BSE:500185 | NSE:HCCEQ | 58888:hiuc | IND:Construction & Contracting | ISIN code:INE549A01026 | SECT:Construction
The Members of Hindustan Construction Co. Ltd.
Your Directors have presented the 92nd Annual Report together with the Audited Financial Statements for the year ended March 31,
2. Financial Highlights
(As per IND AS)
Standalone (Rs, in crore)
Year ended March 31, 2018
Year ended March 31, 2017
Income from Operations
Profit before Interest, Depreciation, Exceptional Items, Other Income and Tax
Less: Finance Costs
Add: Other Income
Add/Less: Exchange Gain/(Loss)
Profit before Tax
Less: Tax Expense
Profit/(Loss) after Tax
Add: Other Comprehensive Income / Loss
Total Comprehensive income carried to Other Equity
As your Company has restructured its debts under the S4A Scheme it is necessary to conserve and optimise use of resources to promote the growth of the Company. Hence, your Directors have not recommended any dividend for the financial year ended March 31, 2018.
4. Allotment of Equity Shares & Optionally Convertible Debentures
During the year under review, the Company has allotted 47,59,291 Equity Shares of the Company of face value Rs,1/- each at an issue price of Rs, 41.61 per equity share (including premium of Rs, 40.61 per Equity Share) for an amount of Rs, 19.80 crore and 2,56,716 Optionally Convertible Debentures (OCDs) of face value Rs, 1000/- each for an amount of Rs, 25.67 crore to one Lender as per the terms of the S4A Scheme.
The present paid-up Equity Share Capital of the Company is
1,01,54,62,926 which comprises 1,01,54,62,926 Equity Shares of face value Rs, 1/- each.
The Income from Operations of the Company in the year is Rs, 4,575.08 crore as compared to Rs, 4,195.94 crore in the previous year. The profit before tax is Rs, 111.97 crore as compared to Rs, 96.96 crore for the previous year.
Your Directors are pleased to inform that during the year under report, the Company has secured the following major contracts:
- Parwan Dam & Tunnel, Rajasthan Contract Value Rs, 673 crore
- Bangalore Metro Reach 5, Package 3, Karnataka Contract Value Rs, 797 crore
- Fast Reactor Fuel Cycle Facility, Kalpakkam, Tamil Nadu Contract Value Rs, 764 crore
- Pune Metro Corridor 1, Maharashtra Contract Value Rs, 497 crore
- Pune Metro Corridor 2, Maharashtra Contract Value Rs, 485 crore
The total balance value of works on hand as on March 31, 2018 is Rs, 19,188 crore.
Decisions are awaited from various clients for tenders submitted by the Company for 4 bids amounting to approx. Rs, 6,052 crore (HCC share Rs, 3,257 crore). Tenders for 13 projects worth Rs, 16,297 crore (HCC share Rs, 13,437 crore) are expected to be submitted in the near future. The Company has also submitted a prequalification bid for 1 project worth over Rs, 1,200 crore which is under evaluation.
Operations of Subsidiaries i) HCC Infrastructure Company Ltd
HCC''s Infrastructure business develops and operates Road BOT assets. HCC Concessions Ltd. (HCON) is the holding company of all the SPVs, which has developed 6 projects over last decade, of which 2 have been divested since. Last year HCC Concessions'' two operational projects in the state of West Bengal, Baharampore-Farakka Highways Ltd (BFHL) and Farakka-Raiganj Highways Ltd (FRHL) earned operational revenue of '' 158 crore and '' 151 crore respectively on the backdrop of healthy traffic growth of around 13% each. Both projects have huge potential for growth considering further development of West Bengal and North-East India. The balance construction work in these two projects is being taken up and it is planned to complete FRHL in this fiscal and BFHL next year. Upon full completion, substantial revenue growth is expected due to enhancement of toll rates. The Elevated Highway project from Badarpur to Faridabad (BFTL) was terminated by the Company on September 1, 2017 due to Force Majeure event. In case of Raiganj-Dalkhola Highways (RDHL), due to lack of support from NHAI in confirming the related land delay cost overrun to the lenders, the project was terminated on March 31, 2017. For both BFTL and RDHL, with support from HCC Concessions, the said SPVs are pursuing the legitimate termination payment including the lenders'' dues along with other claims through arbitration.
The claims related to Narmada Bridge (NBTL) rehabilitation works, a closed project, is in advanced stage.
