixed rate of interest and will be liquidated within 12 months.
Finance lease receivables
Finance lease receivables consist of assets that are leased to customers for periods ranging from 3 to 5 years, with lease payments due in monthly, quarterly or semi-annual installments. Details of finance lease receivables are given below:
| Minimum lease payment | Present value of minimum lease payment | |||
| As at March 31, | As at March 31, | |||
| 2011 | 2012 | 2011 | 2012 | |
| Not later than one year | Rs. 2,523 | Rs. 2,043 | Rs. 2,350 | Rs. 1,964 |
| Later than one year but not later than five years | 6,129 | 6,776 | 4,723 | 5,588 |
| Unguaranteed residual values | 199 | 180 | 177 | 161 |
| Gross investment in lease | 8,851 | 8,999 | - | - |
| Less: Unearned finance income | (1,601) | (1,286) | - | - |
| Present value of minimum lease payment receivable | Rs. 7,250 | Rs. 7,713 | Rs. 7,250 | Rs. 7,713 |
| Included in the financial statements as follows: | ||||
| Current finance lease receivables | Rs. 2,411 | Rs. 2,003 | ||
| Non-current finance lease receivables | 4,839 | 5,710 | ||
12. Loans and borrowings
Short-term loans and borrowings
The Company had short-term borrowings including bank overdrafts amounting to Rs. 31,694 and Rs. 35,740 as at March 31, 2011 and 2012, respectively. Short-term borrowings from banks as of March 31, 2012 primarily consist of lines of credit of approximately Rs. 19,730, US$ 812 million, SEK 241 million, SAR 90 million, Euro 17 million, GBP 21 million, MYR (Malaysian Ringgit) 47 million and RM (Chinese Yuan) 41 million from bankers primarily for working capital requirements. As of March 31, 2012, the Company has unutilized lines of credit aggregating Rs. 11,395, US$ 334 million, SEK 111 million, SAR 34 million, Euro 7 million, GBP 21 million, MYR 47 million and RM 8 million, respectively. To utilize these unused lines of credit, the Company requires consent of the lender and compliance with certain financial covenants. Significant portion of these lines of credit are revolving credit facilities and floating rate foreign currency loans, renewable on a periodic basis. Significant portion of these facilities bear floating rates of interest, referenced to LIBOR and a spread, determined based on market conditions.
The Company has non-fund based revolving credit facilities in various currencies equivalent to Rs. 34,963 for operational requirements that can be used for the issuance of letters of credit and bank guarantees. As of March 31, 2012, an amount of Rs. 11,724 was unutilized out of these non-fund based facilities.
Long-term loans and borrowings
A summary of long- term loans and borrowings is as follows:
| Currency | As at March 31, 2011 | As at March 31, 2012 | ||||
| Foreign currency in millions | Indian Rupee | Foreign currency in millions | Indian Rupee | Interest rate | Final maturity | |
| Unsecured external commercial borrowing | ||||||
| Japanese Yen | 35,016 | Rs. 18,861 | 35,016 | Rs. 21,728 | 1.86% | April 2013 |
| Unsecured term loan | ||||||
| Indian Rupee | NA | 366 | NA | 463 | 6.03% – 7.21% | 2012 – 2015 |
| Saudi Riyals | 66 | 786 | 6 | 79 | 1.25% | 2012 – 2013 |
| Others | 354 | 177 | 0 – 3.7% | 2012 – 2014 | ||
| Other secured term loans | 106 | 55 | 3.18% – 6.5% | 2012 – 2017 | ||
| Rs. 20,473 | Rs. 22,502 | |||||
| Obligations under finance leases | 635 | 716 | ||||
| Rs. 21,108 | Rs. 23,218 | |||||
| Current portion of long term loans and borrowings | Rs. 1,349 | Rs. 708 | ||||
| Non-current portion of long term loans and borrowings | 19,759 | 22,510 | ||||
The Company has entered into cross-currency interest rate swap (CCIRS) in connection with the unsecured external commercial borrowing and has designated a portion of these as hedge of net investment in foreign operation.
The contract governing the Company’s unsecured external commercial borrowing contain certain covenants that limit future borrowings and payments towards acquisitions in a financial year. The terms of the other secured and unsecured loans and borrowings also contain certain restrictive covenants primarily requiring the Company to maintain certain financial ratios. As of March 31, 2012, the Company has met the covenants under these arrangements.
A portion of the above short-term loans and borrowings, other secured term loans and obligation under finance leases aggregating to Rs. 2,067 and Rs. 2,398 as at March 31, 2011 and 2012, respectively, are secured by inventories, accounts receivable, certain property, plant and equipment and underlying assets.
Interest expense was Rs. 776 and Rs. 1,057 for the year ended March 31, 2011 and 2012, respectively.
The following is a schedule of future minimum lease payments under finance leases, together with the present value of minimum lease payments as of March 31, 2011 and 2012:
| Minimum lease payment | Present value of minimum lease payment | |||
| As at March 31, | As at March 31, | |||
| 2011 | 2012 | 2011 | 2012 | |
| Not later than one year | RS 242 | Rs 281 | Rs 203 | Rs 255 |
| Later than one year but not later than five year. | 396 | 478 | 372 | 455 |
| Later than five years | 63 | 6 | 60 | 6 |
| Total minimum lease payments | 701 | 765 | - | - |
| Less: Amount representing interest | (66) | (49) | - | - |
| Present value of minimum lease payments | Rs 635 | Rs 716 | Rs. 635 | Rs. 716 |
| Included in the financial statements as follows: | ||||
| Current finance lease payables | Rs 203 | Rs. 255 | ||
| Non-current finance lease payables | 432 | 461 | ||
13. Trade payables and accrued expenses
Trade payables and accrued expenses consist of the following:
| As at March 31, | ||
| 2011 | 2012 | |
| Trade payables | Rs. 20,618 | Rs. 23,429 |
| Accrued expenses | 21,406 | 23,829 |
| Rs. 42,024 | Rs. 47,258 | |
14. Other liabilities and provisions
| As at March 31, | ||
| Other liabilities: | 2011 | 2012 |
| Current: | ||
| Statutory and other liabilities | Rs. 4,046 | Rs. 4,241 |
| Employee benefit obligation | 2,028 | 3,176 |
| Advance from customers | 1,049 | 1,157 |
| Others | 811 | 1,129 |
| Rs. 7,934 | Rs. 9,703 | |
| Non-current: | ||
| Employee benefit obligations | Rs. 2,633 | Rs. 3,046 |
| Others | 73 | 473 |
| Rs. 2,706 | Rs. 3,519 | |
| Total | Rs. 10,640 | Rs. 13,222 |
| As at March 31, | ||
| 2011 | 2012 | |
| Provisions: | ||
| Current: | ||
| Provision for warranty | Rs. 467 | Rs. 306 |
| Others | 1,857 | 815 |
| Rs. 2,324 | Rs. 1,121 | |
| Non-current: | ||
| Provision for warranty | Rs. 81 | Rs. 61 |
| Total | Rs. 2,405 | Rs. 1,182 |
Provision for warranty represents cost associated with providing sales support services which are accrued at the time of recognition of revenues and are expected to be utilized over a period of 1 to 2 years. Other provisions primarily include provisions for indirect tax related contingencies and litigations. The timing of cash outflows in respect of such provision cannot be reasonably determined.
A summary of activity for provision for warranty and other provisions is as follows:
| Year ended March 31, 2012 | |||
| Provision for warranty | Others | Total | |
| Balance at the beginning of the year | Rs. 548 | Rs. 1,857 | Rs. 2,405 |
| Additional provision during the year, net | 460 | 180 | 640 |
| Provision used during the year | (641) | (1,222) | (1,863) |
| Balance at the end of the year | Rs. 367 | Rs. 815 | Rs. 1,182 |
15. Financial instruments
Financial assets and liabilities (carrying value/fair value):
| As at March 31, | ||
| 2011 | 2012 | |
| Assets: | ||
| Trade receivables | Rs. 61,627 | Rs. 80,328 |
| Unbilled revenues | 24,149 | 30,025 |
| Cash and cash equivalents | 61,141 | 77,666 |
| Available for sale financial investments | 49,282 | 41,961 |
| Derivative assets | 4,693 | 4,930 |
| Other assets | 16,995 | 21,769 |
| Total | Rs. 217,887 | Rs. 256,679 |
| Liabilities: | ||
| Loans and borrowings | Rs. 52,802 | Rs. 58,958 |
| Trade payables and accrued expenses | 42,024 | 47,258 |
| Derivative liabilities | 3,944 | 6,661 |
| Other liabilities | 140 | 566 |
| Total | Rs. 98,910 | Rs. 113,443 |
By Category (Carrying value/Fair value):
| As at March 31, | ||
| 2011 | 2012 | |
| Assets: | ||
| Loans and receivables | Rs. 163,912 | Rs. 209,788 |
| Derivative assets | 4,693 | 4,930 |
| Available for sale financial assets | 49,282 | 41,961 |
| Total | Rs. 217,887 | Rs. 256,679 |
| Liabilities: | ||
| Financial liabilities at amortized cost | Rs. 52,802 | Rs. 58,958 |
| Trade and other payables | 42,164 | 47,824 |
| Derivative liabilities | 3,944 | 6,661 |
| Total | Rs. 98,910 | Rs. 113,443 |
Fair Value
The fair value of cash and cash equivalents, trade receivables, unbilled revenues, trade payables, current financial liabilities and borrowings approximate their carrying amount largely due to the short-term nature of these instruments. A substantial portion of the Company’s long-term debt has been contracted at floating rates of interest, which are reset at short intervals. Accordingly, the carrying value of such long-term debt approximates fair value. Further, finance lease receivables are periodically evaluated based on individual credit worthiness of customers. Based on this evaluation, the Company records allowance for expected losses on these receivables. As of March 31, 2011 and 2012, the carrying value of such receivables, net of allowances approximates the fair value.
Investments in liquid and short-term mutual funds, which are classified as available-for-sale are measured using quoted market prices at the reporting date multiplied by the quantity held. Fair value of investments in certificate of deposits, classified as available for sale is determined using observable market inputs.
The fair value of derivative financial instruments is determined based on observable market inputs including currency spot and forward rates, yield curves, currency volatility etc.
