Measurement of fair values
Investment property consists of land and building situated at Pune, India and is accounted for at cost. The Company has estimated that the fair value of investment property is H 101.13 million (Previous year: H 99.73 million). The estimate is based on the valuation by a registered valuer during the year. The fair value measurement for the investment property has been categorised as a Level 2.
1. The Company had granted loans aggregating to H 152.00 million (SGD 3.80 million) to R Systems Consulting Services Limited (formerly known as ECnet Limited) a subsidiary of the Company. These loans were disbursed over the period 2004 to 2010. R Systems Consulting Services Limited had accumulated losses which were in excess of its share capital as at 31 December, 2010.
During the year ended 31 December, 2010, the Board of Directors had approved a scheme for corporate restructuring of its two subsidiaries based in Singapore viz R Systems Consulting Services Limited (formerly known as ECnet Limited) and R Systems (Singapore) Pte Limited. The proposed corporate restructuring involves conversion of loan by the Company to R Systems Consulting Services Limited (formerly known as ECnet Limited) into equity investment and thereafter amalgamation of both these subsidiaries.
During the year ended December 31,2011, the loan of H 152.00 million (SGD 3.80 million) given by the Company to R Systems Consulting Services Limited (formerly known as ECnet Limited) was converted into equity share of R Systems Consulting Services Limited at the fair value of H Nil. Further, in subsequent years the proposed amalgamation was called off.
The Company had prepared its first financial statements as per India Accounting Standards (Ind AS) for the year ended 31 December, 2018. In accordance with Ind AS 101, the Company had availed exemption in respect of investments in subsidiaries whereby the Company had opted to value its investments in subsidiaries as per previous GAAP and use the cost as per previous GAAP at the date of transition as deemed cost. The Company had valued the above-mentioned investments as at 01 January, 2017 at H Nil and was consequently not included in the value of investments made in R Systems Consulting Services Limited.
2. On July 3, 2023, the Company has completed the acquisition of 100% equity shares of Velotio Technologies Private Limited {"Velotio") at a consideration of H 2,693.74 million. Out of this, H 2,637.07 million has been paid and balance H 56.67 million is payable as at December 31,2023. Further, the previous shareholders of Velotio hold 123,850 outstanding optionally convertible redeemable preference shares ("OCRPS”) which are valued at H 2,407.00 million based on terms and conditions stated in Shareholder Agreement ("SHA”) dated June 7, 2023 entered into between the Company, Velotio and the previous shareholders of Velotio. The Company may at a later stage, as may be approved by its board of directors, acquire such OCRPS, subject to the terms and conditions set out in the SHA. Velotio holds 40% equity shares in Scaleworx Technologies Private Limited ("ScaleWorx").
On December 01, 2023, Velotio has acquired balance 60% shareholding in ScaleWorx at a purchase consideration of H 42.50 million. Subsequent to the aforesaid acquisition, ScaleWorx has become a wholly-owned subsidiary of Velotio.
The Company uses a provision matrix to determine impairment loss on portfolio of its trade receivable. The provision matrix is based on its historically observed default rates over the expected life of the trade receivable and is adjusted for forward-looking estimates. At every reporting date, the historically observed default rates are updated and changes in forward-looking estimates are analysed. The Company estimates the following matrix at the reporting date.
(b) Terms/rights attached to equity shares:
The Company has only one class of equity shares having par value of H 1 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian Rupee. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
No shares are held by the ultimate holding company. Refer to Note 35 with respect to ultimate holding company.
(d) Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:
(i) Shares issued pursuant to merger of RightMatch Holdings Limited:
The scheme of amalgamation was approved by Hon'ble National Company Law Tribunal, New Delhi vide order dated February 01, 2021 and the Supreme Court of Mauritius vide order dated September 14, 2020 and amended order dated September 21,2020, between RightMatch Holdings Limited (RightMatch) and the Company and their respective shareholders and creditors. Pursuant to the necessary filing with appropriate statutory authorities in India and Mauritius, the scheme became effective on March 09, 2021 and 8,828,489 fully paid equity shares of the face value of H 1/- each of the Company were issued and allotted to the equity shareholders of RightMatch in the proportion of their respective equity shareholding in RightMatch and equivalent number of shares of the Company as held by RightMatch were cancelled and extinguished.