HCON has channelized its resources to rigorously follow up with NHAI for its legitimate rights and managing claims. Claims of various SPVs towards delay and cost escalations, force majeure events, change of scope and termination are under advanced stages of arbitration. In BFHL, an Arbitration Award of Rs, 448 crores was received in favour of SPV as compensation for delays in respect of land acquisition, utility shifting, increase in interest cost (IDC), loss of revenue and increase in other incidental costs for the delays occurred due to Authority''s default till August, 2015. Subsequent period claims for BFHL and other SPVs are being pursued. HCON is also evaluating offers from potential investors for buying majority stake in its Road Assets which will help in unlocking the value of investments as well as the money realized from such stake sale can be channelized in more productive use.
ii) Steiner AG, Switzerland
Steiner AG, one of the leading project developers, total and general contractors (TC/GC) in Switzerland, offers comprehensive services in the field of new construction, refurbishment and real estate development. Your Company owns 100% stake in Steiner AG through HCC Mauritius Enterprises Limited and HCC Mauritius Investment Limited, Wholly Owned Subsidiaries.
Steiner AG has registered a revenue of CHF 806.4 million (Rs, 5,395 crore) in the financial year 2017-18 compared to CHF 820.6 million (Rs, 5.580 crore) in the previous year and a net profit of CHF 9.5 million (Rs, 64 crore) compared to a net profit of CHF 3.2 million (Rs, 21.7 crore) in the previous year. The Company secured fresh orders worth CHF 890 million (Rs, 6,011 crore). The order backlog is CHF 1.37 billion (Rs, 9,260 crore) at the end of the year. In addition to this, the Company has secured orders for CHF 394 million (Rs, 2,660.3 crore), where the contracts are yet to be signed. The closing cash balance of the Company was CHF 107 million (Rs, 737 crore) reflecting the Company''s steady financial performance and strong liquidity position.
Steiner India Ltd, 100% subsidiary of Steiner AG, had a revenue of Rs, 51.64 crore and Profit after tax of Rs, 0.27 crore in financial year 2017-2018. Please refer to Page 17 in the Management Discussion and Analysis Report for an overview of Steiner AG & Steiner India businesses.
iii) Lavasa Corporation Ltd. - Integrated Urban Development & Management
In 2017-18, Lavasa and its SPVs managed to sustain operations in the absence of any external financial aid. Operations were cut down to sustainable levels and focus was laid on cost and resource optimization and boosting revenue streams.
The Company''s persistent efforts for finding a solution for revival of the project involved project lenders involving Strategic Debt Restructuring (SDR) in September 2017. However, in view of RBI circular on ''Resolution of Stressed Assets - Revised Framework'', issued in the month of February 2018, Company and lenders were compelled to alter the plan of action. Company has been actively working on finding an investor / partner, with whom a resolution to debt, and project funding happens, and is under active discussion with credible third parties in this space. In the interim, city''s businesses continue to play their role in maximizing the value of Lavasa''s assets.
The city continues to be known as one of the favorite tourist destinations in Maharashtra with various attractions. Lavasa received over a million tourists in FY 2017-18. In the hospitality space, the four hotels operating within the city i.e. Mercure, Fortune, Waterfront Shaw and Ekaant Retreat continued to attract tourists and business guests and reported healthy average occupancies. The 1500 plenary capacity Lavasa International Convention Centre (LICC) hosted some grand conventions and conferences during the year serving clients like Forbes, Deloitte etc. Augmentation of room inventory in the city is expected to benefit both the hospitality and retail operators.
On the retail front, a significant area has already been leased to various outlets mainly in the F&B segment. The Dasve Public School, Ecole Hoteliere Lavasa (tie up with Ecole hoteliere de Lausanne, Switzerland) and Christ College are fully operational educational institutions.
Lavasa has initiated a number of development and empowerment programs for the local community like provision of treated drinking water to 18 villages, calligraphy workshops, aptitude tests and counseling for students of Zilla Parishad (ZP) schools, creche for labor children, medical facilities to villagers and so on.
Lavasa''s first town Dasve is ready with all basic infrastructure. The Environment Management Plan (EMP) continues to be implemented as per our Environment Impact Assessment (EIA) Report submitted to Ministry of Environment, Forests & Climate Change (MoEF & CC), New Delhi. The preparation of thirteenth sixth-monthly Environmental Compliance Report for the period November 2017 to May 2018 and extension of Environment Clearance from MoEF is in progress. The Company had 10,514 acres of land including 455 acres of land on lease as of the end of the previous financial year ended March 31, 2017.
6. Subsidiaries and Associate Companies
During the year under review, the following changes have taken place with respect to Subsidiary and Associate Companies:
1) On January 22, 2018, Manufakt8048AG was incorporated as a wholly owned subsidiary of Steiner Promotions et Participations SA, which is a wholly owned subsidiary of Steiner AG.