Fair value hierarchy
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 – Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs)
The following table presents fair value hierarchy of assets and liabilities measured at fair value on a recurring basis:
| Particulars | As at March 31, 2011 | As at March 31, 2012 | ||||||
| Total | Fair value measurements at reporting date using | Total | Fair value measurements at reporting date using | |||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||
| Assets | ||||||||
| Derivative instruments | ||||||||
| - Cash flow hedges | Rs. 1,991 | Rs. - | Rs. 1,991 | Rs. - | Rs. 2,218 | Rs. - | Rs. 2,218 | Rs. - |
| - Net investment hedges | 1,523 | - | 1,523 | - | 1,136 | - | 1,136 | - |
| - Others | 1,179 | - | 1,179 | - | 1,576 | - | 1,576 | - |
| Available for sale financial assets: | ||||||||
| - Investment in liquid and short-term mutual funds | 25,246 | 25,246 | - | - | 20,785 | 18,373 | 2,412 | - |
| - Investment in certificate of deposits and other investments | 24,036 | - | 24,036 | - | 21,176 | - | 21,176 | - |
| Liabilities | ||||||||
| Derivative instruments | ||||||||
| - Cash flow hedges | 1,504 | - | 1,504 | - | 2,812 | - | 2,812 | - |
| - Net investment hedges | 1,701 | - | 1,701 | - | 2,668 | - | 2,668 | - |
| - Others | 739 | - | 739 | - | 1,181 | - | 1,181 | - |
Derivatives assets and liabilities:
The Company is exposed to foreign currency fluctuations on foreign currency assets / liabilities, forecasted cash flows denominated in foreign currency and net investment in foreign operations. The Company follows established risk management policies, including the use of derivatives to hedge foreign currency assets / liabilities, foreign currency forecasted cash flows and net investment in foreign operations. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material.
The following table presents the aggregate contracted principal amounts of the Company’s derivative contracts outstanding:
| As at March 31, | ||
| 2011 | 2012 | |
| Designated derivative instruments | ||
| Sell | US$ 901 | US$ 1,081 |
| € 2 | € 17 | |
| £ 21 | £ 4 | |
| ¥ 3,026 | ¥ 1,474 | |
| AUD 4 | AUD - | |
| CHF 6 | CHF - | |
| Net investment hedges in foreign operations | ||
| Cross-currency swaps | ¥ 24,511 | ¥ 24,511 |
| Others | US$ 262 | US$ 262 |
| € 40 | € 40 | |
| Non designated derivative instruments | ||
| Sell | US$ 526 | US$ 841 |
| £ 40 | £ 58 | |
| € 48 | € 44 | |
| AUD 13 | AUD 31 | |
| Buy | US$ 617 | US$ 555 |
| ¥ - | ¥ 1,997 | |
| Cross currency swaps | ¥ 7,000 | ¥ 7,000 |
The following table summarizes activity in the cash flow hedging reserve within equity related to all derivative instruments classified as cash flow hedges:
| As at March 31, | ||
| 2011 | 2012 | |
| Balance as at the beginning of the year | Rs. (4,954) | Rs. (1,226) |
| Net (gain)/loss reclassified into statement of income on occurrence of hedged transactions (1) | 4,041 | 1,272 |
| Deferred cancellation gains/(losses) relating to roll - over hedging | 222 | (12) |
| Changes in fair value of effective portion of derivatives | (535) | (1,639) |
| Gains/ (losses) on cash flow hedging derivatives, net | Rs. 3,728 | Rs. (379) |
| Balance as at the end of the year | Rs. (1,226) | Rs. (1,605) |
| Deferred tax asset thereon | 218 | 247 |
| Balance as at the end of the year, net of deferred tax | Rs. (1,008) | Rs. (1,358) |
(1) On occurrence of hedge transactions, net (gain)/loss was included as part of revenues.
The related hedge transactions for balance in cash flow hedging reserve as of March 31, 2012 are expected to occur and reclassified to the statement of income over a period of 2 years.
As at March 31, 2011 and 2012, there were no significant gains or losses on derivative transactions or portions thereof that have become ineffective as hedges, or associated with an underlying exposure that did not occur.
Sale of financial assets
From time to time, in the normal course of business, the Company transfers accounts receivables, net investment in finance lease receivables (financial assets) to banks. Under the terms of the arrangements, the Company surrenders control over the financial assets and transfer is without recourse. Accordingly, such transfers are recorded as sale of financial assets. Gains and losses on sale of financial assets without recourse are recorded at the time of sale based on the carrying value of the financial assets and fair value of servicing liability.
In certain cases, transfer of financial assets may be with recourse. Under arrangements with recourse, the Company is obligated to repurchase the uncollected financial assets, subject to limits specified in the agreement with the banks. The Company has transferred trade receivables with recourse obligation (credit risk) and accordingly, in such cases the amounts received are recorded as borrowings in the statement of financial position and cash flows from financing activities. As at March 31, 2011 and 2012, the maximum amount of recourse obligation in respect of the transferred financial assets (recorded as borrowings) is Rs. 1,085 and Rs. 1,163, respectively.
Financial risk management
General
Market risk is the risk of loss of future earnings, to fair values or to future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments, foreign currency receivables, payables and loans and borrowings.
The Company’s exposure to market risk is a function of investment and borrowing activities and revenue generating activities in foreign currency. The objective of market risk management is to avoid excessive exposure of the Company’s earnings and equity to losses.
Risk Management Procedures
The Company manages market risk through a corporate treasury department, which evaluates and exercises independent control over the entire process of market risk management. The corporate treasury department recommends risk management objectives and policies, which are approved by senior management and the Audit Committee. The activities of this department include management of cash resources, implementing hedging strategies for foreign currency exposures, borrowing strategies, and ensuring compliance with market risk limits and policies.
Foreign currency risk
The Company operates internationally and a major portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk through its sales and services in the United States and elsewhere, and purchases from overseas suppliers in various foreign currencies. The exchange rate risk primarily arises from foreign exchange revenue, receivables, cash balances, forecasted cash flows, payables and foreign currency loans and borrowings. A significant portion of revenue is in U.S. dollars, euro and pound sterling, while a significant portion of costs are in Indian rupees. The exchange rate between the rupee and U.S. dollar, euro and pound sterling has fluctuated significantly in recent years and may continue to fluctuate in the future. Appreciation of the rupee against these currencies can adversely affect the Company’s results of operations.
The Company evaluates exchange rate exposure arising from these transactions and enters into foreign currency derivative instruments to mitigate such exposure. The Company follows established risk management policies, including the use of derivatives like foreign exchange forward / option contracts to hedge forecasted cash flows denominated in foreign currency.
The Company has designated certain derivative instruments as cash flow hedge to mitigate the foreign exchange exposure of forecasted highly probable cash flows. The Company has also designated a combination of foreign currency borrowings and related cross-currency swaps and other foreign currency derivative instruments as hedge of its net investment in foreign operations.
As at March 31, 2011 and 2012, Re. 1 increase / decrease in the exchange rate of Indian Rupee with U.S. dollar would result in approximately Rs. 810 and Rs. 1,629 decrease / increase in the fair value of the Company’s foreign currency dollar denominated derivative instruments, respectively.
As at March 31, 2011 and 2012, 1% change in the exchange rate between U.S. dollar and Yen would result in approximately Rs. 170 and Rs. 194 increase/decrease in the fair value of cross-currency interest rate swaps, respectively.
The below table presents foreign currency risk from non derivative financial instruments as of March 31, 2011 and 2012:
| As at March 31, 2011 | ||||||
| US$ | Euro | Pound Sterling | Japanese Yen | Other currencies# | Total | |
| Trade receivables | Rs. 24,408 | Rs. 5,123 | Rs. 4,821 | Rs. 370 | Rs. 3,237 | Rs. 37,959 |
| Unbilled revenues | 13,605 | 239 | 494 | - | 271 | 14,609 |
| Cash and cash equivalents | 22,463 | 1,863 | 1,949 | 290 | 1,414 | 27,979 |
| Other assets | 187 | 311 | 63 | 2 | 126 | 689 |
| Loans and borrowings | Rs. (27,544) | Rs. (1,322) | Rs. - | Rs. (18,861) | Rs. - | Rs. (47,727) |
| Trade payables and accrued expenses | (10,770) | (2,063) | (1,407) | (357) | (162) | (14,759) |
| Net assets / (liabilities) | Rs. 22,349 | Rs. 4,151 | Rs. 5,920 | Rs. (18,556) | Rs. 4,886 | Rs. 18,750 |
| As at March 31, 2012 | ||||||
| US$ | Euro | Pound Sterling | Japanese Yen | Other currencies# | Total | |
| Trade receivables | Rs. 30,205 | Rs. 5,711 | Rs. 6,427 | Rs. 402 | Rs. 5,699 | Rs. 48,444 |
| Unbilled revenues | 9,735 | 2,727 | 3,131 | 59 | 485 | 16,137 |
| Cash and cash equivalents | 23,726 | 1,439 | 1,492 | 322 | 1,931 | 28,910 |
| Other assets | 206 | 515 | 42 | - | 181 | 944 |
| Loans and borrowings | Rs. (28,214) | Rs. (742) | Rs. - | Rs. (21,728) | Rs. - | Rs. (50,684) |
| Trade payables and accrued expenses | (12,095) | (2,186) | (1,912) | (140) | (2,068) | (18,401) |
| Net assets / (liabilities) | Rs. 23,563 | Rs. 7,464 | Rs. 9,180 | Rs. (21,085) | Rs. 6,228 | Rs. 25,350 |
# Other currencies reflects currencies such as Singapore dollars, Saudi Arabian riyals etc.
As at March 31, 2011 and 2012 respectively, every 1% increase/decrease of the respective foreign currencies compared to functional currency of the Company would impact our result from operating activities by approximately Rs. 187 and Rs. 254 respectively.
Interest rate risk
Interest rate risk primarily arises from floating rate borrowing, including various revolving and other lines of credit. The Company’s investments are primarily in short-term investments, which do not expose it to significant interest rate risk. The Company manages its net exposure to interest rate risk relating to borrowings, by balancing the proportion of fixed rate borrowing and floating rate borrowing in its total borrowing portfolio. To manage this portfolio mix, the Company may enter into interest rate swap agreements, which allows the Company to exchange periodic payments based on a notional amount and agreed upon fixed and floating interest rates. As of March 31, 2012, substantially all of the Company borrowings was subject to floating interest rates, which reset at short intervals. If interest rates were to increase by 100 bps from March 31, 2012, additional annual interest expense on the Company’s floating rate borrowing would amount to approximately Rs. 564.
