The following discussion and analysis of our financial condition and results of operations is intended to convey managements perspective on our financial condition and results of operations for the financial years ended March 31, 2024, March 31, 2023 and March 31, 2022. This discussion and analysis is based on, and should be read in conjunction with, our Restated Consolidated Financial Information (including the schedules, notes, annexures and significant accounting policies thereto) included in the section titled "Restated Consolidated Financial Information " beginning on page 308.
Unless otherwise stated or the context otherwise requires, the financial information as of and for the financial years ended March 31, 2024, March 31, 2023 and March 31, 2022 included in this section has been derived from our Restated Consolidated Financial Information, which has been derivedfrom our audited consolidatedfinancial statements for Fiscal 2024, Fiscal 2023 and Fiscal 2022 and restated in accordance with the SEBIICDR Regulations and the ICAI Guidance. Our financial statements are prepared in accordance with Ind AS. Ind AS differs in certain material respects from IFRS and U.S. GAAP and other accounting principles with which prospective investors may be familiar. Accordingly, the degree to which the financial statements prepared in accordance with Ind AS included in this Draft Red Herring Prospectus will provide meaningful information is entirely dependent on the readers level offamiliarity with Ind AS accounting policies. We have not attempted to quantify the impact of IFRS or U.S. GAAP on the financial information included in this Draft Red Herring Prospectus, nor do we provide a reconciliation of our financial information to IFRS or U.S. GAAP. Any reliance by persons not familiar with Ind AS accounting policies on the financial disclosures presented in this Draft Red Herring Prospectus should accordingly be limited. Please also see "Risk Factors - Significant differences exist between Ind-AS and other accounting principles, such as U.S. GAAP and IFRS, which may be material to the Restated Consolidated Financial Information prepared and presented in accordance with Ind-AS contained in this Draft Red Herring Prospectus ", on page 66.
Our fiscal year ends on March 31 of each year, and references to a particular fiscal year are to the 12 months ended March 31 of that year, unless the context indicates otherwise. All references to a year are to that Fiscal, unless otherwise noted.
We have also included various financial and operational performance indicators in this Draft Red Herring Prospectus, some of which have not been derived from the Restated Consolidated Financial Information. The manner of calculation and presentation of some of the financial and operational performance indicators, and the assumptions and estimates used in such calculations, may vary from that used by other companies in India and other jurisdictions. Also see "Risk Factors — We track certain operational metrics and non-generally accepted accounting principles, measures with internal systems and tools and do not independently verify such metrics. Certain of our operational metrics are subject to inherent challenges in measurement and any real or perceived inaccuracies in such metrics may adversely affect our business and reputation " on page 62.
Some of the information contained in this section, including information with respect to our plans and strategies, contain forward-looking statements that involve risks and uncertainties. Please read the section titled "ForwardLooking Statements" beginning on page 21 for a discussion of the risks and uncertainties related to those statements and also the section titled "Risk Factors" and "Our Business" beginning on pages 32 and 223, respectively, for a discussion of certain factors that may affect our business, results of operations and financial condition. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. Our actual results may differ materially from those expressed in or implied by these forward-looking statements.
Unless otherwise indicated, industry and market data used in this section has been derived from the 1Lattice Report prepared and commissioned and paidfor by us and prepared exclusively in connection with the Offer. The 1Lattice Report is available on the website of our Company at www.concordenviro. in/images/policy-pdf/industry- report.pdf. Unless otherwise indicated, all financial, operational, industry and other related information derived from the 1Lattice Report and included herein with respect to any particular year, refers to such information for the relevantfinancial year. Also see "Risk Factors—Certain sections ofthis Draft Red Herring Prospectus contain information from the 1Lattice Report which we commissioned and purchased and any reliance on such information for making an investment decision in the Offer is subject to inherent risks" on page 63. Also, see "Certain Conventions, Use of Financial Information and Market Data and Currency of Presentation - Industry and market data" on page 18.
Unless otherwise stated, a reference to "the Company" or "our Company" in this section is a reference to Concord Enviro Systems Limited on a standalone basis, while any reference to "we", "us" and "our" in this section refers to Concord Enviro Systems Limited and its subsidiaries and joint ventures on a consolidated basis.
Overview
We are a leading global provider of water and wastewater treatment and reuse solutions, including zero liquid discharge ("ZLD") technology, in terms of revenue from operations, as on March 31, 2024 (Source: 1Lattice Report). We have in-house capabilities to develop solutions across the entire value chain including designing, manufacturing, installation and commissioning, operation and maintenance ("O&M") and digitalization solutions including Internet of Things ("IoT"). We are an integrated provider of wastewater treatment and ZLD solutions, with focus upon energy optimization and recovery helping industries achieve water conservation and sustainability goals. (Source: 1Lattice Report) Our reach extends to diverse regions, with exports to countries in North America, Latin America, Africa, Middle East and Southeast Asia and a large customer base of 377 customers across the globe as of March 31, 2024.
We also provide our solutions to customers on a turnkey basis. Our integrated solutions incorporate our own custom designs for systems and plants including effluent treatment plants, anaerobic digestors, membrane bioreactors, sewage treatment plants, membrane-based systems including ultra-filtration ("UF"), nano-filtration ("NF"), reverse osmosis ("RO"), desalination systems and waste heat evaporators ("WHE"). In addition, we offer our customers a comprehensive suite of O&M services including providing consumables and spare parts. We have also implemented digitalization solutions (including IoT) to provide data capture and analysis platforms that enable real-time monitoring, troubleshooting and preventative maintenance of our installed systems and plants.
In Fiscal 2024, we serviced over 353 domestic customers and 24 international customers across a diverse set of industries such as pharmaceuticals, chemicals, food and beverage, defence and energy, automotive and auto ancillaries, steel and textiles, and have a presence in two countries. We service both Indian and Multinational customers such as Diageo Mexico Operaciones, S.A. De C.V., Grasim Industries Limited, AB Mauri, Anthem Biosciences Private Limited, Bhopal Glues and Chemicals Private Limited, Kasyap Sweetners Private Limited, LANXESS India Private Limited, Puja Spintex Private Limited, SFC Environmental Technologies Private Limited, SMS Limited and Tagros Chemicals India Private Limited. Further we are currently executing projects for multinational companies like Diageo Mexico Operaciones, S.A. De C.V. that include implementing a ZLD solution for their distillery in La Barca, Jalisco, Mexico and a ZLD solution for another customer at their factory in New York, United States of America.
We have two manufacturing facilities, one located at Vasai in Maharashtra, India, and the other at Sharjah in the UAE. We develop our solutions through our inhouse R&D team, which comprises 21 employees as on March 31, 2024, which designs industry-specific membranes for our systems and develops new technology and processes. As of March 31, 2024, we had been awarded four patents in India and had filed nine additional patent applications. Our R&D is focused on reducing the operational cost of carbon footprint of ZLD. We achieve this through energy recovery by anaerobic digestion, ammonia removal and reducing energy required for ZLD by employing our WHE and industry specific membranes. (Source: 1Lattice Report)
Our business comprises:
• the manufacture and sale water and wastewater treatment, reuse and ZLD of systems and plants and turnkey solutions;
• operations and maintenance;
• the manufacture and sale of consumables and spare parts (including membranes, plants chemicals and consumables); and
• installation of compressed biogas plants ("CBG Plants").
The following table sets forth our range of solutions used in various industry industries -
| Industry | Applications | Applicable solutions | ||||
| UF/ MBR | RO | NF | WHE | ZLD | ||
| Pharmaceuticals and Chemicals | • Reuse of combined effluent and ZLD | ? | ? | ? | ? | ? |
| Industry | Applications | Applicable solutions | ||||
| UF/ MBR | RO | NF | WHE | ZLD | ||
| Distilleries | • Anaerobic digestion and reuse of spent wash | ? | ? | ? | ? | ? |
| Desalination | • Sea water desalination for onshore and offshore applications | ? | ? | |||
| Textile | • Effluent treatment, recycle and salt brine recovery | ? | ? | ? | ? | |
| Food and Beverage | • Reuse of combined effluents and ZLD | ? | ? | ? | ? | ? |
| Defence | • seawater desalination and mobile systems for water purification, | ? | ? | |||
| Leachate | • Leachate concentration | ? | ||||
We design custom solutions and manufacture systems for industrial wastewater treatment and reuse and seawater desalination. Our solutions include treatment of wastewater using membrane-based systems, ZLD using WHEs and dryers and desalination of seawater We operate in all steps of the ZLD value chain, which are shown in the diagram below.
Our ZLD solution using our ultra-high pressure reverse osmosis ("UHPRO") systems and advanced waste heat evaporation systems reduce total energy demand for ZLD (Source: lLattice Report). Our WHE plants use thermal energy from waste heat such as engine cooling heat or exhaust heat as a means to extract clean water from highly concentrated waste waters and reverse osmosis plant rejects. WHE technology consumes less energy compared to the traditional methods of water purification like, multi effect evaporators leading to lower O&M costs (Source: lLattice Report). Our in-house R&D team has developed UHPRO modules, and we were the first to introduce UHPRO technology in India, enabling higher water recovery rates. The UHPRO system enhances the treatment of existing RO projects by further reducing effluent volume and increasing reject concentration to 10-12% solids. This leads to significant reductions in steam consumption and power requirements. The systems compact design allows for easier installation, handling, and isolation in case of faults. Additionally, UHPRO systems manage higher volumes of RO reject effluents more reliably, minimizing mechanical and process failures ( Source: lLattice Report).
We were the first company to offer innovative UHPRO technology, that reduces energy consumption by 30% and enhances water recovery rates. Leveraging our expertise in anaerobic digestion technology, we have recently entered the CBG plant installation sector (Source: lLattice Report).
We also offer our customers all-in-one O&M contracts which include operations, maintenance and the supply of consumables and spares. The length of our O&M contracts typically range from one to three years. As of March 31, 2024, March 31, 2023, and March 31, 2022, we had O&M contracts with 231, 226 and 187 customers, respectively, and 59.00% of our customers that purchase our systems and plants have entered into O&M contracts with us. We have a diversified customer base across industries and geographies. In Fiscal 2024, we serviced customers in over 16 countries across Asia, North Africa, North America.