(ii) Shares bought back:
During the year ended December 31, 2021, the Company bought back 1.33 million equity shares of H 1 each at a price of H 225/- per equity share, payable in cash for a total consideration of H 299.93 million by utilising the securities premium account of H 46.66 million, general reserve of H 155.04 million and retained earnings to the extent of 96.90 million. The capital redemption reserve was created out of retained earnings for H 1.33 million being the nominal value of equity shares bought back in terms of Section 68 of the Companies Act, 2013. The equity shares bought back were extinguished on October 14, 2021.
During the year ended December 31,2019, the Company bought back 3.69 million equity shares of H 1 each at a price of H 65/- per equity share, payable in cash for a total consideration of H 239.85 million by utilising the securities premium account to the extent of H 236.16 million and general reserve to the extent of H 3.69 million. The capital redemption reserve was created out of general reserve for H 3.69 million being the nominal value of equity shares bought back in terms of Section 68 of the Companies Act, 2013. The equity shares bought back were extinguished on April 15, 2019.
As per secretarial records of the Company, including its register of shareholders / members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares.
Pursuant to the Share Purchase Agreement dated November 16, 2022, as amended on March 21,2023 (SPA), BCP Asia II Topco II Pte. Ltd. (the "Acquirer”) had acquired 61,129,969 Equity Shares, representing 51.67% of the paid up Share Capital of the Company from (i) Dr. Satinder Singh Rekhi, (ii) Mrs. Harpreet Rekhi, (iii) The Satinder and Harpreet Rekhi Family Trust, (iv) Mr. Sartaj Singh Rekhi, (v) Mr. Ramneet Singh Rekhi,(vi) Mr. Jagmohan Singh Walia, (vii) Mrs. Amrita Rekhi, (viii) Mrs. Kuldeep Baldev Singh and (ix) Mrs. Anita Behl (Outgoing Promoter & Promoter Group). In addition, the Acquirer had also acquired 303,036 Equity Shares, from public shareholders, under the Composite Offer vide Letter of Offer dated April 10, 2023. The shareholding of the Acquirer post the acquisition under the SPA and Composite Offer is 61,433,005, representing 51.93% of the paid up share capital of the Company. Pursuant to aforesaid acquisition of shares by Acquirer, the Acquirer has become the Promoter of the Company and the Outgoing Promoter and Promoter Group have ceased to be the Promoter of the Company.
(g) Employees Stock Option Plan:
On November 15, 2023 Shareholders of the Company, upon approval of the Board of Directors of the Company and recommendation of the Nomination, Remuneration and Compensation Committee ("NRCC”), have approved R Systems International Limited Management Incentive Plan 2023 ("Plan”) to grant the eligible employees of the Company and its subsidiaries, such number of employee stock options ("Options”) and restricted stock units ("RSUs'') exercisable into not more than 8,000,000 (eight million) equity shares of face value H 1/- each, being 6.3% (six point three percent) of the paid-up equity capital of the Company (subject to any adjustments, as may be required due to any corporate action or change in control of the Company), at such price and on such terms and conditions as may be fixed or determined by the NRCC in accordance with Applicable Laws.
Subsequent to the year ended December 31,2023, NRCC at its meetings held on January 17, 2024 and February 15, 2024, has approved the grant of 5,349,768 (Fifty Three Lakhs Forty Nine Thousand Seven Hundred Sixty Eight only) RSUs to the identified employees of the Company and subsidiaries under the Plan.
(1) Cash credit limit / bank guarantee / loan equivalent risk / letter of credit is secured by pari-passu charge by way of hypothecation of entire current assets and movable fixed assets (excluding vehicles). The quarterly statements filed by the company with the banks are in agreement with the books of account.
(2) Cash credit facility from ICICI Bank Limited is repayable on demand and carries interest @ 6 months I-MCLR plus a spread of 0.50% p.a.
(3) Cash credit facility from Axis Bank Limited is repayable on demand and carries interest @ 3 months MCLR.
Disaggregate revenue information
The table below presents disaggregated revenues from the Company's contracts with customers by geography and customer's industry type. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by industry, market and other economic factors.
Trade receivables and contract balances
The company classifies the right to consideration in exchange for deliverables as either receivable or as unbilled revenue.