Credit risk
Credit risk arises from the possibility that customers may not be able to settle their obligations as agreed. To manage this, the Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of accounts receivable. Individual risk limits are set accordingly. No single customer accounted for more than 10% of the accounts receivable as at March 31, 2011 and 2012, respectively and revenues for the year ended March 31, 2010, 2011 and 2012, respectively. There is no significant concentration of credit risk.
Financial assets that are neither past due nor impaired
Cash and cash equivalents, available-for-sale financial assets, investment in certificates of deposits and interest bearing deposits with corporates are neither past due nor impaired. Cash and cash equivalents with banks and interest-bearing deposits are placed with corporate, which have high credit-ratings assigned by international and domestic credit-rating agencies. Available-for-sale financial assets substantially include investment in liquid mutual fund units. Certificates of deposit represent funds deposited with banks or other financial institutions for a specified time period.
Financial assets that are past due but not impaired
There is no other class of financial assets that is past due but not impaired except for trade receivables of Rs. 2,594 and Rs. 2,748 as of March 31, 2011 and 2012, respectively. Of the total receivables, Rs. 41,146 and Rs. 58,982 as of March 31, 2011 and 2012, respectively, were neither past due nor impaired. The company’s credit period generally ranges from 45-60 days. The aging analysis of the receivables have been considered from the date of the invoice. The age wise break up of receivables, net of allowances that are past due, is given below:
| As at March 31, | ||
| 2011 | 2012 | |
| Financial assets that are neither past due nor impaired | Rs. 41,146 | Rs. 58,982 |
| Financial assets that are past due but not impaired | ||
| Past due 0 – 30 days | 4,249 | 9,970 |
| Past due 31 – 60 days | 6,976 | 4,410 |
| Past due 61 – 90 days | 3,273 | 3,263 |
| Past due over 90 days | 14,834 | 12,702 |
| Total past due and not impaired | Rs. 29,332 | Rs. 30,345 |
Counterparty risk
Counterparty risk encompasses issuer risk on marketable securities, settlement risk on derivative and money market contracts and credit risk on demand and time deposits. Issuer risk is minimized by only buying securities which are at least AA rated. Settlement and credit risk is reduced by the policy of entering into transactions with counterparties that are usually banks or financial institutions with acceptable credit ratings. Exposure to these risks are closely monitored and maintained within predetermined parameters. There are limits on credit exposure to any financial institution. The limits are regularly assessed and determined based upon credit analysis including financial statements and capital adequacy ratio reviews. In addition, net settlement agreements are contracted with significant counterparties.
Liquidity risk
Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. The Company’s corporate treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s net liquidity position through rolling forecasts on the basis of expected cash flows. As of March 31, 2011 and 2012, cash and cash equivalents are held with major banks and financial institutions.
The table below provided details regarding the contractual maturities of significant financial liabilities.
| As at March 31, 2011 | |||||
| Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total | |
| Loans and borrowings | Rs. 33,043 | Rs. 19,322 | Rs. 304 | Rs. 133 | Rs. 52,802 |
| Trade payables and accrued expenses | 42,024 | - | - | - | 42,024 |
| Derivative liabilities | 1,358 | 2,586 | - | - | 3,944 |
| As at March 31, 2012 | |||||
| Less than 1 year | 1-2 years | 2-4 years | 4-7 years | Total | |
| Loans and borrowings | Rs. 36,448 | Rs. 22,121 | Rs. 314 | Rs. 75 | Rs. 58,958 |
| Trade payables and accrued expenses | 47,258 | - | - | - | 47,258 |
| Derivative liabilities | 6,354 | 273 | 34 | - | 6,661 |
The balanced view of liquidity and financial indebtedness is stated in the table below. This calculation of the net cash position is used by the management for external communication with investors, analysts and rating agencies:
| As at March 31, | ||
| 2011 | 2012 | |
| Cash and cash equivalents | Rs. 61,141 | Rs. 77,666 |
| Interest bearing deposits with corporates | 4,240 | 8,410 |
| Available for sale investments | 49,282 | 41,961 |
| Loans and borrowings | (52,802) | (58,958) |
| Net cash position | Rs. 61,861 | Rs. 69,079 |
16. Investment in equity accounted investees
Wipro GE Medical Systems (Wipro GE)
The Company holds 49% interest in Wipro GE. Wipro GE is a private entity that is not listed on any public exchange. The carrying value of the investment in Wipro GE as at March 31, 2011 and 2012 was Rs. 2,993 and Rs. 3,232, respectively. The Company’s share of profits of Wipro GE for the year ended March 31, 2010, 2011 and 2012 was Rs. 530, Rs. 648 and Rs. 335, respectively.
The aggregate summarized financial information of Wipro GE is as follows:
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Revenue | Rs. 12,567 | Rs. 19,882 | Rs. 25,684 |
| Gross profit | 3,573 | 5,278 | 4,611 |
| Profit for the year | 934 | 1,127 | 553 |
| As at March 31, | ||
| 2011 | 2012 | |
| Total assets | Rs. 16,830 | Rs. 18,608 |
| Total liabilities. | 8,543 | 10,408 |
| Total equity | Rs. 8,287 | Rs. 8,200 |
In April 2010, Wipro GE acquired medical equipment and related businesses from General Electric for a cash consideration of approximately Rs. 3,728.
Wipro GE had received tax demands aggregating to Rs. 2,615 (including interest) arising primarily on account of transfer pricing adjustments, denial of export benefits and tax holiday benefits claimed by Wipro GE under the Income Tax Act, 1961 (the “Act”) for the year ended March 31, 2001 to March 31, 2007. The appeals filed against the said demand before the Appellate authorities have been allowed in favor of the Company by first appellate authority for the years upto March 2004 and further appeals have been filed by the Income tax authorities before the second appellate authority. The first appellate authority has granted partial relief for the year ended March 31, 2005 and further appeal would be preferred by the Company before the second appellate authority. The Company filed appeal before the second appellate authority for the year ended March 31, 2006 after receiving the assessment orders following the directions of the Dispute Resolution Panel. The second appellate authority passed an order directing assessing officer (AO) to give fair opportunity of hearing to the company, the case is pending with AO. For the year ended March 31, 2007, the appeal filed against the demand is pending before the first appellate authority.
Considering the facts and nature of disallowance and the order of the appellate authority upholding the claims of Wipro GE, Wipro GE believes that the final outcome of the disputes should be in favour of Wipro GE and will not have any material adverse effect on its financial position and results of operations.
Others
During the year ended March 31, 2012, the Company entered into an agreement to purchase 26% of the equity investments in Wipro Kawasaki Precision Machinery Pvt. Ltd for a cash consideration of Rs. 130. This investment is accounted as an equity method investment under IAS 28, “Investments in Associates”.
17. Foreign currency translation reserve
The movement in foreign currency translation reserve attributable to equity holders of the Company is summarized below:
| As at March 31, | ||
| 2011 | 2012 | |
| Balance at the beginning of the year | Rs. 258 | Rs. 1,524 |
| Translation difference related to foreign operations | 1,246 | 9,164 |
| Change in effective portion of hedges of net investment in foreign operations | 20 | (2,780) |
| Total change during the year | Rs. 1,266 | Rs. 6,384 |
| Balance at the end of the year | Rs. 1,524 | Rs. 7,908 |
18. Income taxes
Income tax expense has been allocated as follows:
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Income tax expense as per the statement of income | Rs. 9,294 | Rs. 9,714 | Rs. 13,763 |
| Income tax included in other comprehensive income on: | |||
| unrealized gains/(losses) on available for sale investments | (14) | 2 | (1) |
| gains/(losses) on cash flow hedging derivatives | 2,091 | 44 | (29) |
| Total income taxes | Rs. 11,371 | Rs. 9,760 | Rs. 13,733 |
Income tax expense from continuing operations consist of the following:
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Current taxes | |||
| Domestic | Rs. 5,461 | Rs. 5,573 | Rs. 10,602 |
| Foreign | 3,403 | 3,895 | 4,065 |
| Rs. 8,864 | Rs. 9,468 | Rs. 14,667 | |
| Deferred taxes | |||
| Domestic | Rs. 40 | Rs. 292 | Rs. (935) |
| Foreign | 390 | (46) | 31 |
| Rs. 430 | Rs. 246 | Rs. (904) | |
| Total income tax expense | Rs. 9,294 | Rs. 9,714 | Rs. 13,763 |
Current taxes are net of reversal of provisions recorded in earlier periods, which are no longer required, amounting to Rs. 442, Rs. 590 and Rs. 845 for the year ended March 31, 2010, 2011 and 2012, respectively.
The reconciliation between the provision of income tax of the Company and amounts computed by applying the Indian statutory income tax rate to profit before taxes is as follows:
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Profit before taxes | Rs. 55,410 | Rs. 63,035 | Rs. 69,750 |
| Enacted income tax rate in India | 33.99% | 33.218% | 32.445% |
| Computed expected tax expense | 18,834 | 20,939 | 22,630 |
| Effect of: | |||
| Income exempt from tax | (10,802) | (10,458) | (9,115) |
| Basis differences that will reverse during a tax holiday period | 898 | (217) | 636 |
| Income taxed at higher/ (lower) rates | (475) | (566) | 367 |
| Income taxes relating to prior years. | (442) | (590) | (845) |
| Changes in unrecognized deferred tax assets | 811 | 160 | (214) |
| Expenses disallowed for tax purposes | 456 | 426 | 300 |
| Others, net | 14 | 20 | 4 |
| Total income tax expense | Rs. 9,294 | Rs. 9,714 | Rs. 13,763 |
The tax rates under Indian Income Tax Act, for the year ended March 31, 2012 is 32.445% as compared to 33.218% for the year ended March 31, 2011. This change in tax rate is on account of reduction in surcharge from 7.5% for the year ended March 31, 2011 to 5% for the year ended March 31, 2012, in the financial annual budget by the Indian Government.