Our major international customers are Diageo Mexico Operaciones, S.A. De C.V. and AB Mauri. We have a history of high customer retention and derive a significant proportion of our revenue from repeat business (recurring business generated from a customer in the last three fiscal years) which we believe is built on our successful execution of prior engagements. (Source: lLattice Report) We also enjoy relationships in excess of three years with all of our top 10 customers in Fiscal 2024. In Fiscal 2024, Fiscal 2023 and Fiscal 2022, the revenue contribution of our top ten customers was ? 2,779.95 million, ? 1,273.87 million and ?1194.80 million, which accounted for 55.95%, 37.12% and 36.28% of consolidated revenue from operations for the respective periods.
We develop solutions to address industry specific challenges and requirements using our R&D capabilities. For details, refer to "Our Business - Case Study on page 234. We are engaged in R&D activities to design and develop
new membranes for use in particular industries, improved module design and new technology and systems. As of March 31, 2024, our R&D team comprised 21 employees. Our R&D capabilities have played a key role in the expansion of our membrane portfolio, and we have developed five membranes. Our R&D team has developed enhanced module designs, particularly for high concentration applications. In these scenarios, the presence of higher suspended solids and colloidal particles necessitates larger number of flow channels.
As of March 31, 2024, our Order Book was ?4.63 billion, of which 76.52% comprises system and plant orders and 23.48% comprises after-sales revenue (including consumables and spares orders and O&M services orders). Our "Order Book" comprises anticipated revenue from the unexecuted portions of existing contracts and purchase orders (including signed contracts for which all pre-conditions to entry into force have been met and letters of acceptance issued by the customer prior to execution of the final contract. For further details, please see "Our Business - Our Order Book on page 237.
Key Financial Information
Set forth below are certain key financial information of our Company based on the Restated Consolidated Financial Information.
(in f million, except percentages and ratios)
| Key Financial Information | As at, or for the financial year ended, March 31, | ||
| 2024 | 2023 | 2022 | |
| Total income | 5,122.74 | 3,504.97 | 3,375.70 |
| Revenue from operations | 4,968.59 | 3,432.19 | 3,293.66 |
| Growth in revenue from operations | 44.76% | 4.21% | (5.25%) |
| EBITDA(1) | 811.47 | 495.84 | 614.27 |
| EBITDA Margin(2) | 16.33% | 14.45% | 18.65% |
| Property, plant and equipment turnover ratio(3) | 8.08 | 5.04 | 4.47 |
| Total Borrowings4 | 1,531.87 | 1,310.61 | 1,257.56 |
| Net Debt(5) | 1,215.49 | 486.48 | 964.83 |
| Debt-Equity Ratio(6) | 0.47 | 0.47 | 0.47 |
| Net Debt / EBITDA Ratio(7) | 1.50 | 0.98 | 1.57 |
| Return on Equity (RoE)(8) | 13.73% | 2.00% | 12.78% |
| Profit before taxes (PBT) | 439.97 | 75.53 | 185.31 |
| Profit for the year | 414.39 | 54.87 | 164.77 |
| PAT Margin %(9) | 8.34% | 1.60% | 5.00% |
| Capital Employed10 | 4,390.64 | 3,777.96 | 3,621.12 |
| Return on Capital Employed (RoCE)(11) | 14.07% | 6.96% | 10.23% |
| Net Worth12) | 3,208.19 | 2,792.26 | 2,668.10 |
| Return on Net Worth13) | 12.92% | 1.97% | 6.18% |
| Trade Receivables Turnover Ratio15) | 3.58 | 2.93 | 2.35 |
| Trade Payables Turnover Ratio16) | 3.36 | 2.89 | 2.71 |
| Gross Profit17) | 2,340.10 | 1,979.60 | 1,911.45 |
| Gross Profit Margin18) | 47.10% | 57.68% | 58.03% |
Notes:
(1) EBITDA is calculated as the sum of (i) restated profit after tax for the year, (ii) tax expenses, (iii) depreciation and amortization expenses, and (iv) finance costs, less interest income.
(2) EBITDA Margin is calculated as EBITDA divided by revenue from operations.
(3) Property, plant and equipment turnover ratio is calculated as revenue from operations divided by property, plant and equipment as at the end of the year.
(4) Total Borrowings is calculated as the sum of non-current borrowings and current borrowings.
(5) Net Debt is calculated as Total Borrowings less cash and cash equivalents and other bank balances other than cash and cash equivalents.
(6) Debt-Equity Ratio is calculated as Total Borrowings divided by total equity.
(7) Net Debt /EBITDA Ratio is calculated as Net Debt divided by EBITDA.
(8) Return on Equity is calculated as net profit after tax divided by average shareholders equity.
(9) PAT Margin is calculated as profit for the year divided by revenue from operations.
(10) Capital Employed is calculated as Tangible Net Worth (includes total asset and total liabilities excludes intangible assets (except ROU)) + (TotalDebt) - (Deferred Tax asset).
(11) Return on Capital Employed is calculated as earnings before interest and tax (EBIT) divided by Capital Employed.
(12) Net Worth is calculated as the sum of equity share capital and other equity, less capital reserve on consolidation.
(13) Return on Net Worth is calculated as profit for the year divided by Net Worth.
(14) Net Asset Value is calculated as total assets minus total liabilities.
(15) Trade receivable Turnover Ratio is calculated as revenue from operations divided by average trade receivables.
(16) Trade payable Turnover Ratio is calculated as purchases ofmaterial and expenses (net ofnotional expenses) divided by average trade payables (excluding dues payable to employees).
(17) Gross Profit is calculated by subtracting our Cost of Goods Sold ("COGS") from our revenue from operations. COGS refers to the direct costs that we incur for producing our finished goods and is the aggregate of our cost of raw materials and components consumed, purchase of stock-in-trade and increase/(decrease) in inventories of finished goods and work-in-progress. COGS excludes indirect expenses such as finance costs, depreciation and amortization expense and other expenses.
(18) Gross Profit Margin measures our gross profit compared to our revenues as a percentage and is calculated by dividing our Gross Profit by our revenue from operations.
Principal Factors Affecting our Results of Operations
Our financial performance and results of operations are influenced by a number of important factors, some of which are beyond our control, including without limitation, intense global and domestic competition, general economic conditions, changes in conditions in the regional markets in which we operate, changes in costs of supplies, and evolving government regulations and policies. Some of the more important factors are discussed below, as well as in the section titled "Risk Factors" on page 32.
Costs of raw materials and other inputs
Our principal raw materials and products purchased to integrate with our systems include membranes, pumps, electrical components, instrumentation, board panels, cabinets, tubes, pipes, steel, and certain cleaners and chemicals. Our Cost of Goods Sold, which is the aggregate of our cost of raw materials and components consumed, purchase of stock-in-trade and increase/(decrease) in inventories of finished goods and work-in-progress, makes up a large portion of our operating expenses. For the Fiscal 2024, Fiscal 2023 and Fiscal 2022, our Cost of Goods Sold amounted to, ? 2,628.49 million, ? 1,452.59 million and ? 1,382.21 million respectively, or, 51.31%, 41.44% and 40.95% of our total income, respectively. Set out below is a reconciliation of our Cost of Goods Sold, for the periods indicated.
| Particulars | Fiscal 2024 | Fiscal 2023 | Fiscal 2022 | |||
| Amount | Percentage of Cost of Goods Sold | Amount | Percentage of Cost of Goods Sold | Amount | Percentage of Cost of Goods Sold | |
(T million) |
(%) |
(T million) |
(%) |
(T million) |
(%) |
|
| Cost of raw materials and components consumed | 2,244.44 | 85.39% | 1,414.17 | 97.36% | 1,312.73 | 94.97% |
| Purchase of stock-intrade | 371.16 | 14.12% | 117.72 | 8.10% | 169.07 | 12.23% |
| Increase/(decrease) in inventories of finished goods and work-inprogress | 12.89 | 0.49% | (79.30) | (5.46)% | (99.59) | (7.21)% |
| Cost of Goods Sold | 2,628.49 | 100.00% | 1,452.59 | 100.00% | 1,382.21 | 100.00% |
Our financial condition and results of operations are significantly impacted by the availability and cost of our major raw materials and components, particularly steel and steel-related products (pumps) and petroleum-related products (plastics). We have strong supply chain relationships both in India and internationally. Outside of India, we source raw materials from vendors in the U.A.E., United States and Germany. In the Fiscal 2024, Fiscal 2023 and Fiscal 2022, our raw materials purchased overseas as a percentage of total raw materials purchases represented49.69%, 64.29% and62.54%, respectively.
We usually do not enter into long-term supply contracts with any of our raw material suppliers and typically source raw materials from third-party suppliers under purchase orders of shorter periods or the open market. Our suppliers are selected based on quality, price, cost effectiveness, company history, service levels and delivery capability. Prices are negotiated for each purchase order, and we generally have more than one supplier for each raw material. While we are not significantly dependent on any single raw material supplier, raw materials supply and pricing can be volatile due to a number of factors beyond our control, including global demand and supply, general economic and political conditions, transportation and labour costs, labour unrest, natural disasters, competition, import duties, tariffs and currency exchange rates, and there are inherent uncertainties in estimating such variables, regardless of the methodologies and assumptions that we may use. We are also dependent on supplied raw materials being of high quality and meeting relevant technical specifications and quality standards.
Therefore, we cannot assure you that we will be able to procure adequate supplies of raw materials in the future, as and when we need them on commercially acceptable terms.
The volatility in commodity prices can significantly affect our raw material costs. However, our Company continuously tracks the changes in raw material prices and adopts stricter measures to address such fluctuations. For our manufacturing operations, we retain around 98 days for Fiscal 2024 of inventory of raw materials and work-in-progress, thereby creating a natural risk hedge. However, if we are not able to compensate for or pass on our increased costs to customers, such price increases could have a material adverse impact on our result of operations, financial condition and cash flows. We are also dependent on supplied raw materials being of high quality and meeting relevant technical specifications and quality standards. Our products are tested by our inhouse testing team and thereafter, by external testing agencies pursuant to which, we strive to minimise the probability of defects in such products; however, in the event delivered materials are defective on account of any unforeseen circumstances such as including any accident during transit or adverse weather conditions, we might face warranty and damages claims from our customers. Production errors may lead to product recalls which could also lead to compensation claims and significantly damage our reputation and the confidence of present and potential customers and could have an adverse effect on our results of operations. See, "Risk Factors - Any shortfall in the supply of our components and raw materials or an increase in our component or raw material costs, or other input costs, may adversely affect the pricing and supply of our products and have an adverse effect on our business, results of operations and financial condition. " on page 36.