2) Pune-Paud Toll Road Company Limited has been amalgamated/ merged with HCC Infrastructure Company Limited w.e.f. March 15, 2018.
3) Green Hills Residences Limited, a subsidiary of Lavasa Corporation Ltd (LCL) became a wholly owned subsidiary of LCL w.e.f. May 26, 2017.
4) Warasgaon Lakeview Hotels Limited, wherein LCLs shareholding was 19.2%, became an Associate Company of LCL w.e.f. June 9, 2017 and shareholding of LCL has increased to 24.56% on account of release of pledged shares.
5) Ecomotel Hotel Limited has ceased to be a subsidiary of LCL w.e.f. March 27, 2018. It has become an Associate Company of LCL and the consequent shareholding of LCL in the said Company has reduced to 40.04%.
The list of Subsidiaries and Associates of your Company as on March 31, 2018, forms a part of Form No. MGT-9, Extract of the Annual Return, which is annexed at Annexure VII to the Board''s Report.
The details as required under Rule 8 of the Companies (Accounts) Rules, 2014 regarding the performance and financial position of each of the Subsidiaries, Associates and Joint Ventures of the Company is provided in Form AOC-1 which forms a part of the Consolidated Financial Statements of the Company for the financial year ended March 31, 2018.
The Company has formulated a Policy for determining material subsidiaries, which is uploaded on the website of the Company
7. Public Deposits
Your Company has not accepted any deposits from the public, or its employees during the year under review.
8. Particulars of Loans, Guarantees or Investments
Particulars of Loans, Guarantees and Investments made during the year as required under the provisions of Section 186 of the Companies Act, 2013 (''Act'') are given in the notes to the Financial Statements.
Also, pursuant to Paragraph 2 of Schedule V of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2015, particulars of Loans/Advances given to Subsidiaries have been disclosed in the notes to the Financial Statements.
9. Employee Stock Option Scheme (ESOP)
The ESOP Compensation Committee has granted 3,00,000 stock options during the year at an exercise price of '' 31.15 per stock option, subject to approval of the Members for amendment of the existing Employee Stock Option Scheme, in line with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014('' SEBI Regulations'').
Each option, when exercised, as per the exercise schedule, would entitle the holder to subscribe for one equity share of the Company of face value '' 1 each.
During the year under review, no options got vested in the employees of the Company and 1,20,180 stock options got lapsed.
The particulars with regard to ESOP as on March 31, 2018 as required to be disclosed pursuant to the provisions of Companies (Share Capital and Debentures) Rules, 2014 read with SEBI Regulations, is set out at Annexure I to this Report.
10. Consolidated Financial Statements
In accordance with the Companies Act, 2013 and implementation requirements of Indian Accounting Standards (''IND-AS'') under Companies Act, 2013 on accounting and disclosure requirements, and as prescribed by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred as "SEBI Listing Regulations"), the Audited Consolidated Financial Statements are provided in this Annual Report.
Pursuant to Section 129(3) of the Companies Act, 2013, a statement containing the salient features of the financial statements of each of the subsidiaries, Associates and Joint ventures of the Company in the prescribed form AOC-1 is annexed to this report.
Pursuant to Section 136 of the Companies Act, 2013, the financial statements of the subsidiaries are kept for inspection by the Members at the Registered Office of the Company. The said financial statements of the subsidiaries are also available on the website of the Company www.hccindia.com under the Investors Section.
11. Corporate Governance
The Company is committed to maintain the highest standards of Corporate Governance and adheres to the Corporate Governance requirements as stipulated by Securities and Exchange Board of India (SEBI).
The report on Corporate Governance as prescribed in SEBI Listing Regulations forms an integral part of this Annual Report. The requisite certificate from the Auditors of the Company confirming compliance with the conditions of Corporate Governance alongwith a declaration signed by Group CEO & Whole-time Director stating that the members of the Board of Directors and Senior Management personnel have affirmed the compliance with code of conduct of the Board of Directors and Senior Management is attached to the report on Corporate Governance.
As per the provisions of Section 152 of the Companies Act,
2013, Mr. N. R. Acharyulu, Non Executive Director of the Company, is due to retire by rotation and, being eligible, has offered himself for re-appointment.
In accordance with Section 196, 197 read with Schedule V of the Companies Act, 2013, Mr. Arjun Dhawan was appointed as Group CEO & Whole-time Director of the Company for a period of 5 years w.e.f. April 1, 2017 (including terms of remuneration for 3 years) and the Members have approved his appointment and remuneration as stated above, at the 91st Annual General Meeting of the Company held on July 6, 2017.