The components of deferred tax assets and liabilities are as follows:
| As at March 31, | |||
| 2010 | 2011 | 2012 | |
| Carry-forward business losses | Rs. 1,851 | Rs. 2,042 | Rs. 2,330 |
| Accrued expenses and liabilities | 568 | 521 | 930 |
| Allowances for doubtful accounts receivable | 328 | 716 | 789 |
| Cash flow hedges | 262 | 218 | 247 |
| Minimum alternate tax | 363 | 488 | 1,223 |
| Deferred revenue | - | - | 1,285 |
| Others | 83 | 196 | 85 |
| 3,455 | 4,181 | 6,889 | |
| Property, plant and equipment | Rs. (525) | Rs. (1,107) | Rs. (2,223) |
| Amortizable goodwill | (458) | (659) | (1,120) |
| Intangible assets | (734) | (682) | (685) |
| Investment in equity accounted investee | (432) | (567) | (617) |
| (2,149) | (3,015) | (4,645) | |
| Net deferred tax assets | Rs. 1,306 | Rs. 1,166 | Rs. 2,244 |
| Amounts presented in statement of financial position: | |||
| Deferred tax assets | Rs. 1,686 | Rs. 1,467 | Rs. 2,597 |
| Deferred tax liabilities | Rs. (380) | Rs. (301) | Rs. (353) |
Deferred taxes on unrealized foreign exchange gain / loss relating to cash flow hedges is recognized in other comprehensive income and presented within equity in the cash flow hedging reserve. Deferred tax liability on the intangible assets identified and recorded separately at the time of an acquisition is recorded by an adjustment to goodwill. Other than these, the change in deferred tax assets and liabilities is primarily recorded in the statement of income.
In assessing the realizability of deferred tax assets, the Company considers the extent to which, it is probable that the deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable profits during the periods in which those temporary differences and tax loss carry-forwards become deductible. The Company considers the expected reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on this, the Company believes that it is probable that the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if the estimates of future taxable income during the carry-forward period are reduced. Deferred tax asset in respect of unused tax losses amounting to Rs. 2,076 and Rs. 1,734 as of March 31, 2011 and 2012, respectively have not been recognized by the Company.
The Company has recognized deferred tax assets of Rs. 2,042 and Rs. 2,330 in respect of carry forward losses of its various subsidiaries during the year ended March 31, 2011 and 2012. Management’s projections of future taxable income and tax planning strategies support the assumption that it is probable that sufficient taxable income will be available to utilize these deferred tax assets.
Pursuant to the changes in the Indian income tax laws, Minimum Alternate Tax (MAT) has been extended to income in respect of which deduction is claimed under section 10A, 10B and 10AA of the Act; consequently, the Company has calculated its tax liability for current domestic taxes after considering MAT. The excess tax paid under MAT provisions over and above normal tax liability can be carried forward and set-off against future tax liabilities computed under normal tax provisions. The Company was required to pay MAT and accordingly, a deferred tax asset of Rs. 488 and Rs. 1,223 has been recognized in the statement of financial position as of March 31, 2011 and 2012, respectively, which can be carried forward for a period of ten years from the year of recognition.
A substantial portion of the profits of the Company’s India operations are exempt from Indian income taxes being profits attributable to export operations and profits from undertakings situated in Software Technology, Hardware Technology Parks and Export Oriented units. Under the tax holiday, the taxpayer can utilize an exemption from income taxes for a period of any ten consecutive years. The tax holidays on all facilities under Software Technology, Hardware Technology Parks and Export Oriented units has expired on March 31, 2011. Additionally, under the Special Economic Zone Act, 2005 scheme, units in designated special economic zones providing service on or after April 1, 2005 will be eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50 percent of such profits and gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. Profits from certain other undertakings are also eligible for preferential tax treatment. In addition, dividend income from certain category of investments is exempt from tax. The difference between the reported income tax expense and income tax computed at statutory tax rate is primarily attributable to income exempt from tax.
Deferred income tax liabilities are recognized for all taxable temporary differences except in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Accordingly, deferred income tax liabilities on cumulative earnings of subsidiaries amounting to Rs. 12,969 and Rs. 15,722 as of March 31, 2011 and 2012, respectively has not been recognized. Further, it is not practicable to estimate the amount of the unrecognized deferred tax liabilities for these undistributed earnings.
The tax loss carry-forwards of Rs. 5,941 and Rs. 5,344 as of March 31, 2011 and 2012, respectively relates to certain subsidiaries on which deferred tax asset has not been recognized by the Company. Approximately, Rs. 4,644 and Rs. 4,417 as of March 31, 2011 and 2012 respectively, of these tax loss carry-forwards is not currently subject to expiration dates. The remaining tax loss carry forward of approximately Rs. 1,297 and Rs. 928 as of March 31, 2011 and 2012 respectively, expires in various years through fiscal 2029.
We are subject to U.S. tax on income attributable to our permanent establishment in the United States due to operation of our U.S. branch. In addition, the Company is subject to a 15% branch profit tax in the United States on the “dividend equivalent amount” as that term is defined under U.S. tax law. The Company has not triggered the branch profit tax until year ended March 31, 2012. The Company intends to maintain the current level of net assets in the United States commensurate with its operation and consistent with its business plan. The Company does not intend to repatriate out of the Unites States any portion of its current profits. Accordingly, the Company did not record current and deferred tax provision for branch profit tax.
19. Dividends
The Company declares and pays dividends in Indian rupees. According to the Indian law any dividend should be declared out of accumulated distributable profits only after the transfer to a general reserve of a specified percentage of net profit computed in accordance with current regulations.
The cash dividends paid per equity share were Rs. 4, Rs. 6 and Rs. 4 during the years ended March 31, 2010, 2011 and 2012, respectively. The Company has also paid an interim dividend of Rs. 2 per equity share during the year ended March 31, 2012.
During the year ended March 31, 2011, the Company has also paid stock dividend, commonly known as bonus shares in India, comprised of two equity shares for every three equity shares outstanding on the record date and two ADSs for every three ADSs outstanding on the record date. The stock dividend did not affect the ratio of ADSs to equity shares, such that each ADS after the stock dividend continues to represent one equity share of par value of Rs. 2 per share.
The Board of Directors in their meeting on April 25, 2012 proposed a final dividend of Rs. 4 (US$0.08) per equity share and ADR. The proposal is subject to the approval of shareholders at the Annual General Meeting to be held on July 23, 2012, and if approved, would result in a cash outflow of approximately Rs. 11,431, including corporate dividend tax thereon (Rs. 1,595).
20. Additional capital disclosures
The key objective of the Company’s capital management is to ensure that it maintains a stable capital structure with the focus on total equity to uphold investor, creditor and customer confidence and to ensure future development of its business. The Company focused on keeping strong total equity base to ensure independence, security, as well as a high financial flexibility for potential future borrowings, if required without impacting the risk profile of the Company.
The Company’s goal is to continue to be able to return excess liquidity to shareholders by continuing distributing annual dividends in future periods. During the year ended March 31, 2011 and 2012, the Company distributed Rs. 6 and Rs. 4, respectively in dividend per equity share. The Company has also distributed an interim dividend of Rs. 2 per equity share during the year ended March 31, 2012. The amount of future dividends will be balanced with effort to continue to maintain an adequate liquidity status.
The capital structure as of March 31, 2011 and 2012 was as follows:
| As at March 31, | |||
| 2011 | 2012 | % Change | |
| Total equity attributable to the equity shareholders of the Company | Rs. 239,680 | Rs.285,314 | 19.04% |
| As percentage of total capital | 82% | 83% | |
| Current loans and borrowings | 33,043 | 36,448 | |
| Non-current loans and borrowings | 19,759 | 22,510 | |
| Total loans and borrowings | 52,802 | 58,958 | 11.66% |
| As percentage of total capital | 18% | 17% | |
| Total capital (loans and borrowings and equity) | Rs. 292,482 | Rs.344,272 | 17.71% |
The Company is predominantly equity-financed. This is also evident from the fact that loans and borrowings represented only 18% and 17% of total capital as of March 31, 2011 and 2012, respectively. Further, the Company has consistently been a net cash company with cash and bank balance along with available for sale investments being in excess of debt.
21. Revenues
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Rendering of services | Rs. 202,990 | Rs. 234,285 | Rs.281,014 |
| Sale of products | 68,967 | 76,257 | 90,957 |
| Total revenues | Rs. 271,957 | Rs. 310,542 | Rs.371,971 |
22. Expenses by nature
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Employee compensation | Rs. 107,230 | Rs. 126,867 | Rs.154,066 |
| Raw materials, finished goods, process stocks and stores and spares consumed | 51,813 | 50,166 | 60,270 |
| Sub contracting/technical fees/third party application | 17,527 | 26,415 | 34,210 |
| Travel | 8,064 | 10,156 | 12,609 |
| Depreciation and amortization | 7,831 | 8,211 | 10,129 |
| Repairs | 5,020 | 5,253 | 9,455 |
| Advertisement | 4,534 | 5,114 | 6,583 |
| Communication | 3,157 | 3,492 | 4,007 |
| Rent | 3,062 | 3,230 | 3,734 |
| Power and fuel | 1,797 | 2,427 | 2,862 |
| Legal and professional fees | 1,593 | 1,629 | 1,818 |
| Rates, taxes and insurance | 1,023 | 1,324 | 1,883 |
| Carriage and freight | 950 | 1,181 | 1,487 |
| Provision for doubtful debt | 566 | 399 | 394 |
| Miscellaneous expenses | 5,563 | 7,455 | 7,729 |
| Total cost of revenues, selling and marketing expenses and general and | |||
| administrative expenses | Rs. 219,730 | Rs. 253,319 | Rs.311,236 |
23. Finance expense
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Interest expense | Rs. 1,232 | Rs. 776 | Rs. 1,057 |
| Exchange fluctuation on foreign currency borrowings, net | 92 | 1,157 | 2,434 |
| Total | Rs. 1,324 | Rs. 1,933 | Rs. 3,491 |
24. Finance and other income
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Interest income | Rs. 2,610 | Rs. 4,057 | Rs. 6,497 |
| Dividend income | 1,442 | 2,403 | 2,211 |
| Gain on sale of investments | 308 | 192 | 187 |
| Total | Rs. 4,360 | Rs. 6,652 | Rs. 8,895 |
25. Earnings per equity share
A reconciliation of profit for the year and equity shares used in the computation of basic and diluted earnings per equity share is set out below:
Basic: Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the period, excluding equity shares purchased by the Company and held as treasury shares. Equity shares held by controlled Wipro Equity Reward Trust (‘WERT’) and Wipro Inc Benefit Trust (WIBT) have been reduced from the equity shares outstanding for computing basic and diluted earnings per share.