A rec eivable is right to consideration that is unconditional upon passage of time. Revenue for time and material contracts are recognised as related service are performed. Revenue for fixed price maintenance contracts is recognised on a straight line basis over the period of contract. Revenue in excess of billing is recorded as unbilled revenue and is classified as a financial asset for these cases as right to consideration is unconditional upon passage of time.
Revenue recognition for fixed price development contracts is based on percentage of completion method. Invoicing to clients is based on milestones as defined in the contract. This would result in timing of revenue recognition being different from the timing of billing the customers. Unbilled revenue for fixed price development contracts is classified as non financial assets as the contractual right to consideration is dependent on completion of contractual milestones.
Invoicing in excess of earnings is classified as unearned revenue.
Trade receivables and unbilled revenues are presented net of impairment in Balance Sheet.
Performance obligations and remaining performance obligations
The remaining performance obligation disclosures provide the aggregate amount of transaction price yet to be recognised as of the end of the reporting period and an explanation as to when the Company expects to recognise these amounts as revenue. Applying the practical expedients as given in IND AS 115, the Company has not disclosed the remaining performance obligations related disclosures where the revenue recognised corresponds directly with the value to customer of the entity's performance completed to date, typically those contracts where invoicing is on the basis of time-and-material basis. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment of revenue that has not materialised and adjustments for currency.
Disclosure relating to remaining performance obligation relating to fixed bid price contracts require the aggregate amounts of transaction price yet to be recognised as revenue at the reporting date and expected timelines to recognise these amounts. In view of the fact that all outstanding contracts have an original expected duration for completion of less than a year no disclosure is warranted.
(a) The Code on Social Security, 2020 (the 'Code')
The Code relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020 and was published in the Gazette of India. However, the date on which the Code will come into effect has not been notified. The Company will assess the impact of the Code and corresponding rules, and will record any related impact in the period when they become effective.
(b) Gratuity
The Company has a defined benefit gratuity plan that provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment in accordance with the "Payment of Gratuity Act, 1972”. The amount is based on the respective employee's last drawn salary and the tenure of employment with the Company.
The Company has two units at Greater Noida registered as Special Economic Zone (SEZ) units which are entitled to a tax holiday under Section 10AA of the Income Tax Act, 1961.
A portion of the profits of the Company's operations are exempt from income taxes being profits attributable to export operations from undertakings situated in Special Economic Zone (SEZ). Under the "Special Economic Zones Act, 2005", units in designated SEZ providing service on or after April 1,2005 will be eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50 percent of such profits and gains for the next five years. The tax benefits are also available for a further five years post initial ten years subject to the unit meeting defined conditions.
29. Earnings per share
Basic earnings per share is computed by dividing profit or loss attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during year. The Company did not have any potentially dilutive securities in any of the years presented.
Fair value hierarchy:
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:
Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.
There have been no transfers among Level 1, Level 2 and Level 3 during the year.
31. Financial risk management
Financial risk factors and risk management objectives
The Company's activities expose it to market risk, credit risk and liquidity risk. The Company's primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Market risk
The primary market risk to the Company is foreign exchange risk and interest rate risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by team that has the appropriate skills, experience coupled with appropriate supervision. It is the Company's policy that no trading in derivative for speculative purposes shall be undertaken.
Foreign currency risk
The Company's exchange risk arises from its foreign currency revenues (primarily in U.S. Dollars). A significant portion of the Company's revenues are in foreign currencies, while a significant portion of its costs are in Indian Rupees. As a result, if the value of the Indian Rupee appreciates relative to these foreign currencies, the Company's revenues measured in Rupees may decrease or vice versa.
Derivative financial instruments
The Company holds foreign currency forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. These derivative financial instruments are valued based on quoted prices for similar assets in active markets or inputs that are directly or indirectly observable in the marketplace. The Company has not applied hedge accounting as these forward contracts do not qualify for hedge accounting. As at December 31,2023, the Company has recognised mark-to-market asset of H 9.86 million (previous year: mark-to-market liability of H 98.06 million) relating to aforesaid foreign currency forward contracts
Foreign currency sensitivity analysis
For the year ended December 31, 2023 and December 31, 2022, every percentage point depreciation / appreciation in the exchange rate between the Indian rupee and foreign currencies, would decrease / increase Company's profit before tax margin by approximately 1.00% and 1.74%, respectively.