Employee benefits expense
Employee benefit expenses amounted to ^710.13 million, ?578.77 million and ?520.31 million, which constituted 14.29%, 16.86% and 15.80% of our revenue from operations in Fiscals 2024, 2023 and 2022, respectively. Our work force is a critical factor in maintaining quality and safety, which strengthen our competitive position. Our employee benefits expenses generally comprise (i) salaries, wages and bonus paid to our employees; (ii) contribution to provident fund and other funds; (iii) gratuity expenses; and (iv) staff welfare expenses. Since our workforce requirements are ultimately dependent upon our Operations and Maintenance business volumes.
Working capital requirements and access to capital resources
Our ability to grow depends largely on cost effective avenues of funding. Our business requires significant amounts of working capital, primarily to meet any expenses incurred in the ordinary course of business, including for financing our raw materials and components purchases, payment of salaries and wages, rent, administration expenses, insurance related expenses, payment of taxes and duties, advertisement, brand building and other marketing expenses, payment of interest on borrowings and meeting any other exigencies which we may face in manufacturing our products before we receive payments from our customers. Further, our working capital requirements also tend to increase if contractual or sales terms do not include advance payments or if under such contractual arrangements, payment is stipulated at the time of delivery of the final product to our customer or post installation and commissioning. Moreover, our working capital requirements will increase in the event we undertake a larger number of orders as we grow our business. In order to manage our working capital effectively, we are working on aligning vendor payment terms with receivables in some cases.
Our working capital requirements could increase if there is a considerable difference between the holding levels of our trade payables and our trade receivables and insufficient cash flows may affect our ability to fund our working capital requirements. We have, and may continue to have, high levels of outstanding receivables. As at March 31, 2024, March 31, 2023 and March 31, 2022, our trade receivables were ?1,713.60 million, ?1,058.68 million and ?1,284.98 million, respectively. Further, we are exposed to counterparty credit risk in the usual course of our business due to the nature of, and the inherent risks involved in, dealings, agreements and arrangements with our counterparties who may delay or fail to make payments or perform their other contractual obligations. Set forth below are details relating to holding levels of our trade payables, trade receivables and working capital cycle, for the periods indicated.
| Particulars | Number of days for the Fiscal | ||
| 2024 | 2023 | 2022 | |
| Trade receivables days(1) | 126 | 113 | 142 |
| Trade payables days(2) | 161 | 218 | 195 |
| Working capital days(3) | (35) | (105) | (53) |
(1 Trade receivables days have been calculated as trade receivables divided by revenue from operations multiplied by 365 days. (2 Trade payables days have been calculated as trade payables divided by cost of goods sold multiplied by 365 days.
(3> Working capital days describes the number of days it takes for us to convert our working capital into revenue and is calculated by deducting trade payable days from trade receivable days.
We strive to have sufficient inventory on hand at all times so that we are able to quickly meet the demands of our customers and to act as a natural hedge against any sudden increases in pricing of our principal raw materials and components. To this end, we strategically manage our inventories, purchasing raw materials based on our estimated future production requirements, taking into account our views on potential supply shortages, and maintaining finished goods based on our estimates of future customer demand. In recent years, we have increasingly optimised our inventory management, to ensure we meet our future requirements without maintaining undue levels of inventory.
As part of our growth strategy, we aim to grow our business in new sectors and geographies, which could increase our working capital requirements and, accordingly, negatively affect our working capital ratios. Currently, we fund our working capital requirements from our internal accruals as well as through raising working capital loans. As at June 30, 2024 and March 31, 2024, our total borrowings aggregated to ?1,658.27 million and ^1,531.87 million, respectively, of which working capital loans constituted aggregated to ?1,481.90 million and ?1,303.67 million, respectively, representing 88.83% and 85.10%, respectively, of our total outstanding borrowings as of those dates. Access to adequate capital at affordable cost of borrowing from our lenders and on such terms and conditions which are mutually acceptable to our Company and the lenders is critical to our business, operations and financial performance.
Capital expenditure
We require substantial capital to maintain and expand our existing facilities, construct new facilities and update and diversify our product offerings. As of March 31, 2024, we have two manufacturing facilities, one located at Vasai in Maharashtra, India, and the other at Sharjah in the UAE. During the Fiscal 2024, Fiscal 2023 and Fiscal 2022, we incurred cash outflow (towards purchase of property, plant and equipment, and intangible assets) on a restated consolidated basis of ?95.91 million, ?52.38 million and ?280.90 million, respectively. A significant amount of our capital expenditure was aimed at increasing our manufacturing capacities and diversifying our product base.
In order to meet expected growth in demand for our systems and plants, we are expanding our capacity for membrane and membrane module manufacturing as well as systems and plants assembly by building a new manufacturing facility near our existing facility in Sharjah and Vasai. Construction of the new facilities is expected to begin once the Net Proceeds of the Offer are available, and we expect that the facility will be commissioned within 12 to 24 months thereafter. The estimated cost for constructing these new manufacturing facilities is ?250.00 million and ? 105.05 million.
Our Companys competitive position and financial performance will continue to depend on our ability to adapt to and incorporate technological advancements and develop new and innovative products relevant to our customer base. We may consider opportunities for inorganic expansion through acquisitions, including where we can add technological competencies or expanding our product portfolio. Any significant acquisitions may require substantial capital. To the extent our available resources are not sufficient to cover acquisition costs, we will be required to seek additional debt or equity financing.
The actual amount and timing of our future capital requirements may differ from estimates as a result of, among other things, unforeseen delays or cost overruns in developing our products, changes in business plans due to prevailing economic conditions, unanticipated expenses and regulatory changes. To the extent our planned expenditure requirements exceed our available resources, we will be required to seek additional debt or equity financing. Additional debt financing could increase our interest costs and require us to comply with additional restrictive covenants in our financing agreements. Additional equity financing could dilute our earnings per Equity Share and your interest in the Company and could adversely impact our Equity Share price.
Reliance on top customers
We have a diversified customer base across industry sectors and geographies. In Fiscal 2024, we had 353 domestic customers and 24 international customers. We provide our wastewater treatment products and services to customers in industries, such as pharmaceuticals, chemicals, food and beverage, defence, offshore oil and gas platforms, automotive and auto ancillaries, steel and textiles industries, amongst others. Nevertheless, our top 10 and top 20 customers represent a significant portion of our revenue. In Fiscals 2024, 2023 and 2022, our top 10 customers accounted for 55.95%, 37.12% and 36.28% of our consolidated revenue from operations, respectively;
our top 20 customers accounted for 64.41%, 49.96% and 49.98%, of our consolidated revenue from operations, respectively.
The following table sets out a breakdown of revenue from our top customer, top 5, top 10 and top 20 customers in Fiscals 2024, 2023 and 2022.
| Fiscal 2024 | Fiscal 2023 | Fiscal 2022 | ||||
| Amount | Percentage of total revenue from operations | Amount | Percentage of total revenue from operations | Amount | Percentage of total revenue from operations | |
| (f million) | (%) |
(f million) | (%) |
(f million) | (%) |
|
| Top customer | 1,783.93 | 35.90 | 381.32 | 11.11 | 171.59 | 5.20 |
| Revenue from top 5 customers | 2,407.59 | 48.45 | 945.47 | 27.54 | 769.27 | 23.35 |
| Revenue from top 10 customers | 2,779.95 | 55.95 | 1,273.86 | 37.12 | 1,194.79 | 36.28 |
| Revenue from top 20 customers | 3,200.41 | 64.41 | 1,714.55 | 49.96 | 1,646.28 | 49.98 |
| Total revenue from operations | 4,968.59 | 100.00 | 3,432.19 | 100.00 | 3,293.66 | 100.00 |
We have long-term relationships and ongoing active engagements with many of our customers. However, if we are unable to expand our sales volumes to existing customers, maintain our relationships with key customers or diversify our customer base, we may experience material fluctuations or decline in our revenue and reduction in our operating margins, including as a result of any decrease in orders from any of these key customers and/or failure to retain such customers on terms that are commercially viable, as a result of which our business, results of operations and financial condition could be materially and adversely affected. In addition, any defaults or delays in payments by a major customer or a significant portion of our customers may have an adverse effect on business, financial condition and results of operations.
General and Indian economic conditions
We are affected by general global and Indian economic conditions. Our performance and growth will depend to a large extent on the health of the economies in which we operate. While our Company is incorporated in India and our manufacturing facilities are based in India, our products are sold in, among other regions, India, the Middle East and other parts of the world. We are, therefore, dependent on domestic, regional and global economic and market conditions of the markets in which we operate or intend to operate. Our business, results of operation and financial condition could be influenced by factors such as inflation, access to capital and borrowing costs, trade policies in terms of tariff and non-tariff barriers, Indias trade deficit, fluctuations in global commodity prices and fluctuations in Indias foreign exchange reserves or currency exchange rates, among others.
The global economy has rebounded after the economic downturn caused by the COVID-19 pandemic. Recovery was driven by extended fiscal support, adaptation to new work patterns, and vaccine distribution. Global GDP thrived with a robust growth rate of 3.2% in CY23, showcasing a resilient recovery from pandemic-induced setbacks. GDP further growth is projected to average 4.8% from CY23 to CY28. India is the fifth largest economy in the world in CY23 and is expected to be the third largest by CY28. Over the next 10-15 years, India is expected to be among the top economies on the back of rising demand & robust growth in various sectors. Indias GDP (at current prices) grew from US$ 2.7T to US$ 3.6T between CY18 and CY23 on the back of robust reforms like GST, corporate tax revision, and revised FDI limits. As per IMF projections, Indias GDP (at current prices) is expected to grow at a rate of 10% from CY23 to CY28, making it one of the fastest-growing large economies globally (Source: lLattice Report).