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Profit attributable to equity holders of the Company | Rs. 45,931 | Rs. 52,977 | Rs. 55,730 |
| Weighted average number of equity shares outstanding | 2,429,025,243 | 2,436,440,633 | 2,449,056,412 |
| Basic earnings per share | Rs. 18.91 | Rs. 21.74 | Rs. 22.76 |
Diluted: Diluted earnings per share is calculated by adjusting the weighted average number of equity shares outstanding during the period for assumed conversion of all dilutive potential equity shares. Employee share options are dilutive potential equity shares for the Company.
The calculation is performed in respect of share options to determine the number of shares that could have been acquired at fair value (determined as the average market price of the Company’s shares during the period). The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Profit attributable to equity holders of the Company | Rs. 45,931 | Rs. 52,977 | Rs. 55,730 |
| Weighted average number of equity shares outstanding | 2,429,025,243 | 2,436,440,633 | 2,449,056,412 |
| Effect of dilutive equivalent share options | 20,633,289 | 14,713,521 | 6,902,310 |
| Weighted average number of equity shares for diluted earnings per share | 2,449,658,532 | 2,451,154,154 | 2,455,958,722 |
| Diluted earnings per share | Rs. 18.75 | Rs. 21.61 | Rs. 22.69 |
Earnings per share and number of share outstanding for the year ended March 31, 2010, have been adjusted for the two equity shares for every three equity shares stock dividend approved by the shareholders on June 4, 2010.
26. Employee stock incentive plans
The stock compensation expense recognized for employee services received during the year ended March 31, 2010, 2011 and 2012 is Rs. 1,302, Rs. 1,092 and Rs. 949, respectively.
Wipro Equity Reward Trust (WERT)
In 1984, the Company established a controlled trust called the Wipro Equity Reward Trust (“WERT”). The WERT purchases shares of the Company out of funds borrowed from the Company. The Company’s compensation committee recommends to the WERT certain officers and key employees, to whom the WERT grants shares from its holdings at nominal price. Such shares are then held by the employees subject to vesting conditions. The shares held by the WERT are reported as a reduction in stockholders’ equity
The movement in the shares held by the WERT is given below:
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Shares held at the beginning of the period(1) | 7,961,760 | 13,269,600 | 13,269,600 |
| Shares granted to employees | - | - | - |
| Grants forfeited by employees | - | - | - |
| Shares held at the end of the period | 7,961,760 | 13,269,600 | 13,269,600 |
(1)The opening balance as of April 1, 2010 has been adjusted for the two equity shares for every three equity shares stock dividend approved by the shareholders on June 4, 2010.
Wipro Employee Stock Option Plans and Restricted Stock Unit Option Plans
A summary of the general terms of grants under stock option plans and restricted stock unit option plans are as follows:
| Name of Plan | Authorized Shares(1) | Range of Exercise Prices |
| Wipro Employee Stock Option Plan 1999 (1999 Plan) | 50,000,000 | Rs. 171 – 490 |
| Wipro Employee Stock Option Plan 2000 (2000 Plan) | 250,000,000 | Rs. 171 – 490 |
| Stock Option Plan (2000 ADS Plan) | 15,000,000 | US$ 3 – 7 |
| Wipro Restricted Stock Unit Plan (WRSUP 2004 plan) | 20,000,000 | Rs. 2 |
| Wipro ADS Restricted Stock Unit Plan (WARSUP 2004 plan) | 20,000,000 | US$ 0.04 |
| Wipro Employee Restricted Stock Unit Plan 2005 (WSRUP 2005 plan) | 20,000,000 | Rs. 2 |
| Wipro Employee Restricted Stock Unit Plan 2007 (WSRUP 2007 plan) | 16,666,667 | Rs. 2 |
(1) adjusted for the two equity shares for every three equity shares stock dividend approved by the shareholders on June 4, 2010.
Employees covered under the stock option plans and restricted stock unit option plans (collectively “stock option plans”) are granted an option to purchase shares of the Company at the respective exercise prices, subject to requirement of vesting conditions (generally service conditions). These options generally vests in tranches over a period of five years from the date of grant. Upon vesting, the employees can acquire one equity share for every option. The maximum contractual term for these stock option plans is generally ten years.
The activity in these stock option plans is summarized below:
| Year ended March 31, | |||||||
| 2010 | 2011 | 2012 | |||||
| Range of Exercise Prices | Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |
| Outstanding at the beginning of the period(1) | Rs. 229 – 265 | 1,140 | Rs. 254 | — | Rs. — | — | Rs. — |
| Rs. 480 – 489 | 120,000 | Rs. 489 | 200,000 | Rs. 293.40 | — | Rs. — | |
| US$ 4 – 6 | 1,606 | US$ 4.7 | 2,677 | US$ 2.82 | — | US$ — | |
| Rs. 2 | 13,799,549 | Rs. 2 | 17,103,172 | Rs. 2 | 15,382,761 | Rs. 2 | |
| US$ 0.04 | 2,470,641 | US$ 0.04 | 2,943,035 | US$ 0.04 | 3,223,892 | US$ 0.04 | |
| Granted | Rs. 229 – 265 | — | Rs. — | — | Rs. — | — | Rs. — |
| Rs. 480 – 489 | — | Rs. — | — | Rs. — | 30,000 | Rs. 480.20 | |
| US$ 4 – 6 | — | US$ — | — | US$ — | — | US$ — | |
| Rs. 2 | 5,000 | Rs. 2 | 5,227,870 | Rs. 2 | 40,000 | Rs. 2 | |
| US$ 0.04 | 137,100 | US$ 0.04 | 1,437,060 | US$ 0.04 | — | US$ — | |
| Exercised | Rs. 229 – 265 | — | Rs. — | — | Rs. — | — | Rs. — |
| Rs. 480 – 489 | — | Rs. — | (80,000) | Rs. 293.40 | — | Rs. — | |
| US$ 4 – 6 | — | US$ — | — | US$ — | — | US$ — | |
| Rs. 2 | (2,736,924) | Rs. 2 | (5,482,210) | Rs. 2 | (3,708,736) | Rs. 2 | |
| US$ 0.04 | (493,519) | US$ 0.04 | (870,622) | US$ 0.04 | (638,347) | US$ 0.04 | |
| Forfeited and lapsed | Rs. 229 – 265 | (1,140) | Rs. 254 | — | Rs. — | — | Rs. — |
| Rs. 480 – 489 | — | Rs. — | (120,000) | Rs. 293.40 | — | Rs. — | |
| US$ 4 – 6 | — | US$ — | (2,677) | US$ 2.82 | — | US$ — | |
| Rs. 2 | (805,722) | Rs. 2 | (1,466,071) | Rs. 2 | (1,106,987) | Rs. 2 | |
| US$ 0.04 | (348,401) | US$ 0.04 | (285,581) | US$ 0.04 | (411,853) | US$ 0.04 | |
| Outstanding at the end of the period | Rs. 229 – 265 | — | Rs. — | — | Rs. — | — | Rs. — |
| Rs. 480 – 489 | 120,000 | Rs. 489 | — | Rs. — | 30,000 | Rs. 480.20 | |
| US$ 4 – 6 | 1,606 | US$ 4.7 | — | US$ — | — | US$ — | |
| Rs. 2 | 10,261,903 | Rs. 2 | 15,382,761 | Rs. 2 | 10,607,038 | Rs. 2 | |
| US$ 0.04 | 1,765,821 | US$ 0.04 | 3,223,892 | US$ 0.04 | 2,173,692 | US$ 0.04 | |
| Exercisable at the end of the period | Rs. 229 – 265 | — | Rs. — | — | Rs. — | — | Rs. — |
| Rs. 480 – 489 | — | Rs. — | — | Rs. — | — | Rs. — | |
| US$ 4 – 6 | 1,606 | US$ 4.7 | — | US$ — | — | US$ — | |
| Rs. 2 | 4,719,739 | Rs. 2 | 7,533,984 | Rs. 2 | 5,370,221 | Rs. 2 | |
| US$ 0.04 | 645,341 | US$ 0.04 | 1,147,391 | US$ 0.04 | 578,400 | US$ 0.04 | |
(1)The opening balance as of April 1, 2010 have been adjusted for the two equity shares for every three equity shares stock dividend approved by the shareholders on June 4, 2010.
The following table summarizes information about outstanding stock options:
| As at March 31, | |||||||||
| 2010 | 2011 | 2012 | |||||||
| Range of Exercise price | Numbers | Weighted Average Remaining Life (Months) | Weighted Average Exercise Price | Numbers | Weighted Average Remaining Life (Months) | Weighted Average Exercise Price | Numbers | Weighted Average Remaining Life (Months) | Weighted Average Exercise Price |
| Rs. 229 – 265 | - | - | Rs. - | - | - | Rs. - | - | - | Rs. - |
| Rs. 480 – 489 | 120,000 | 49 | Rs. 489 | - | - | Rs. - | 30,000 | 48 | Rs. 480.20 |
| US$ 4 –6 | 1,606 | 1 | US$ 4.70 | - | - | US$ - | - | - | US$ - |
| Rs. 2 | 10,261,903 | 37 | Rs. 2 | 15,382,761 | 35 | Rs. 2 | 10,607,038 | 30 | Rs. 2 |
| US$ 0.04 | 1,765,821 | 44 | US$ 0.04 | 3,223,892 | 48 | US$ 0.04 | 2,173,692 | 37 | US$ 0.04 |
The weighted-average grant-date fair value of options granted during the year ended March 31, 2010, 2011 and 2012 was Rs. 814, Rs. 417.65 and Rs. 449.8 for each option, respectively. The weighted average share price of options exercised during the year ended March 31, 2010, 2011 and 2012 was Rs. 557.52, Rs. 424.28 and Rs. 399.22 for each option, respectively.