Interest rate risk
Interest rate risk is measured by using the cash flow sensitivity for changes in variable interest rates. Any movement in the reference rates could have an impact on the Company cash flows as well as costs. The Company has availed floating rate borrowings in the form of working capital demand loan and cash credit facility. For the year ended December 31, 2023, every one percentage increase / decrease in interest rates, would result in decrease / increase Company's profit before tax margin by approximately 0.25%. There were no floating rate borrowings in the previous year.
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers and investment securities. Credit risk arises from deposits held with banks, investments with financial institutions, as well as credit exposure to clients. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
Trade receivables
The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.
No customer accounted for more than 10% of the revenue for the year ended December 31,2023 and December 31,2022. Further, no customer accounted for more than 10% of the receivable as at December 31, 2023 and December 31,2022.
Investments including bank deposits
Credit risk on bank balances is limited as the Company generally invests in deposits with banks. The Company does not expect any losses from non-performance by the counterparties.
Liquidity risk
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company's principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company believes that the working capital is sufficient to meet its current requirements.
As at December 31, 2023, the Company had a working capital of H 608.86 million including cash and cash equivalents and current fixed deposits of H 440.72 million. As at December 31,2022, the Company had a working capital of H 2,210.52 million including cash and cash equivalents and current fixed deposits of H 1,059.92 million and current investments of H 138.65 million. Accordingly, no liquidity risk is perceived.
32. Capital Management
The Company's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Company's objective, when managing capital, is to maintain an optimal structure so as to maximise shareholder value. The capital structure is as follows:
34. Segment information
Information reported to the Chief Operating Decision Maker (CODM) for the purpose of resource allocation and assessment of segment performance focuses on the types of services provided. The CODM has identified the following as its reportable segments.
a) Information technology services
b) Business process outsourcing services (knowledge service)
Revenues and expenses directly attributable to segments are reported under each reportable segment. Expenses which are not directly identifiable to each reportable segment have been allocated on the basis of associated revenues of the segment and manpower efforts. All other expenses which are not attributable or allocable to segments have been disclosed as unallocable expenses.
Assets and liabilities of the Company are used interchangeably between segments and the CODM does not review assets and liabilities at reportable segment level. Accordingly, segment disclosure relating to assets and liabilities has not been provided as per Ind AS 108.
Geographic segments are based on the areas in which the major customers of the Company operate. Although the Company's major operating divisions are managed on a worldwide basis, they operate in four principal geographical areas of the world which are: India, North America, South East Asian countries and Europe.
The following table provides required information for reportable segments for the year ended December 31,2023 and December 31,2022:
36. During the year ended December 31, 2023, the Company has recognised dividend income from its wholly-owned subsidiary amounting to H 573.90 million. The Company had also received dividend from its erstwhile wholly-owned subsidiary amounting to H 3.40 million during the year ended December 31,2022.
The aforesaid dividend is recorded under "Other Income”.
37. Other corporate matters:
a. The Board of Directors at its meeting held on December 13, 2023 has declared an interim dividend of H 6.80/- per equity share of face value of H 1/- each aggregating to H 804.46 million. As at December 31,2023, the Company has transferred the interim dividend amount to a separate bank account. Subsequent to the year ended December 31,2023, the aforesaid interim dividend has been paid on January 09, 2024.
During the year ended December 31, 2022, the company paid interim dividend of H 6.50/- per equity share of face value of H 1/- each aggregating to H 768.97 million.
b. During the previous year, IBIZ Consultancy Services India Private Limited (IBIZ India), wholly owned subsidiary of R Systems International Limited (the "Company”), has gone into voluntary liquidation under Section 59 of Insolvency and Bankruptcy Code, 2016 read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation) Regulations, 2017. Being the sole shareholder of IBIZ India, the Company had received final proceeds amounting to H 0.62 million during the year ended December 31,2022. This amount is adjusted against the investment amount of H 0.47 million and the balance amount is recorded as other income.
Hon'ble National Company Law Tribunal, New Delhi ("NCLT”), vide its order dated April 24, 2023, has allowed the application for dissolution of IBIZ India filed by its Liquidator on completion of Voluntary Liquidation of IBIZ India under Section 59 of the Insolvency and Bankruptcy Code, 2016 read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017. As per aforesaid NCLT order, IBIZ India has been dissolved w.e.f. April 24, 2023.
39. The standalone financial statements have been approved by the Board of Directors at its meeting held on February 15, 2024.
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