Trends in the waste water treatment industry, including the threats and challenges
The challenges faced by industries in India for water and wastewater management are multifaceted. Aging infrastructure, financial issues, and the need for continuous operation of treatment plants are significant hurdles. Additionally, the lack of realtime monitoring and an aging workforce further complicate the situation. These challenges are exacerbated by the countrys water scarcity issues, with Indias sewage treatment plants only treating one-third of the sewage generated daily. Certain of the key challenges are as follows:
• Competition for water resources among stakeholders;
• Unresolved conflicts over water allocation and usage rights;
• Limited awareness among industries about efficient practices and technologies;
• Insufficient capacity building training programs; and
• Limited financial resources for saving in water - saving technologies.
(Source: lLattice Report)
Industry competition
The markets wherein we operate are competitive, rapidly evolving and are characterized by continual introductions of new and improved solutions and technologies. We face competition from numerous competitors, both domestical and international, within the markets we serve. Our competitors may have significant competitive advantages, including greater access to financial, research and development, marketing, distribution and other resources, larger product offerings and greater specialization than us. Additionally, some of our competitors may be able to dedicate significantly larger resources towards developing and manufacturing technologically superior equipment than us and their brands may gain greater visibility within those product verticals, which could render our products uncompetitive or obsolete. Our competitors may further enter into business combinations or alliances that strengthen their competitive positions or prevent us from taking advantage by entering into such business combinations or alliances. To remain competitive, we must continue to invest significant resources in modernisation, research and development, manufacturing, sales and marketing and customer support. Increasing competition may result in pricing pressures or decreasing profit margins or lost market share or failure to improve our market position, any of which could substantially harm our business and results of operations. Any of these factors, in turn, could result in reductions in our sales prices and gross margin. If our competitors gain significant market share at our expense, our business, results of operations and financial condition could be adversely affected. Changes in the nature or extent of our customer requirements may render our service and product offerings obsolete or non-competitive, which could have a material adverse effect on our business, results of operations and financial condition. For further information, see the sections "Our Business - Competition" on page 243, "Risk Factors - We operate in a competitive environment and may not be able to effectively compete. We face competition from both domestic as well as multinational corporations and our inability to compete effectively could result in the loss of customers, hence, our market share, which could have an adverse effect on our business, results of operations, financial condition andfuture prospects" on page 42, and "Industry Overview" starting on page 157.
Foreign exchange rate risk
Our financial statements are prepared in Indian Rupees. However, our sales from exports and a portion of our raw materials expenditures are denominated in foreign currencies, mostly the U.S. Dollar, Dirhams and Mexican Pesos. Accordingly, we have currency exposures relating to buying, selling and financing in currencies other than in Indian Rupees, particularly the U.S. Dollar. For the Fiscal 2024, Fiscal 2023 and Fiscal 2022, ?2,075.16 million, ?825.22 million and ?740.44 million, representing 41.77%, 24.04%, and 22.48%, respectively, of revenue from operations was attributed to revenue by geographical market outside India. Imports of our raw materials accounted for ?2,074.04 million, ?1,614.04 million and ?1,429.98 million, representing 50.00%, 64.00% and 63.00%, of our total raw materials purchases in the Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. We do not enter into any hedging activities for our foreign currency positions and our exposure is naturally hedged by the fact that we export products to overseas customers and import raw materials from suppliers outside India. Accordingly, we are affected by fluctuations in exchange rates among the U.S. Dollar, Indian Rupee and other currencies. In the Fiscal 2024, Fiscal 2023 and Fiscal 2022, we recorded foreign currency exchange (gain)/loss (Net) of ? (7.32) million, ?25.29 million and ?42.91 million, respectively, due to these fluctuations in foreign currency. There can be no assurance that we will record exchange gains from foreign exchange fluctuations or any hedging measures we take will enable us to avoid the effect of any adverse fluctuations in the value of the Indian Rupee against the U.S. Dollar or other foreign currencies. A devaluation of any of the foreign currencies against the Indian Rupee may result in reduction of our margins.
Material Accounting Policies for the Restated Consolidated Financial Information
The material accounting policies as set forth in the Restated Consolidated Financial Information have been reproduced below.
1.1. Current and non-current classification
The Group presents assets and liabilities in the Restated Consolidated Statement of Assets and Liabilities based on current/ non-current classification. An asset is treated as current when it is:
• Expected to be realised or intended to be sold or consumed in normal operating cycle.
• Held primarily for the purpose of trading
• Expected to be realised within twelve months after the reporting period, or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
A liability is current when:
• It is expected to be settled in normal operating cycle
• It is held primarily for the purpose of trading
• It is due to be settled within twelve months after the reporting period, or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities, respectively.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. Based on the nature of service and the time between rendering of services and their realization in cash and cash equivalents, 12 months has been considered by the Group for the purpose of current / non-current classification of assets and liabilities.
1.2. Functional and presentation of currency
Restated Consolidated Financial Information are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency). The Restated Consolidated Financial Information are presented in Indian rupee (INR), which is also the Groups functional currency. All amounts have been rounded-off to the nearest Million, up to two places of decimal, unless otherwise indicated. Amounts having absolute value of less than INR 1,000,000 have been rounded and are presented as INR 0.00 million in the Restated Consolidated Financial Information.
1.3. Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal market or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participants ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs
All assets and liabilities for which fair value is measured or disclosed in the Restated Consolidated Financial Information are categorized within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole. The fair value hierarchy is described as below:
Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 - Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3 - Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
For assets and liabilities that are recognised in the Restated Consolidated Financial Information at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of fair value hierarchy.
Fair values have been determined for measurement and / or disclosure purpose using methods as prescribed in "Ind AS 113 Fair Value Measurement".
1.4. Use of estimates, judgements and assumptions
The preparation of these Restated Consolidated Financial Information in conformity with the recognition and measurement principles of Ind AS requires management to make judgments, estimates and assumptions in application of accounting policies that affect the reported balances of assets and liabilities, disclosure of contingent liabilities as on the date of Restated Consolidated Financial Information and reported amounts of income and expenses for the periods presented. The Group based its assumptions and estimates on parameters available when the Restated Consolidated Financial Information were prepared. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and future periods are affected.
Key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Significant estimates and critical judgement in applying these accounting policies are described below:
1.4.1. Significant accounting judgements
Leases
Determining the lease term of contracts with renewal and termination options - Group as lessee
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. Accordingly, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate.
1.4.2. Estimates and assumptions
(i) Impairment of non-financial assets (property, plant and equipments, intangible assets and right of use asset)
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets or Cash Generating Units (CGUs) fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. In determining the fair value less costs to disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators.
(ii) Defined benefit obligations
The cost of the defined benefit gratuity plan, other defined benefit plan and other post-employment plans are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, expected returns on plan assets and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The mortality rate is based on publicly available mortality tables for India. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases, discount rate and return on planned assets are based on expected future inflation rates for India.
(iii) Impairment of financial assets
The impairment provisions for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on Groups past history, existing market conditions as well as forward looking estimates at the end of each reporting period. Further, the Group also evaluates risk with respect to expected loss on account of loss in time value of money which is calculated using average cost of capital for relevant financial assets.
(iv) Income tax and deferred tax
Deferred tax assets are not recognised for unused tax losses as it is not probable that taxable profit will be available against which the losses can be utilised. Significant management judgement/estimate is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
Further details on taxes are disclosed in note 3.15
(v) Indefinite life - intangible assets
Indefinite life intangible assets comprise of brand and trademark, for which there is no foreseeable limit to the period over which they are expected to generate net cash inflows. These are considered to have an indefinite life, given the strength and durability of the brand and the level of marketing support. For indefinite life intangible assets, the assessment of indefinite life is reviewed annually to determine whether it continues, if not, it is impaired or changed prospectively basis revised estimates.
(vi) Fair value of financial assets and financial liabilities
Some of the Groups financial assets and financial liabilities are measured at fair value for financial reporting purposes. The Group determines the appropriate valuation techniques and input for fair value measurements. For estimates relating to fair value measurement refer note 3.3.
1.5. Property, Plant and Equipment and Depreciation
Recognition and measurement
Properties plant and equipment are stated at their cost of acquisition. Cost of an item of property, plant and equipment includes purchase price including non - refundable taxes and duties, borrowing cost directly attributable to the qualifying asset, any costs directly attributable to bringing the asset to the
location and condition necessary for its intended use and the present value of the expected cost for the dismantling/decommissioning of the asset.
Parts (major components) of an item of property, plant and equipments having different useful lives are accounted as separate items of property, plant and equipments.
Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group. All other repair and maintenance costs are recognised in Restated Consolidated Statements of Profit and Loss as incurred.
Capital work-in-progress comprises of cost incurred on property, plant and equipment under construction / acquisition that are not yet ready for their intended use at the date of Restated Statement of Assets and Liabilities. Advances paid towards the acquisition of PPE outstanding at each reporting date is classified as Capital Advances under "Other Non-Current Assets" and assets which are not ready for intended use as on the date of Restated Consolidated Financial Information are disclosed as "Capital Work in Progress".
Depreciation and useful lives
Depreciation on the property, plant and equipment (other than capital work in progress) is provided on a written down value method (WDV) over their useful lives which is in consonance of useful life mentioned in Schedule II to the Companies Act, 2013 or useful lives as determined based on internal technical evaluation. The estimated useful lives are as under:
| Type of asset | Useful lives estimated by the management (years) |
| Building | 30 |
| Plant and machinery | 3-20 |
| Furniture and fixture | 2-20 |
| Vehicles | 5-10 |
| Office equipment | 2 - 10 |
| Computer - End user devices | 3 - 5 |
| Computer - Server | 5 - 6 |
| Leasehold Land | 58 to 78 years |
| Plant and Machinery | More than 1 year- 7 years |
| Office Premises | More than 1 year- 7 years |
Depreciation methods, useful lives and residual values, determined based on internal technical evaluation are reviewed at each financial year end and adjusted prospectively.