The fair value of 30,000 options granted during the year ended March 31, 2012 (other than at nominal exercise price) has been estimated on the date of grant using the Black-Scholes-Merton option pricing model. The fair value of share options has been determined using the following assumptions:
| Expected term | 5 years |
| Risk free interest rates | 8% |
| Volatility | 62.2% |
| Dividend yield | 1.28% |
27. Employee benefits
a) Employee costs include:
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Salaries and bonus | Rs. 103,194 | Rs. 122,399 | Rs. 149,410 |
| Employee benefit plans | |||
| Gratuity | 276 | 469 | 460 |
| Contribution to provident and other funds | 2,458 | 2,907 | 3,247 |
| Share based compensation | 1,302 | 1,092 | 949 |
| Rs. 107,230 | Rs. 126,867 | Rs. 154,066 | |
The employee benefit cost is recognized in the following line items in the statement of income:
|
Year ended March 31, |
|||
|
2010 |
2011 |
2012 |
|
|
Cost of revenues |
Rs. 90,350 |
Rs. 106,235 |
Rs. 128,770 |
|
Selling and marketing expenses |
9,126 |
10,860 |
14,169 |
|
General and administrative expenses |
7,754 |
9,772 |
11,127 |
|
Rs. 107,230 |
Rs. 126,867 |
Rs. 154,066 |
|
b) Defined benefit plans - Gratuity:
Amount recognized in the statement of income in respect of gratuity cost (defined benefit plan) is as follows:
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| Interest on obligation | Rs. 133 | Rs. 161 | Rs. 211 |
| Expected return on plan assets | (122) | (164) | (184) |
| Actuarial losses/(gains) recognized | (63) | (168) | 14 |
| Past service cost | - | 254 | (16) |
| Current service cost | 328 | 386 | 435 |
| Net gratuity cost/(benefit) | Rs. 276 | Rs. 469 | Rs. 460 |
| Actual return on plan assets | Rs. 138 | Rs. 177 | Rs. 232 |
In May 2010, the Government of India amended the Payment of Gratuity Act, 1972 to increase the limit of gratuity payment from Rs. 0.35 to Rs. 1. Consequently, during the year ended March 31, 2011, the Company has recognized Rs. 254 of vested past service cost in the statement of income.
The principal assumptions used for the purpose of actuarial valuation are as follows:
| As at March 31, | |||
| 2010 | 2011 | 2012 | |
| Discount rate | 7.15% | 7.95% | 8.35% |
| Expected return on plan assets | 8% | 8% | 8% |
| Expected rate of salary increase | 5% | 5% | 5% |
The expected return on plan assets is based on expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.
Change in present value of defined benefit obligation is summarized below:
| As at March 31, | ||||
| 2009 | 2010 | 2011 | 2012 | |
| Defined benefit obligation at the beginning of the year | Rs. 1515 | Rs. 1,858 | Rs. 2,060 | Rs. 2,476 |
| Acquisitions | 34 | - | - | 25 |
| Current service cost | 369 | 328 | 386 | 435 |
| Past service cost | - | - | 254 | (16) |
| Interest on obligation | 135 | 133 | 161 | 211 |
| Benefits paid | (118) | (214) | (230) | (352) |
| Actuarial losses/(gains) | (77) | (45) | (155) | 66 |
| Defined benefit obligation at the end of the year | Rs. 1,858 | Rs. 2,060 | Rs. 2,476 | Rs. 2,845 |
Change in plan assets is summarized below:
| As at March 31, | ||||
| 2009 | 2010 | 2011 | 2012 | |
| Fair value of plan assets at the beginning of the year | Rs. 1,244 | Rs. 1,416 | Rs. 1,967 | Rs. 2,387 |
| Acquisitions | 19 | - | - | 1 |
| Expected return on plan assets | 92 | 122 | 164 | 184 |
| Employer contributions | 154 | 625 | 473 | 586 |
| Benefits paid | (118) | (214) | (230) | (344) |
| Actuarial gains/(losses) | 25 | 18 | 13 | 52 |
| Fair value of plan assets at the end of the year | 1,416 | 1,967 | 2,387 | 2,866 |
| Present value of unfunded obligation | Rs. (442) | Rs. (93) | Rs. (89) | Rs. 21 |
| Recognized asset/(liability) | Rs. (442) | Rs. (93) | Rs. (89) | Rs. 21 |
The experience adjustments, meaning difference between changes in plan assets and obligations expected on the basis of actuarial assumption and actual changes in those assets and obligations are as follows:
| As at March 31, | |||
| 2010 | 2011 | 2012 | |
| Difference between expected and actual developments: | |||
| of fair value of the obligation | Rs. (84) | Rs. (32) | Rs. (147) |
| of fair value of plan assets | 18 | 15 | 52 |
As at March 31, 2010, 2011 and 2012, 100% of the plan assets were invested in insurer managed funds.
The expected future contribution and estimated future benefit payments from the fund are as follows:
| Expected contribution to the fund during the year ending March 31, 2013 | Rs. 341 |
| Estimated benefit payments from the fund for the year ending March 31: | |
| 2013 | Rs. 620 |
| 2014 | 612 |
| 2015 | 626 |
| 2016 | 686 |
| 2017 | 717 |
| Thereafter | 2,969 |
| Total | Rs. 6,230 |
The expected benefits are based on the same assumptions used to measure the Company’s benefit obligations as of March 31, 2012.
c) Provident Fund:
Upto year ended March 31, 2011, in the absence of guidance from the Actuarial Society of India, actuarial valuation could not have been applied to reliably measure the provident fund liabilities. During the year ended March 31, 2012, the Actuarial Society of India issued the guidance for measurement of provident fund liabilities. Accordingly, based on such actuarial valuation there is no shortfall in the fund as at March 31, 2012.
The details of fund and plan assets are given below:
| As at March 31, | ||||
| 2009 | 2010 | 2011 | 2012 | |
| Fair value of plan assets | Rs. 10,020 | Rs. 12,285 | Rs. 15,309 | Rs. 17,932 |
| Present value of defined benefit obligation | 10,013 | 12,194 | 15,412 | 17,668 |
| Net (shortfall)/excess | Rs. 7 | Rs. 91 | Rs. (103) | Rs. 264 |
The principal assumptions used in determining the present value obligation of interest guarantee under the deterministic approach are as follows:
| As at March 31, | ||||
| 2009 | 2010 | 2011 | 2012 | |
| Discount rate for the term of the obligation | 6.75% | 7.15% | 7.95% | 8.35% |
| Average remaining tenure of investment portfolio | 7 years | 7 years | 7 years | 6 years |
| Guaranteed rate of return | 8.5% | 8.5% | 9.5% | 8.25% |
28. Related party relationships and transactions
List of subsidiaries as of March 31, 2012 are provided in the table below.
| Direct Subsidiaries | Step Subsidiaries | Country of Incorporation | |
| Wipro Inc. | U.S. | ||
| Wipro Gallagher Solutions Inc. | U.S. | ||
| Enthink Inc.* | U.S. | ||
| Infocrossing Inc. | U.S. | ||
| Wipro Energy IT Services India Private Limited (formerly SAIC India Private Limited) | India | ||
| Wipro Japan KK | Japan | ||
| Wipro Shanghai Limited | China | ||
| Wipro Trademarks Holding Limited | India | ||
| Cygnus Negri Investments Private Limited | India | ||
| Wipro Travel Services Limited | India | ||
| Wipro Consumer Care Limited | India | ||
| Wipro Holdings (Mauritius) Limited | Mauritius | ||
| Wipro Holdings UK Limited | U.K. | ||
| Wipro Technologies UK Limited | U.K. | ||
| Wipro Holding Austria GmbH(A) | Austria | ||
| 3D Networks (UK) Limited Wipro EuropeLimited (A) (formerly SAIC Europe Limited) | U.K. U.K | ||
| Wipro Cyprus Private Limited | Cyprus | ||
| Wipro Technologies S.A DE C. V | Mexico | ||
| Wipro BPO Philippines LTD. Inc | Philippines | ||
| Wipro Holdings Hungary Korlátolt Felelősségű Társaság | Hungary | ||
| Wipro Technologies Argentina SA | Argentina | ||
| Wipro Information Technology Egypt SAE | Egypt | ||
| Wipro Arabia Limited* | Saudi Arabia | ||
| Wipro Poland Sp Zoo | Poland | ||
| Wipro IT Services Poland Sp. z o. o | Poland | ||
| Wipro Outsourcing Services UK Limited | U.K. | ||
| Wipro Technologies (South Africa) Proprietary Limited | South Africa | ||
| Wipro Information Technology Netherlands BV (formerly RetailBox BV) | Netherland | ||
| Wipro Portugal S.A.(A) (Formerly Enabler Informatica SA) | Portugal | ||
| Wipro Technologies Limited, Russia | Russia | ||
| Wipro Gulf LLC (formerly SAIC Gulf LLC) | Sultanate of Oman | ||
| Wipro Technology Chile SPA | Chile | ||
| Wipro Infrastructure Engineering AB | Sweden | ||
| Wipro Infrastructure Engineering Oy.(A) | Finland | ||
| Hydrauto Celka San ve Tic | Turkey | ||
| Wipro Technologies SRL | Romania | ||
| Wipro Singapore Pte Limited | Singapore | ||
| PT WT Indonesia | Indonesia | ||
| Wipro Unza Holdings Limited (A) | Singapore | ||
| Wipro Technocentre (Singapore) Pte Limited | Singapore | ||
| Wipro (Thailand) Co Limited | Thailand | ||
| Wipro Bahrain Limited WLL | Bahrain | ||
| Wipro Yardley FZE | Dubai | ||
| Wipro Australia Pty Limited | Australia | ||
| Wipro Networks Pte Limited (formerly 3D Networks Pte Limited) | Singapore | ||
| Planet PSG Pte Limited | Singapore | ||
| Wipro Technologies SDN BHD | Malaysia | ||
| Wipro Chengdu Limited | China | ||
| Wipro Chandrika Limited* | India | ||
| Vignani Solutions Private Limited | India | ||
| WMNETSERV Limited | Cyprus | ||
| WMNETSERV (U.K.) Limited. | U.K. | ||
| WMNETSERV INC | U.S. | ||
| Wipro Technology Services Limited | India | ||
| Wipro Airport IT Services Limited* | India | ||
| Wipro Infrastructure Engineering Machinery (Changzhou) Co., Ltd. | China | ||
*All the above direct subsidiaries are 100% held by the Company except that the Company hold 98% of the equity securities of Enthink Inc., 66.67% of the equity securities of Wipro Arabia Limited, 90% of the equity securities of Wipro Chandrika Limited and 74% of the equity securities of Wipro Airport IT Services Limited.