De-recognition
An item of property, plant and equipment and any significant part initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Restated Consolidated Statements of Profit and Loss when the asset is de-recognised.
1.6. Intangible assets and amortisation
Recognition and measurement
Intangible assets are recognized only if it is probable that the future economic benefits attributable to asset will flow to the Group and the cost of asset can be measured reliably. Intangible assets are stated at cost of acquisition/development less accumulated amortization and accumulated impairment loss if any.
Cost of an intangible asset includes purchase price including non - refundable taxes and duties, borrowing cost directly attributable to the qualifying asset and any directly attributable expenditure on making the asset ready for its intended use.
Intangible assets under development comprises of cost incurred on intangible assets under development that are not yet ready for their intended use as at the date of Restated Statement of Assets and Liabilities.
Amortization and useful lives
Intangible assets with finite lives comprise of technology and trade mark and software, are amortized over the period of 10 years or useful life whichever is less on straight-line basis. Amortisation methods and useful lives are reviewed at each financial year end and adjusted prospectively. Intangible assets with indefinite lives comprise of brands and trademarks for which there is no foreseeable limit to the period over which they are expected to generate cash inflows. These are considered to have an indefinite life given the strength and durability of the brand and the level of marketing support. For intangible assets with indefinite lives the assessment of indefinite life is reviewed annually to determine whether it continues, if not, it is impaired or changed prospectively basis the revised estimates.
In case of assets purchased / sold during the year, amortization on such assets is calculated on pro-rata basis from the date of such addition.
1.7. Leases
The determination of whether a contract is (or contains) a lease is based on the substance of the contract at the inception of the lease. The contract is, or contains, a lease if the contract provide lessee, the right to control the use of an identified asset for a period of time in exchange for consideration. A lessee does not have the right to use an identified asset if, at inception of the contract, a lessor has a substantive right to substitute the asset throughout the period of use.
The Group accounts for the lease arrangement as follows:
(i) Where the Group is the lessee
Right of Use Asset
The Group applies single recognition and measurement approach for all leases, except for short term leases and leases of low value assets. On the commencement of the lease, the Group, in its Restated Consolidated Statement of Assets and Liabilities, recognised the right of use asset at cost and lease liability at present value of the lease payments to be made over the lease term.
Subsequently, the right of use asset is measured at cost less accumulated depreciation calculated on straight line method and any accumulated impairment loss. Right-of-use assets are depreciated on a straight-line basis over the lease term as follows:
| Asset category | Lease Term |
| Lease hold land | 58 to 78 years |
| Plant and Machinery | More than 1 year - 7 years |
| Office Premises | More than 1 year - 7 years |
The right-of-use assets are also subject to impairment. Refer to the accounting policies in note 3.8 on impairment of non-financial assets.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The lease payment made, are apportioned between the finance charge and the reduction of lease liability, and are recognised as expense in the Restated Consolidated Statements of Profit and Loss.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of assets that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term.
Lease deposits given are a financial asset and are measured at amortised cost under Ind AS 109 since it satisfies Solely Payment of Principal and Interest (SPPI) condition. The difference between the present value and the nominal value of deposit is considered as Right of Use Asset and depreciated over the lease term. Unwinding of discount is treated as finance income and recognised in the Restated Consolidated Statements of Profit and Loss.
(ii) Where the entity is the lessor
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases.
Leases are classified as finance leases when substantially all of the risks and rewards of ownership transfer from the Group to the lessee. Amounts due from lessees under finance leases are recorded as receivables at the Groups net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease
Lease deposits received are financial instruments (financial liability) and are measured at fair value on initial recognition. The difference between the fair value and the nominal value of deposits is considered as rent in advance and recognised over the lease term on a straight line basis. Unwinding of discount is treated as interest expense (finance cost) for deposits received and is accrued as per the EIR method.
Sale and lease back
If an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) and leases that asset back from the buyer-lessor, both the seller-lessee and the buyer-lessor are required to account for the transfer contract and the lease by applying Ind AS 116 Para 99 to 103.
(i) Transfer of the asset is not a sale
If the transfer of an asset by the seller-lessee does not satisfy the requirements of Ind AS 115 and wherein if the seller-lessee has a substantive repurchase option with respect to the underlying asset, the Group (seller-lessee)
• De-recognises the sale (revenue) in books with corresponding impact on the cost of goods sold (COGS) to eliminate the profit margin in the transaction.
• Recognises transferred asset (Right of use asset) net of profit margin and a financial liability equal to the present value of minimum lease payments applying relevant paragraph of Ind AS 109 and Ind AS 116.
(ii) Transfer of the asset is a sale
If the transfer of an asset by the seller-lessee does satisfy the requirements of Ind AS 115 and wherein if the seller-lessee do not have a substantive repurchase option with respect to the underlying asset., the Group (seller-lessee)
• De-recognises the profit margin in the transaction by reducing the sale (revenue) to that effect in books.
• Recognises transferred asset (Right of use asset) net of profit margin and a financial liability equal to the present value of minimum lease payments applying relevant paragraph of Ind AS 109 and Ind AS 116.
1.8. Impairment of non-financial assets
The carrying amounts of assets are reviewed at each balance sheet date for any indication of impairment based on internal / external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of a) fair value of assets less cost of disposal and b) its value in use. Value in use is the present value of future cash flows expected to derive from an assets or Cash-Generating Unit (CGU).
Based on the assessment done at each balance sheet date, recognised impairment loss is further provided or reversed depending on changes in circumstances. After recognition of impairment loss or reversal of impairment loss as applicable, the depreciation charge for the asset is adjusted in future periods to allocate the assets revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life. If the conditions leading to recognition of impairment losses no longer exist or have decreased, impairment losses recognised are reversed to the extent it does not exceed the carrying amount that would have been determined after considering depreciation / amortisation had no impairment loss been recognised in earlier years.
1.9. Inventories
Inventories include raw materials and components, work in progress, traded and manufactured finished goods.
Cost of inventories have been computed to include all cost of purchases, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.
Raw materials, components is ascertained based on weighted average method. However, raw materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Costs are determined on weighted average basis.
Work-in-progress and finished goods are valued at lower of cost and net realisable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Net realizable value for work in progress is determined with reference to the selling price of related finished goods. Trade goods are considered at landed cost.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Provision is made for the cost of obsolescence and other anticipated losses, whenever considered necessary.
1.10. Revenue recognition
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has concluded that it is principal in its revenue arrangements, because it typically controls the goods or services before transferring them to the customer. The policy of recognizing the revenue is determined by the five stage model proposed by Ind AS 115 "Revenue from contract with customers".
(a) Revenue from operations:
• Revenue from sale of goods is recognised at the point in time when control of the assets is transferred to the customer, generally on delivery of the goods.
• Revenue from sale of services is recognized on rendering of services to the customers based on contractual arrangements. Revenue is recorded exclusive of goods and service tax. Contract prices are either fixed or subject to price escalation clauses.
• Revenue is recognised upon transfer of control of promised products or services to customers in an amount that reflects the consideration which the Group expects to receive in exchange for those products or services
• Revenue is measured based on the transaction price, which is the consideration, adjusted for volume discounts and incentives, if any, as specified in the contract with the customer.
• Revenue also excludes taxes collected from customers.
• Unearned and deferred revenue ("contract liability") is recognised when there is billing in excess of revenues.
• Revenue from the sale of material is recognized on the basis of value of material dispatched as per the order terms and on satisfaction of five stage model prescribed by Ind AS 115.
• For performance obligation satisfied over time, the revenue recognition is done by measuring the progress towards complete satisfaction of performance obligation. The progress is measured in terms of a proportion of actual cost incurred to-date, to the total estimated cost attributable to the performance obligation.
The Company transfers control of a good or service over time and therefore satisfies a performance obligation and recognises revenue over a period of time if one of the following criteria is met:
(a) the customer simultaneously consumes the benefit of the Companys performance or
(b) the customer controls the asset as it is being created/enhanced by the Companys performance or
(c) there is no alternative use of the asset and the Company has either explicit or implicit right of payment considering legal precedents,
(b) Interest income
For all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Interest income is included in other income in the Restated Consolidated Statements of Profit and Loss.
(c) Dividends
Dividend income is recognised when the Groups right to receive the payment is established.
(d) Other income
Other incomes are accounted on accrual basis, except interest on delayed payment by debtors and liquidated damages which are accounted on acceptance of the Groups claim.
1.11. Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant or subsidy relates to revenue, it is
recognized as income on a systematic basis in the Restated Consolidated Statements of Profit and Loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and is allocated to Restated Consolidated Statements of Profit and Loss on a systematic basis over the useful life of the asset.
1.12. Foreign currency transaction
Transactions in foreign currencies are initially recorded by the Group in its functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange difference that arise on settlement of monetary items or on reporting at each balance sheet date of the Groups monetary items at the closing rate are recognized as income or expenses in the period in which they arise. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income (OCI) or Restated Consolidated Statements of Profit and Loss are also recognised in OCI or Restated Consolidated Statements of Profit and Loss, respectively)
1.13. Employee benefits
• Short term employee benefits
All employee benefits falling due wholly within twelve months of rendering the service are classified as short term employee benefits and they are recognized as an expense at the undiscounted amount in the Restated Consolidated Statements of Profit and Loss in the period in which the employee renders the related service.
• Post-employment benefits & other long term benefits
a. Defined contribution plan
The defined contribution plan is a post-employment benefit plan under which the Group contributes fixed contribution to a government administered fund and will have no obligation to pay further contribution. The Groups defined contribution plan comprises of [Provident Fund, Labour Welfare Fund, Employee State Insurance Scheme, National Pension Scheme, and Employee Pension Scheme. The Groups contribution to defined contribution plans are recognized in the Restated Consolidated Statements of Profit and Loss in the period in which the employee renders the related service.
b. Post-employment benefit and other long term benefits
The Group has defined benefit plans comprising of gratuity and other long term benefits in the form of leave benefits. Groups obligation towards gratuity liability is funded / unfunded. The present value of the defined benefit obligations and other long term employee benefits is determined based on actuarial valuation using the projected unit credit method. The rate used to discount defined benefit obligation is determined by reference to market yields at the date of the Restated Consolidated Statement of Assets and Liabilities n Indian Government Bonds for the estimated term of obligations.
For gratuity plan, re-measurements comprising of (a) actuarial gains and losses, (b) the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability) and (c) the return on plan assets (excluding amounts included in net interest on the post-employment benefits liability) are recognised immediately in the Restated Consolidated Statement of Assets and Liabilities with a corresponding debit or credit to the other
comprehensive income in the period in which they occur. Re-measurements are not reclassified to Restated Consolidated Statements of Profit and Loss in subsequent periods.
Gains or losses on the curtailment or settlement of defined benefit plan are recognised when the curtailment or settlement occurs.
Actuarial gains or losses arising on account of experience adjustment and the effect of changes in actuarial assumptions for employee benefit plan other than gratuity are recognized immediately in the Restated Consolidated Statements of Profit and Loss as income or expense.
In case of funded plans, the fair value of the plan assets is reduced from the gross obligation under the defined benefit plans to recognise the obligation on a net basis.
1.14. Borrowing cost
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of the respective asset till such time the asset is ready for its intended use or sale. A qualifying asset is an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. Ancillary cost of borrowings in respect of loans not disbursed are carried forward and accounted as borrowing cost in the year of disbursement of loan. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest expenses calculated as per effective interest method, exchange difference arising from foreign currency borrowings to the extent they are treated as an adjustment to the borrowing cost and other costs that an entity incurs in connection with the borrowing of funds.
1.15. Taxes on income
Tax expenses for the year comprises of current tax, deferred tax charge or credit and adjustments of taxes for earlier years. In respect of amounts adjusted outside profit or loss (i.e. in other comprehensive income or equity), the corresponding tax effect, if any, is also adjusted outside profit or loss.
Current tax is measured at the amount of tax expected to be payable on the taxable income for the year and any adjustments to the tax payable or receivable in respect of previous years as determined in accordance with the provisions of the Income Tax Act,1961 that have been enacted or subsequently enacted at the end of the reporting period.
Current tax assets and current tax liabilities are offset when there is legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis or simultaneously.
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, and deferred tax assets are recognised for all deductible temporary differences, carry forward tax losses and allowances to the extent that it is probable that future taxable profits will be available against which those deductible temporary differences, carry forward tax losses and allowances can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year 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. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxation authority.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which such deferred tax assets can be utilized. In situations where the Group has unused tax losses and unused tax credits, deferred tax assets are recognised only if it is probable that they can be utilized against future taxable profits. Deferred tax assets are reviewed for the appropriateness of their respective carrying amounts at each Balance Sheet date.
At each reporting date, the Group re-assesses unrecognised deferred tax assets. It recognises previously unrecognised deferred tax assets to the extent that it has become probable that future taxable profit allows deferred tax assets to be recovered.
1.16. Cash & cash equivalent
Cash and cash equivalents include cash in hand, bank balances, deposits with banks (other than on lien) and all short term and highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value.
1.17. Statement of cash flows
Cash flows are reported using the indirect method, where by net profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities are segregated.
1.18. Provisions, contingent liabilities, contingent assets
A provision is recognised when the Group has a present obligation (legal or constructive) as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. If the effect of time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risk specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not require an outflow of resources. When there is a possible obligation or a present obligation in respect of which likelihood of outflow of resources is remote, no provision or disclosure is made.
Provisions, contingent liabilities, contingent assets and commitments are reviewed at each date of the Restated Consolidated Statement of Assets and Liabilities.
1.19. Earnings per share
Basic earnings per share is computed using the net profit for the year attributable to the shareholders and weighted average number of shares outstanding during the year. The weighted average numbers of shares also includes fixed number of equity shares that are issuable on conversion of compulsorily convertible preference shares, debentures or any other instrument, from the date consideration is receivable (generally the date of their issue) of such instruments.
Diluted earnings per share is computed using the net profit for the year attributable to the shareholder and weighted average number of equity and potential equity shares outstanding during the year including share options, convertible preference shares and debentures, except where the result would be antidilutive. Potential equity shares that are converted during the year are included in the calculation of diluted earnings per share, from the beginning of the year or date of issuance of such potential equity shares, to the date of conversion.
1.20. Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.
1.21. Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in Restated Consolidated Statement of Profit and Loss.
Derivative financial instruments
Derivatives are recognised initially at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in Restated Consolidated Statement of Profit and Loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. Derivatives are not offset in the financial statements unless the Group has both a legally enforceable right and intention to offset. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not due to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
Embedded derivatives
An embedded derivative is a component of a hybrid contract that also includes a non-derivative host - with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative.
Derivatives embedded in hybrid contracts with a financial asset host within the scope of Ind AS 109 are not separated. The entire hybrid contract is classified and subsequently measured as either amortised cost or fair value as appropriate.
Derivatives embedded in hybrid contracts with hosts that are not financial assets within the scope of Ind AS 109 (e.g. financial liabilities) are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.
If the hybrid contract is a quoted financial liability, instead of separating the embedded derivative, the Company generally designates the whole hybrid contract at FVTPL.
An embedded derivative is presented as a non-current asset or non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative relates is more than 12 months and is not expected to be realised or settled within 12 months.
1.21.1. Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost (except for debt instruments that are designated as at fair value through profit or loss on initial recognition):
• the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
• the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
All other financial assets are subsequently measured at fair value.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL. Interest income is recognised in profit or loss and is included in the "Other income" line item.
Investments in equity instruments at FVTOCI
On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to present the subsequent changes in fair value in other comprehensive income pertaining to investments in equity instruments. This election is not permitted if the equity investment is held for trading. These elected investments are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the ‘Reserve for equity instruments through other comprehensive income. The cumulative gain or loss is not reclassified to profit or loss on disposal of the investments.
A financial asset is held for trading if:
• It has been acquired principally for the purpose of selling it in the near term; or
• On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
• It is a derivative that is not designated and effective as a hedging instrument or a financial guarantee. Dividends on these investments in equity instruments are recognised in profit or loss when the Groups right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably. Dividends recognised in profit or loss are included in the ‘Other income line item.
Financial assets at fair value through profit or loss (FVTPL)
Investments in equity instruments are classified as at FVTPL, unless the Group irrevocably elects on initial recognition to present subsequent changes in fair value in other comprehensive income for investments in equity instruments which are not held for trading.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘Other income line item. Dividend on financial assets at FVTPL is recognised when the Group s right to receive the dividends is established, it is probable that the economic benefits associated with the dividend will flow to the entity, the dividend does not represent a recovery of part of cost of the investment and the amount of dividend can be measured reliably.
Impairment of financial assets
The Group recognizes loss allowances using the expected credit loss (ECL) model based on ‘simplified approach for the financial assets which are not fair valued through profit or loss. Loss allowance for trade receivables with no significant financing component is measured at an amount equal to lifetime ECL. For all other financial assets, expected credit losses are measured at an amount equal to the twelve month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized is recognized as an impairment gain or loss in Restated Consolidated Statements of Profit and Loss.
De-recognition of financial asset
The Group de-recognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On de-recognition of a financial asset in its entirety, the difference between the assets carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial asset.
On de-recognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial asset. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts.
1.21.2. Financial liability and equity instrument
Classification as debt or equity
Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Repurchase of the Groups own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Groups own equity instruments.
Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL.
However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, financial guarantee contracts issued
by the Group, and commitments issued by the Group to provide a loan at below-market interest rate are measured in accordance with the specific accounting policies set out below.
Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either contingent consideration recognised by the Group as an acquirer in a business combination to which Ind AS 103 applies or is held for trading or it is designated as at FVTPL.
A financial liability is classified as held for trading if:
• it has been incurred principally for the purpose of repurchasing it in the near term; or
• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
• it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading or contingent consideration recognised by the Group as an acquirer in a business combination to which Ind AS 103 applies, may be designated as at FVTPL upon initial recognition if:
• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise;
• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
• it forms part of a contract containing one or more embedded derivatives, and Ind AS 109 permits the entire combined contract to be designated as at FVTPL in accordance with Ind AS 109.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘Finance Cost line item.
However, for non-held-for-trading financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes in the liabilitys credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss, in which case these effects of changes in credit risk are recognised in profit or loss. The remaining amount of change in the fair value of liability is always recognised in profit or loss. Changes in fair value attributable to a financial liabilitys credit risk that are recognised in other comprehensive income are reflected immediately in retained earnings and are not subsequently reclassified to profit or loss.
Gains or losses on financial guarantee contracts and loan commitments issued by the Group that are designated by the Group as at fair value through profit or loss are recognised in profit or loss.
Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expense that is not capitalised as part of costs of an asset is included in the ‘Finance costs line item. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability or (where appropriate) a shorter period, to the gross carrying amount on initial recognition.
Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.
Financial guarantee contracts issued by the Group are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of:
• the amount of loss allowance determined in accordance with impairment requirements of Ind AS 109; and
• the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 18.
Compound financial instruments
The liability component of a compound financial instrument is recognised initially at fair value of a similar liability that does not have an equity component. The equity component is recognised initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and the equity components, if material, in proportion to their initial carrying amounts.
Subsequent to the initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest rate method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
Reclassification
The Group determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The management determines change in the business model as a result of external or internal changes which are significant to the Groups operations. A change in the business model occurs when the Group either begins or ceases to perform an activity that is significant to its operations. If the Group reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Group does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.
De-recognition of financial liabilities
The Group de-recognises financial liabilities when, and only when, the Groups obligations are discharged, cancelled or have expired. An exchange between with a lender of debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability (whether or not attributable to the financial difficulty of the debtor) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of the financial liability de-recognised and the consideration paid and payable is recognised in Restated Consolidated Statements of profit or loss.
Changes in the accounting policies, if any, in the Fiscals 2024, 2023 and 2022 and their effect on our profits and reserves
There have been no changes in our accounting policies in the last three Fiscals.