As of March 31, 2012, the Company also held 49% of the equity securities of Wipro GE HealthCare Private Limited that is accounted for as an equity method investment.
(A) Step Subsidiary details of Wipro Unza Holdings Limited, Wipro Holding Austria GmbH, Wipro Portugal S.A, Wipro Infrastructure Engineering Oy and Wipro Europe Limited are as follows:
| Step Subsidiaries | Step Subsidiaries | Country of Incorporation | |
| Wipro Unza Singapore Pte Limited | Singapore | ||
| Wipro Unza Indochina Pte Limited | Singapore | ||
| Wipro Unza Vietnam Co., Limited | Vietnam | ||
| Wipro Unza Cathay Limited | Hong Kong | ||
| Wipro Unza China Limited | Hong Kong | ||
| Wipro Unza (Guangdong) Consumer Products LTD. | China | ||
| PT Unza Vitalis | Indonesia | ||
| Wipro Unza Thailand Limited | Thailand | ||
| Wipro Unza Overseas Limited | British virgin islands | ||
| Unzafrica Limited | Nigeria | ||
| Wipro Unza Middle East Limited | British virgin islands | ||
| Unza International Limited | British virgin islands | ||
| Unza Nusantara Sdn Bhd | Malaysia | ||
| Unza Holdings Sdn Bhd | Malaysia | ||
| Unza (Malaysia) Sdn Bhd | Malaysia | ||
| Wipro Unza (Malaysia) Sdn Bhd | Malaysia | ||
| Wipro Manufacturing Services Sdn Bhd | Malaysia | ||
| Shubido Pacific Sdn Bhd(a) | Malaysia | ||
| Gervas Corporation Sdn Bhd | Malaysia | ||
| Gervas (B) Sdn Bhd | Malaysia | ||
| Formapac Sdn Bhd | Malaysia | ||
| Wipro Holding Austria GmbH | |||
| Wipro Technologies Austria GmbH | Austria | ||
| New Logic Technologies SARL | France | ||
| Wipro Portugal S.A. | |||
| SAS Wipro France (formerly Enabler France SAS) | France | ||
| Wipro Retail UK Limited (formerly Enabler UK Limited) | U.K. | ||
| Wipro do Brasil Technologia Ltda (formerly Enabler Brazil Ltda) | Brazil | ||
| R.K.M Equipamentos Hidraulicos Ltda | Brazil | ||
| Wipro Technologies Gmbh (formerly Enabler & Retail Consult GmbH) | Germany | ||
| Wipro Infrastructure Engineering Oy | |||
| Wipro Infrastructure Engineering LLC | Russia | ||
| Wipro Europe Limited (formerly SAIC Europe Limited) | |||
| Wipro UK Limited (formerly SAIC Limited) | U.K. | ||
| Wipro Europe (formerly Science Applications International, Europe SARL) | France | ||
a) All the above subsidiaries are 100% held by the Company except Shubido Pacific Sdn Bhd in which the Company holds 62.55% of the equity securities.
The list of controlled trusts are:
|
Name of entity |
Nature |
Country of Incorporation |
|
Wipro Equity Reward Trust |
Trust |
India |
|
Wipro Inc Benefit Trust |
Trust |
USA |
The other related parties are:
| Name of entity | Nature | % of holding | Country of Incorporation |
| Wipro GE Healthcare Private Limited | Associate | 49% | India |
| Azim Premji Foundation | Entity controlled by Director | ||
| Azim Premji Trust | Entity controlled by Director | ||
| Hasham Premji (partnership firm) | Entity controlled by Director | ||
| Prazim Traders (partnership firm) | Entity controlled by Director | ||
| Zash Traders (partnership firm) | Entity controlled by Director | ||
| Regal Investment Trading Company Private Limited | Entity controlled by Director | ||
| Vidya Investment Trading Company private Limited | Entity controlled by Director | ||
| Napean Trading Investment Company Private Limited | Entity controlled by Director | ||
| Key management personnel | |||
| - Azim Premji | Chairman and Managing Director | ||
| - Suresh C Senapaty | Chief Financial Officer and Director | ||
| - Suresh Vaswani | Jt CEO, IT Business and Director(1) | ||
| - Girish S Paranjpe | Jt CEO, IT Business and Director(1) | ||
| - T K Kurien | CEO, IT Business and Director(2) | ||
| - Dr. Ashok S Ganguly | Non-Executive Director | ||
| - Narayanan Vaghul | Non-Executive Director | ||
| - Dr. Jagdish N Sheth | Non-Executive Director | ||
| - P.M Sinha | Non-Executive Director | ||
| - B.C. Prabhakar | Non-Executive Director | ||
| - William Arthur Owens | Non-Executive Director | ||
| - Dr. Henning Kagermann | Non-Executive Director | ||
| - Shyam Saran | Non-Executive Director | ||
| - M K Sharma | Non-Executive Director(3) | ||
| Relative of Key management personnel | |||
| - Rishad Premji | Relative of the Key management personnel |
(1) Up to January 31, 2011
(2) With effect from February 01, 2011
(3) With effect from July 01, 2011
The Company has the following related party transactions:
| Transaction/ Balances | Associate | Entities controlled by Directors | Key Management Personnel | ||||||
| 2010 | 2011 | 2012 | 2010 | 2011 | 2012 | 2010 | 2011 | 2012 | |
| Sale of goods and services | Rs. 7 | Rs. 18 | Rs. 75 | Rs. 1 | Rs. - | Rs. 12 | Rs. - | Rs. - | Rs. - |
| Dividend | - | - | - | 4,418 | 10,362 | 11,102 | 234 | 536## | 573## |
| Royalty income | 32 | - | 98 | - | - | - | - | - | - |
| Others | - | - | - | - | - | 3 | - | - | - |
| Key management personnel# | |||||||||
| Remuneration and short-term benefits | - | - | - | - | - | - | 175 | 260 | 108 |
| Other benefits | - | - | - | - | - | - | 34 | 30 | 34 |
| Remuneration to relative of key management personnel | - | - | - | - | - | - | 4 | 5 | 5 |
| Balances as on March 31, | |||||||||
| Receivables | 1 | 7 | 16 | - | - | 1 | - | - | - |
| Payables | - | - | - | 2 | - | - | 44 | 8 | 22 |
# Post employment benefit comprising gratuity, and compensated absences are not disclosed as these are determined for the Company as a whole.
## including relative of key management personnel.
29. Commitments and contingencies
Operating leases: The Company has taken office and residential facilities under cancelable and non-cancelable operating lease agreements that are renewable on a periodic basis at the option of both the lessor and the lessee. The operating lease agreements extend up to a maximum of fifteen years from their respective dates of inception and some of these lease agreements have price escalation clause. Rental payments under such leases were Rs. 3,062, Rs. 3,230 and Rs. 3,734, for the year ended March 31, 2010, 2011 and 2012, respectively.
Details of contractual payments under non-cancelable leases are given below:
| As at March 31, | ||
| 2011 | 2012 | |
| Not later than one year | Rs. 1,828 | Rs. 3,301 |
| Later than one year but not later than five years | 5,143 | 7,842 |
| Later than five years | 3,294 | 3,696 |
| Rs. 10,265 | Rs. 14,839 | |
Capital commitments: As at March 31, 2011 and 2012, the Company had committed to spend approximately Rs. 2,071 and Rs. 1,673, respectively, under agreements to purchase property and equipment. These amounts are net of capital advances paid in respect of these purchases.
Guarantees: As at March 31, 2011 and 2012, performance and financial guarantees provided by banks on behalf of the Company to the Indian Government, customers and certain other agencies amount to approximately Rs. 19,841 and Rs. 23,240, respectively, as part of the bank line of credit.
Contingencies and lawsuits: The Company had received tax demands aggregating to Rs. 40,040 (including interest of Rs. 10,616) arising primarily on account of denial of deduction under section 10A of the Income Tax Act, 1961 in respect of profit earned by the Company’s undertaking in Software Technology Park at Bangalore for the years ended March 31, 2001 to March 31, 2008. The appeals filed against the said demand before the Appellate authorities have been allowed in favor of the Company by the second appellate authority for the years up to March 31, 2004 and further appeals have been filed by the Income tax authorities before the Honorable High Court. The first appellate authority has granted relief for the year ended March 31, 2005 and further appeal has been filed by the Income tax authorities before the Income-tax Appellate Tribunal. The Company is in appeal before the Income-tax Appellate Tribunal for the years ended March 31, 2006 and March 31, 2007 after receiving the assessment orders following the directions of the Dispute Resolution Panel. For the year ended March 31, 2008, the objections against the draft assessment order is pending before the Dispute Resolution Panel.
Considering the facts and nature of disallowance and the order of the appellate authority upholding the claims of the Company for earlier years, the Company believes that the final outcome of the above disputes should be in favor of the Company and there should not be any material impact on the consolidated financial statements.
The Contingent liability in respect of disputed demands for excise duty, custom duty, income tax, sales tax and other matters amounts to Rs. 1,384, Rs. 1,472 and Rs. 2,374 as of March 31, 2010, 2011 and 2012, respectively.
The Company is subject to legal proceedings and claims which have arisen in the ordinary course of its business. The resolution of these legal proceedings is not likely to have a material and adverse effect on the results of operations or the financial position of the Company.
Other commitments: The Company’s Indian operations have been established as unit in Special Economic Zone and Software Technology Park Unit under plans formulated by the Government of India. As per the plan, the Company’s India operations have export obligations to the extent of foreign exchange net positive (i.e. foreign exchange inflow – foreign exchange outflow should be positive) over a five year period. The consequence of not meeting this commitment in the future would be a retroactive levy of import duties on certain hardware previously imported duty free. As of March 31, 2012, the Company has met all commitments required under the plan.
30. Segment Information
The Company is currently organized by segments, which includes IT Services (comprising of IT Services and BPO Services), IT Products, Consumer Care and Lighting and ‘Others’.
The Chairman of the Company has been identified as the Chief Operating Decision Maker (CODM) as defined by IFRS 8, Operating Segments. The Chairman of the Company evaluates the segments based on their revenue growth, operating income and return on capital employed. The management believes that return on capital employed is considered appropriate for evaluating the performance of its operating segments. Return on capital employed is calculated as operating income divided by the average of the capital employed at the beginning and at the end of the period. Capital employed includes total assets of the respective segments (except cash and cash equivalents, available for sale investments and inter-corporate deposits amounting to Rs. 105,348, Rs. 114,663 and Rs. 128,037 as of March 31, 2010, 2011 and 2012, respectively, which is included under Reconciling items) less all liabilities, excluding loans and borrowings.