Key Financial Information and Non-GAAP Financial Measures
In addition to our financial results determined in accordance with Ind AS, we consider and use those certain non- GAAP financial measures and key financial information such as EBITDA, EBITDA Margin, property, plant and equipment turnover ratio, Total Borrowings, Net Debt, Debt-Equity Ratio, Net Debt / EBITDA Ratio, Return on Equity (RoE), Profit before taxes, Profit after taxes, PAT Margin, Capital Employed, Return on Capital Employed (RoCE), Net Worth, Return on Net Worth, Trade receivable Turnover Ratio, Trade payable Turnover Ratio, Gross Profit and Gross Profit Margin that are presented below as supplemental measures to review and assess our operating performance. Our management does not consider these non-GAAP financial measures and key financial information in isolation or as an alternative or substitutive to the Restated Consolidated Financial Information. We present these non-GAAP financial measures and key financial information because we believe they are useful to our Company in assessing and evaluating our operating performance, and for internal planning and forecasting purposes. We believe these non-GAAP financial measures could help investors as an additional tool to evaluate our ongoing operating results and trends with a more granular view of our financial performance.
Non-GAAP financial measures are not recognized under Ind AS and do not have standardized meanings prescribed by Ind AS. In addition, non-GAAP financial measures and key financial information used by us may differ from similarly titled non-GAAP measures used by other companies. These non-GAAP measures and key financial information have limitations as analytical tools, with the principal limitation being that they do not reflect our cash expenditures or future requirements for capital expenditure or contractual commitments; changes in, or cash requirements for, our working capital needs; and the finance cost, or cash requirements. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and these measures do not reflect any cash requirements for such replacements. Such measures may also exclude significant expenses and income that are required by Ind AS to be recorded in our financial statements, as further detailed below. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures.
A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure prepared in accordance with Ind AS, along with a brief explanation of their calculation. Investors are encouraged to review the related Ind AS financial measures and the reconciliation of non-GAAP financial measures to their most directly comparable Ind AS financial measures included below and to not rely on any single financial measure to evaluate our business, ongoing results and trends in isolation from, or as a substitute for, analysis of our historical financial performance, as reported and presented in our Restated Consolidated Financial Information set out in this Draft Red Herring Prospectus. Other companies, including peer companies, may calculate such non-GAAP measures and key financial information differently from the way we calculate them and hence their comparability with those used by us may be limited. Therefore, these non-GAAP measures and key financial information should not be viewed as substitutes for performance or profitability measures under Ind AS or as indicators of our operating performance, cash flows, liquidity or profitability.
See "Risk Factors - We track certain operational metrics and non-generally accepted accounting principles, measures with internal systems and tools and do not independently verify such metrics. Certain of our operational metrics are subject to inherent challenges in measurement and any real or perceived inaccuracies in such metrics may adversely affect our business and reputation. " on page 62
EBITDA and EBITDA Margin
The following table sets forth our EBITDA and EBITDA Margin for the financial years ended March 31, 2024, March 31, 2023 and March 31, 2022, including a reconciliation of each such financial measure to the Restated Consolidated Financial Information.
(t million, except. for percentages)
| Particulars | Fiscal | ||
| 2024 | 2023 | 2022 | |
| Revenue from operations (A) | 4,968.59 | 3,432.19 | 3,293.66 |
| Profit for the year (B) | 414.39 | 54.87 | 164.77 |
| Add: Finance costs (C) | 177.93 | 187.50 | 185.11 |
| Add: Tax expense (D) | 25.58 | 20.66 | 20.54 |
| Add: Depreciation and amortisation expenses (E) | 218.74 | 243.39 | 254.80 |
| Less: Interest income (F) | 25.17 | 10.58 | 10.95 |
| EBITDA (G=B+C+D+E-F) | 811.47 | 495.84 | 614.27 |
| EBITDA Margin (H=G/A) | 16.33% | 14.45% | 18.65% |
Total Borrowings
The following table sets forth our Total Borrowings as at March 31, 2024, March 31, 2023 and March 31, 2022, including a reconciliation of such financial measure to the Restated Consolidated Financial Information. Total Borrowings is calculated as the sum of (i) non-current borrowings, and (ii) current borrowings (including current maturities of non-current borrowings).
(t million)
| Particulars | As at March 31, | ||
| 2024 | 2023 | 2022 | |
| Non-current borrowings (1) | 228.20 | 330.98 | 411.35 |
| Current borrowings (including current maturities of noncurrent borrowings)(2) | 1,303.67 | 979.63 | 846.21 |
| Total Borrowings (A=(1)+(2)) | 1,531.87 | 1,310.61 | 1,257.56 |
Net Debt
The following table sets forth our Net Debt, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, as at March 31, 2024, March 31, 2023 and March 31, 2022. Net Debt is calculated as Total Borrowings less cash and cash equivalents and other bank balances.
(t million)
| Particulars | As at March 31, | ||
| 2024 | 2023 | 2022 | |
| Total Borrowings (A) | 1,531.87 | 1310.61 | 1,257.56 |
| Cash and cash equivalents (1) | 182.56 | 602.60 | 196.06 |
| Other bank balances other than cash and cash equivalents (2) | 133.82 | 221.53 | 96.67 |
| Net Debt (B=A-(1+2)) | 1,215.49 | 486.48 | 964.83 |
Debt-Equity Ratio
The following table sets forth our Debt-Equity Ratio, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, as at March 31, 2024, March 31, 2023 and March 31, 2022. Debt- Equity Ratio is calculated as Total Borrowings divided by total equity.
(t million, except for ratios)
| Particulars | As at, or for the fiscal year ended, March 31, | ||
| 2024 | 2023 | 2022 | |
| Total Borrowings (A) | 1,531.87 | 1,310.61 | 1257.56 |
| Total equity (B) | 3,225.54 | 2,809.61 | 2685.45 |
| Debt-Equity Ratio (C=A/B) | 0.47 | 0.47 | 0.47 |
Net Debt/EBITDA Ratio
The following table sets forth our Net Debt/EBITDA Ratio, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, for the financial years ended March 31, 2024, March 31, 2023 and March 31, 2022. Net Debt/EBITDA Ratio is calculated as Net Debt divided by EBITDA.
(t million, except. for ratios)
| Particulars | As at, and for the fiscal year ended, March 31, | ||
| 2024 | 2023 | 2022 | |
| Net Debt (A) | 1,215.49 | 486.48 | 964.83 |
| EBITDA (B) | 811.47 | 495.84 | 614.27 |
| Net Debt / EBITDA Ratio (C=A/B) | 1.50 | 0.98 | 1.57 |
Return on Equity (RoE)
The following table sets forth our Return on Equity, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, for the financial years ended March 31, 2024, March 31, 2023 and March 31, 2022. Return on Equity is calculated as net profit after tax divided by average shareholders equity for the year. Average shareholders equity is calculated as the sum of (i) total equity as at the beginning of the fiscal year and (ii) total equity as at the end of the fiscal year, divided by two.
(t million, except for percentages)
| Particulars | As at, and for the fiscal year ended, March 31, | ||
| 2024 | 2023 | 2022 | |
| Profit for the year (A) | 414.39 | 54.87 | 164.77 |
| Average shareholders equity (B) | 3,017.58 | 2,747.53 | 1,289.23 |
| Return on Equity (C=A/B) | 13.73% | 2.00% | 12.78% |
PAT Margin
The following table sets forth our PAT Margin, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, for the financial years ended March 31, 2024, March 31, 2023 and March 31, 2022. PAT Margin is calculated as profit for the year divided by revenue from operations.
(t million, except for percentages)
| Particulars | For the fiscal year ended March 31, | ||
| 2024 | 2023 | 2022 | |
| Profit for the year (A) | 414.39 | 54.87 | 164.77 |
| Revenue from operations (B) | 4,968.59 | 3,432.19 | 3,293.66 |
| PAT Margin (C=A/B) | 8.34% | 1.60% | 5.00% |
Capital Employed
The following table sets forth our Capital Employed, including a reconciliation of such financial measure to the Restated Consolidated Financial Information as at March 31, 2024, March 31, 2023 and March 31, 2022. Capital Employed is calculated as Tangible Net Worth (includes total asset and total liabilities excludes intangible assets (except ROU)) + (Total Debt) - (Deferred Tax asset).
(t million)
| Particulars | As at March 31, | ||
| 2024 | 2023 | 2022 | |
| Total assets (1) | 6,276.75 | 5,922.20 | 5,368.99 |
| Total liabilities (2) | 3,051.21 | 3,112.59 | 2,683.54 |
| Less: Intangible assets (3) | 275.69 | 272.98 | 259.12 |
| Less: Intangible assets under development (4) | 9.72 | - |
- |
| Tangible Net Worth (A= 1 -2-3-4) | 2,940.13 | 2,536.63 | 2,426.33 |
| Total Borrowings (B) | 1,531.87 | 1,310.61 | 1,257.56 |
| Deferred Tax Asset (Net) (C) | 81.36 | 69.28 | 62.77 |
| Capital Employed (D = A+B-C) | 4,390.64 | 3,777.96 | 3,621.12 |
Return on Capital Employed (RoCE)
The following table sets forth our Return on Capital Employed, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, for the financial years ended March 31, 2024, March 31, 2023 and March 31, 2022. Return on Capital Employed is calculated as earnings before interest and tax divided by Capital Employed.
(t million, except for ratios)
| Particulars | For the fiscal year ended March 31, | ||
| 2024 | 2023 | 2022 | |
| Profit before tax (A) | 439.97 | 75.53 | 185.31 |
| Finance costs (B) | 177.93 | 187.50 | 185.11 |
| EBIT (C=A+B) | 617.90 | 263.03 | 370.42 |
| Capital Employed (D) | 4,390.64 | 3,777.96 | 3,621.12 |
| Return on Capital Employed (E=C/D) | 14.07 | 6.96% | 10.23% |
Property, plant and equipment turnover ratio
The following table sets forth our property, plant and equipment turnover ratio, including a reconciliation of such financial measure to the Restated Consolidated Financial Information as at, and for the financial years ended, March 31, 2024, March 31, 2023 and March 31, 2022. Property, plant and equipment turnover ratio is calculated as revenue from operations divided by property, plant and equipment as at the end of the year.
(t million, except for ratios)
| Particulars | As at, and for the fiscal year ended, March 31, | ||
| 2024 | 2023 | 2022 | |
| Property, Plant and Equipment (A) | 614.70 | 680.58 | 736.47 |
| Revenue from operations (B) | 4,968.59 | 3,432.19 | 3,293.66 |
| Property, plant and equipment turnover ratio (C=B/A) | 8.08 | 5.04 | 4.47 |
Net Worth
The following table sets forth our Net Worth, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, as at March 31, 2022, March 31, 2023 and March 31, 2024. Net Worth is calculated as the sum of equity share capital and other equity less capital reserve on consolidation.
(t million)
| Particulars | As at March 31, | ||
| 2024 | 2023 | 2022 | |
| Equity share capital (A) | 91.00 | 91.00 | 4.26 |
| Other equity (B) | 3,134.54 | 2,718.61 | 2,681.19 |
| Less: capital reserve on consolidation (C) | 17.35 | 17.35 | 17.35 |
| Net Worth (D=A+B-C) | 3,208.19 | 2,792.26 | 2,668.10 |
Return on Net Worth
The following table sets forth our Return on Net Worth, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, as at, and for the financial years ended, March 31, 2024, March 31, 2023 and March 31, 2022. Return on Net Worth is calculated as profit for the year divided by Net Worth.
(t million, except. for percentages)
| Particulars | As at, and for the fiscal year ended, March 31, | ||
| 2024 | 2023 | 2022 | |
| Profit for the year (A) | 414.39 | 54.87 | 164.77 |
| Net Worth (B) | 3,208.19 | 2,792.26 | 2,668.10 |
| Return on Net Worth (C=A/B) | 12.92% | 1.97% | 6.18% |
Net Asset Value
The following table sets forth our Net Asset Value, including a reconciliation of such financial measure to the Restated Consolidated Financial Information as at March 31, 2024, March 31, 2023 and March 31, 2022. Net Asset Value is calculated as total assets minus total liabilities as at the end of the year.
(t million)
| Particulars | As at March 31, | ||
| 2024 | 2023 | 2022 | |
| Total assets (A) | 6,276.75 | 5,922.20 | 5,368.99 |
| Total liabilities (B) | 3,051.21 | 3,112.59 | 2,683.54 |
| Net Asset Value (C=A-B) | 3,225.54 | 2,809.61 | 2,685.45 |
Trade Receivables Turnover Ratio
The following table sets forth our Trade receivable Turnover Ratio, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, as at, and for the financial years ended, March 31, 2024, March 31, 2023 and March 31, 2022. Trade receivable Turnover Ratio is calculated as revenue from operations divided by average trade receivables for the year. Average trade receivables is calculated as the sum of (i) trade receivables as at the beginning of the fiscal year and (ii) trade receivables as at the end of the fiscal year, divided by 2.
(t million, except for ratios)
| Particulars | As at, and for the fiscal year ended, March 31, | ||
| 2024 | 2023 | 2022 | |
| Revenue from operations (A) | 4,968.59 | 3,432.19 | 3,293.66 |
| Average trade receivables (B) | 1,386.14 | 1,171.83 | 1,402.97 |
| Trade receivable Turnover Ratio (C=A/B) | 3.58 | 2.93 | 2.35 |
Trade Payables Turnover Ratio
The following table sets forth our Trade payable Turnover Ratio, including a reconciliation of such financial measure to the Restated Consolidated Financial Information, as at, and for the financial years ended, March 31, 2024, March 31, 2023 and March 31, 2022. Trade payable Turnover Ratio is calculated as purchases of material and expenses (net of Notional Expenses) divided by average trade payables (excluding dues payable to employees). Notional Expenses includes amortisation of premium forward exchange contracts, net loss on foreign exchange fluctuations, liquidated damages, bad debts written off, and impairment loss recognised under expected credit loss model. Average trade payables is calculated as the sum of (i) trade payables as at the beginning of the fiscal year and (ii) trade payables as at the end of the fiscal year, divided by 2.
(t million, except. for ratios)
| Particulars | As at, and for the fiscal year ended, March 31, | ||
| 2024 | 2023 | 2022 | |
| Purchases of material and expenses (net of notional expenses) (A) | 3,400.85 | 2,319.74 | 2,136.34 |
| Average trade payables (excluding dues payable to employees) (B) | 1,012.16 | 802.69 | 788.33 |
| Trade payable Turnover Ratio (C=B/A) | 3.36 | 2.89 | 2.71 |
Gross Profit and Gross Margin
Gross Profit Margin measures our gross profit compared to our revenues as a percentage and is calculated by dividing our Gross Profit by our revenue from operations. Gross Profit is calculated by subtracting our COGS from our revenue from operations. COGS refers to the direct costs that we incur for producing our finished goods and is the aggregate of our cost of raw materials and components consumed, purchase of stock -in-trade and increase/(decrease) in inventories of finished goods and work-in-progress. COGS excludes indirect expenses such as finance costs, depreciation and amortization expense and other expenses. The table below sets out our Gross Profit and Gross Profit Margin, for the periods indicated below.
(t million, except for percentages)
| Particulars | Fiscal | ||
| 2024 | 2023 | 2022 | |
| Revenue from operations | 4,968.59 | 3,432.19 | 3,293.66 |
| Total expenses | 4,675.69 | 3,433.00 | 3,198.78 |
| Less: | |||
| Cost of raw materials and components consumed (1) | 2,244.44 | 1,414.17 | 1,312.73 |
| Purchase of stock-in-trade (2) | 371.16 | 117.72 | 169.07 |
| Increase/(decrease) in inventories of finished goods and work-in-progress (3) | 12.89 | (79.30) | (99.59) |
| Cost of Goods Sold (COGS) (B = 1 + 2 + 3) | 2,628.49 | 1,452.59 | 1,382.21 |
| Gross Profit (C = A - B) | 2,340.10 | 1,979.6 | 1,911.45 |
| Gross Margin (C/A) | 47.10% | 57.68% | 58.03% |
Summary of changes in non-GAAP measures and key financial information
The table below sets forth summary of the abovementioned non-GAAP measures and key financial information as of the dates and for the periods indicated below, along with reasons for the changes, increases or decrease in these key financial information during the periods indicated, based on our Restated Consolidated Financial Information.
million, except for percentages and ratios or where specified otherwise)
| Key Financial Information | As at, or for the financial year ended, March 31, | Reason for change | ||
| 2024 | 2023 | 2022 | ||
| Total income | 5,122.74 | 3,504.97 | 3,375.70 | Our total revenue increased due to increase in revenue in the (i) international systems and plants sales, (ii) O&M, and (iii) consumables and spare parts business verticals. |
| Revenue from operations | 4,968.59 | 3,432.19 | 3,293.66 | Our revenue from operations increased due to increase in revenue in the (i) international systems and plants sales, (ii) O&M, and (iii) consumables and spare parts business verticals. |
| Growth in revenue from operations | 44.76% | 4.21% | (5.25%) | On account of the increase in the total revenue and revenue from operations, our growth in revenue from operations changed. |
| EBITDA(1) | 811.47 | 495.84 | 614.27 | Our EBITDA increased due to increase in the revenue from operations. |
| EBITDA Margin(2) | 16.33% | 14.45% | 18.65% | Our EBITDA Margin decreased due to one time write off of IPO related expenses in Fiscal 2023 and lower margin on certain orders for system and plant vertical. |
| Property, plant and equipment turnover ratio(3) | 8.08 | 5.04 | 4.47 | Our property, plant and equipment turnover ratio increased on account of increase in the total revenue. |
| Total Borrowings^ | 1,531.87 | 1,310.61 | 1,257.56 | Our total borrowings increased on account of increase in the working capital limit utilisation and in line with the increase of out total revenue, due to the factors discussed above. |
| Net Debt(5) | 1,215.49 | 486.48 | 964.83 | Our net debt reduced in Fiscal 2023 on account of significant customer advance received on the orders and increased in Fiscal 2024 in line with the increase in the total revenue of our Company. |
| Debt-Equity Ratio(6) | 0.47 | 0.47 | 0.47 | Our Debt-Equity Ratio remained constant due to increase in the equity due to retained earnings in line with the increase in the total borrowings. |
| Net Debt / EBITDA Ratio(7) | 1.50 | 0.98 | 1.57 | Our Net Debt / EBITDA Ratio increased / decreased on account of the foregoing factors discussed above. |
| Return on Equity (RoE)(8) | 13.73% | 2.00% | 12.78% | Our Return on Equity changed in line with the increase / decrease in the profit after tax. |
| Profit before tax | 439.97 | 75.53 | 185.31 | Our profit before tax increased / decreased on account of changes in the total revenues of our Company for the respective periods. |
| Profit for the year | 414.39 | 54.87 | 164.77 | Our profit after taxes increased due to the increase in the total revenue of our Company |
| PAT Margin %(9) | 8.34% | 1.60% | 5.00% | Our PAT Margin increased due to the foregoing increase / decrease in the revenue and EBITDA |
| Capital Employed(10) | 4,390.64 | 3,777.96 | 3,621.12 | Our capital employed increased in line with the increase in total revenue of our Company. |
| Return on Capital Employed (RoCE)(11) | 14.07% | 6.96% | 10.23% | Our Return on Capital Employed increased due to change in the EBIT on account of the factors discussed above |
| Net Worth(12) | 3,208.19 | 2,792.26 | 2,668.10 | Our Net Worth increased due to increase in the total equity of our Company |
| Return on Net Worth(13) | 12.92% | 1.97% | 6.18% | Our Return on Net Worth increased / decreased in line with the changes in profit and networth of our Company for the respective periods. |
| Trade Receivables Turnover Ratio(15) | 3.58 | 2.93 | 2.35 | Our Trade Receivables Turnover Ratio increased in line with the increase in total revenue of our Company |
| Trade Payables Turnover Ratio(16) | 3.36 | 2.89 | 2.71 | Our Trade Payables Turnover Ratio increased on account of increase in the purchases and expenses |
| Gross Profit(17) | 2,340.10 | 1,979.60 | 1,911.45 | Our Gross Profit increased due to foregoing factors as discussed above. |
| Gross Profit Margin(18) | 47.10% | 57.68% | 58.03% | Our Gross Profit Margin decreased due to the foregoing factors discussed above. |
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