Information on reportable segments is as follows:
| Year ended March 31, 2010 | |||||||
| IT Services and Products | Consumer Care and Lighting | Others | Reconciling Items | Entity Total | |||
| IT Services | IT Products | Total | |||||
| Revenues | 202,490 | 38,205 | 240,695 | 22,584 | 7,143 | 1,152 | 271,574 |
| Cost of revenues | (132,144) | (34,151) | (166,295) | (11,805) | (7,446) | (753) | (186,299) |
| Selling and marketing expenses | (10,213) | (1,275) | (11,488) | (6,470) | (323) | (327) | (18,608) |
| General and administrative expenses | (12,446) | (1,015) | (13,461) | (1,207) | (210) | 55 | (14,823) |
| Operating income of segment | 47,687 | 1,764 | 49,451 | 3,102 | (836) | 127 | 51,844 |
| Finance expense | (1,324) | ||||||
| Finance and other income | 4,360 | ||||||
| Share of profits of equity accounted investees | 530 | ||||||
| Profit before tax | 55,410 | ||||||
| Income tax expense | (9,294) | ||||||
| Profit for the year | 46,116 | ||||||
| Depreciation and amortization expense | 6,816 | 402 | 294 | 319 | 7,831 | ||
| Total assets | 165,192 | 24,428 | 7,125 | 133,183 | 329,928 | ||
| Total liabilities | 61,009 | 5,707 | 4,284 | 62,379 | 133,379 | ||
| Opening capital employed | 91,401 | 17,901 | 5,544 | 89,426 | 204,272 | ||
| Closing capital employed | 109,487 | 19,269 | 5,414 | 124,893 | 259,063 | ||
| Average capital employed | 100,444 | 18,585 | 5,479 | 107,159 | 231,667 | ||
| Return on capital employed | 49% | 17% | (15)% | - | 22% | ||
| Additions to: | |||||||
| Goodwill | 1,557 | 1,019 | - | - | 2,576 | ||
| Intangible assets | 18 | 1,031 | - | - | 1,049 | ||
| Property, plant and equipment | 12,223 | 627 | 538 | 11 | 13,399 | ||
| Year ended March 31, 2011 | |||||||
| IT Services and Products | Consumer Care and Lighting | Others | Reconciling Items | Entity Total | |||
| IT Services | IT Products | Total | |||||
| Revenues | 234,850 | 36,910 | 271,760 | 27,258 | 10,896 | 1,073 | 310,987 |
| Cost of revenues | (153,446) | (32,843) | (186,289) | (15,142) | (10,160) | (1,217) | (212,808) |
| Selling and marketing expenses | (12,642) | (1,284) | (13,926) | (7,514) | (491) | (241) | (22,172) |
| General and administrative expenses | (15,355) | (1,174) | (16,529) | (1,152) | (342) | (316) | (18,339) |
| Operating income of segment | 53,407 | 1,609 | 55,016 | 3,450 | (97) | (701) | 57,668 |
| Finance expense | (1,933) | ||||||
| Finance and other income | 6,652 | ||||||
| Share of profits of equity accounted investees | 648 | ||||||
| Profit before tax | 63,035 | ||||||
| Income tax expense | (9,714) | ||||||
| Profit for the year | 53,321 | ||||||
| Depreciation and amortization expense | 7,088 | 433 | 328 | 362 | 8,211 | ||
| Total assets | 183,961 | 26,506 | 9,978 | 150,998 | 371,443 | ||
| Total liabilities | 60,998 | 5,726 | 5,343 | 59,005 | 131,072 | ||
| Opening capital employed | 109,487 | 19,269 | 5,414 | 124,893 | 259,063 | ||
| Closing capital employed | 126,929 | 20,926 | 6,922 | 138,399 | 293,176 | ||
| Average capital employed | 118,208 | 20,097 | 6,168 | 131,646 | 276,119 | ||
| Return on capital employed | 47% | 17% | (2)% | - | 21% | ||
| Additions to: | |||||||
| Goodwill | 54 | - | - | - | 54 | ||
| Intangible assets | 28 | 8 | - | - | 36 | ||
| Property, plant and equipment | 12,647 | 400 | 707 | 891 | 14,645 | ||
| Year ended March 31, 2012 | |||||||
| IT Services and Products | Consumer Care and Lighting | Others | Reconciling Items | Entity Total | |||
| IT Services | IT Products | Total | |||||
| Revenues | 284,313 | 38,436 | 322,749 | 33,401 | 18,565 | 534 | 375,249 |
| Cost of revenues | (191,713) | (34,080) | (225,793) | (18,945) | (17,302) | (1,133) | (263,173) |
| Selling and marketing expenses | (16,114) | (1,395) | (17,509) | (9,195) | (620) | (453) | (27,777) |
| General and administrative expenses | (17,221) | (1,174) | (18,395) | (1,305) | (533) | (53) | (20,286) |
| Operating income of segment | 59,265 | 1,787 | 61,052 | 3,956 | 110 | (1,105) | 64,013 |
| Finance expense | (3,491) | ||||||
| Finance and other income | 8,895 | ||||||
| Share of profits of equity accounted investees | 333 | ||||||
| Profit before tax | 69,750 | ||||||
| Income tax expense | (13,763) | ||||||
| Profit for the year | 55,987 | ||||||
| Depreciation and amortization expense | 8,768 | 428 | 481 | 452 | 10,129 | ||
| Total assets | 222,792 | 29,815 | 15,767 | 167,627 | 436,001 | ||
| Total liabilities | 74,287 | 7,270 | 6,661 | 61,620 | 149,838 | ||
| Opening capital employed | 126,929 | 20,926 | 6,922 | 138,399 | 293,176 | ||
| Closing capital employed | 152,757 | 22,669 | 11,875 | 157,820 | 345,121 | ||
| Average capital employed | 139,843 | 21,798 | 9,398 | 148,110 | 319,149 | ||
| Return on capital employed | 44% | 18% | 1% | - | 20% | ||
| Additions to: | |||||||
| Goodwill | 5,524 | 47 | 341 | - | 5,912 | ||
| Intangible assets | 824 | 29 | 108 | - | 961 | ||
| Property, plant and equipment | 12,757 | 624 | 1,139 | 344 | 14,864 | ||
The Company has four geographic segments: India, the United States, Europe and Rest of the world. Revenues from the geographic segments based on domicile of the customer are as follows:
| Year ended March 31, | |||
| 2010 | 2011 | 2012 | |
| India | Rs. 62,179 | Rs. 67,904 | Rs. 80,135 |
| United States | 119,870 | 129,217 | 148,160 |
| Europe | 56,780 | 68,159 | 87,186 |
| Rest of the world | 32,745 | 45,707 | 59,768 |
| Rs. 271,574 | Rs. 310,987 | Rs. 375,249 | |
No client individually accounted for more than 10% of the revenues during the year ended March 31, 2010, 2011 and 2012.
Notes:
a) The Company has the following reportable segments:
i) IT Services: The IT Services segment provides IT and IT enabled services to customers. Key service offering includes software application development, application maintenance, research and development services for hardware and software design, data center outsourcing services and business process outsourcing services.
ii) IT Products: The IT Products segment sells a range of Wipro personal desktop computers, Wipro servers and Wipro notebooks. The Company is also a value added reseller of desktops, servers, notebooks, storage products, networking solutions and packaged software for leading international brands. In certain total outsourcing contracts of the IT Services segment, the Company delivers hardware, software products and other related deliverables. Revenue relating to these items is reported as revenue from the sale of IT Products.
iii) Consumer care and lighting: The Consumer Care and Lighting segment manufactures, distributes and sells personal care products, baby care products, lighting products and hydrogenated cooking oils in the Indian and Asian markets.
iv) The Others’ segment consists of business segments that do not meet the requirements individually for a reportable segment as defined in IFRS 8.
v) Corporate activities such as treasury, legal and accounting, which do not qualify as operating segments under IFRS 8, and elimination of inter-segment transactions have been considered within ‘reconciling items’.
b) Revenues include excise duty of Rs. 842, Rs. 1,007 and Rs. 1,205 for the year ended March 31, 2010, 2011 and 2012, respectively. For the purpose of segment reporting, the segment revenues are net of excise duty. Excise duty is reported in reconciling items.
c) For the purpose of segment reporting only, the Company has included the impact of ‘foreign exchange gains / (losses), net’ in revenues (which is reported as a part of operating profit in the statement of income).
d) For evaluating performance of the individual business segments, stock compensation expense is allocated on the basis of straight line amortization. The incremental impact of accelerated amortization of stock compensation expense over stock compensation expense allocated to the individual business segments is reported in reconciling items.
e) For evaluating the performance of the individual business segments, amortization of intangibles acquired through business combinations are reported in reconciling items.
f) For evaluating the performance of the individual business segments, loss on disposal of subsidiaries are reported in reconciling items.
g) The Company generally offers multi-year payment terms in certain total outsourcing contracts. These payment terms primarily relate to IT hardware, software and certain transformation services in outsourcing contracts. Corporate treasury provides internal financing to the business units offering multi-year payment terms. Accordingly, such receivables are reflected in capital employed in reconciling items. As of March 31, 2010, 2011 and 2012, capital employed in reconciling items includes Rs. 8,516, Rs. 12,255 and Rs. 13,562, respectively, of such receivables on extended collection terms. The finance income on deferred consideration earned under these contracts is included in the revenue of the respective segment and is eliminated under reconciling items.
h) Operating income of segments is after recognition of stock compensation expense arising from the grant of options:
| Segments | Year ended March 31, | ||
| 2010 | 2011 | 2012 | |
| IT Services | Rs. 1,159 | Rs. 1,214 | Rs. 871 |
| IT Products | 93 | 90 | 62 |
| Consumer Care and Lighting | 71 | 112 | 89 |
| Others | 18 | 31 | 26 |
| Reconciling items | (39) | (355) | (99) |
| Total | Rs. 1,302 | Rs. 1,092 | Rs. 949 |
i) Management believes that it is currently not practicable to provide disclosure of geographical location wise assets, since the meaningful segregation of the available information is onerous.