Based on the approval of the Nomination and Remuneration Committee and the Board of Directors of the Company at their meetings held on January 31, 2018, Mr. Ajit Gulabchand who will be attaining the age of 70 years on June 28, 2018 was re-appointed as the Managing Director designated as Chairman & Managing Director of the Company, for a period of 5 years with effect from April 1, 2018 (including terms of remuneration for a period of one year i.e. April 1, 2018 to March 31, 2019 in accordance with Schedule V of the Companies Act, 2013) and approval is being sought from the Members vide special resolution at the ensuing Annual General Meeting.
The Independent Directors of the Company viz., Mr. Rajas R, Doshi, Mr. Ram P Gandhi, Mr. Sharad M. Kulkarni, Mr. Anil C. Singhvi and Dr. Omkar Goswami have furnished necessary declarations to the Company confirming that they meet the criteria of Independence as prescribed under Section 49 of the Act and SEBI Listing Regulations.
The Company has received Form DIR-8 from all Directors pursuant to Section 164(2) and rule 14(1) of Companies (Appointment and Qualification of Directors) Rules, 2014. Brief Profile of the Directors seeking appointment/re-appointment has been given in the Explanatory Statement to the Notice of the ensuing Annual General Meeting.
13. Key Managerial Personnel
Following persons are the Key Managerial Personnel of the Company pursuant to Section 2(51) and Section 203 of the Act, read with the Rules framed thereunder:
1. Mr. Ajit Gulabchand, Chairman and Managing Director;
2. Mr. Arjun Dhawan, Group Chief Executive Officer and Whole-time Director;
3. Mr. Amit Uplenchwar, Chief Executive Officer - HCC E & C, w.e.f. January 31, 2018;
4. Mr. Arun V. Karambelkar, President & Chief Executive Officer - HCC E&C, upto January 31, 2018;
5. Mr. Praveen Sood, Chief Financial Officer of the Company designated as Group CFO;
6. Mr. Venkatesan Arunachalam, Company Secretary w.e.f.
May 9, 2017;
7. Mr. Sangameshwar Iyer, Company Secretary upto May 8, 2017''.
The Board placed on record its appreciation for the services rendered by Mr. Arun V Karambelkar, during his tenure as CEO (E&C) of the Company.
Remuneration and other details of the said Key Managerial Personnel for the financial year ended March 31, 2018 are provided in Form No. MGT-9, Extract of the Annual Return which is set out at Annexure VII to the Board''s Report.
14. Board Committees
The Board of Directors of your Company had already constituted various Committees in compliance with the provisions of the Companies Act, 2013 and SEBI Listing Regulations viz.
Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee and CSR Committee.
During financial year 2014-15, in accordance with the provisions of the erstwhile Clause 49 of the Listing Agreement, the Board had voluntarily constituted the Risk Management Committee.
All decisions pertaining to the constitution of Committees, appointment of members and fixing of terms of reference / role of the Committees are taken by the Board of Directors.
Details of the role and composition of these Committees, including the number of meetings held during the financial year and attendance at these meetings, are provided in the Corporate Governance Section of the Annual Report.
A calendar of Board Meetings, Annual General Meetings and Committee Meetings is prepared and circulated in advance to the Directors of your Company. The Board of Directors of your Company met 4 times during 2017-18. The meetings were held on May 4, 2017, August 3, 2017, November 2, 2017 and January 31, 2018.The maximum time gap between any two consecutive meetings did not exceed one hundred and twenty days.
16. Familiarization Programme of Independent Directors
In compliance with the requirements of SEBI Listing Regulations, the Company has put in place a familiarization programme for Independent Directors to familiarize them with their role, rights and responsibility as Directors, the operations of the Company, business overview etc.
The details of the familiarization programme are explained in the Corporate Governance Report and the same is also available on the website of the Company and can be accessed by web link http://www.hccindia.com/pdf/familiarisation_program_for_ independent_directors.pdf
17. Performance Evaluation
Pursuant to the provisions of the Companies Act, 2013 and SEBI Listing Regulations, Annual Performance Evaluation of the Board, the Directors as well as of the Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, Executive Committee of Board, Corporate Social Responsibility Committee and Employee Stock Option Compensation Committee has been carried out.
The Performance Evaluation of the Independent Directors was carried out by the Board and the Performance Evaluation of the Chairman and Non-Independent Directors was carried out by the Independent Directors.
18. Independent Directors Meeting
During the year under review, the Independent Directors of the Company met on March 22, 2018, inter-alia, for:
i. Evaluation of performance of Non-Independent Directors and the Board of Directors of the Company as a whole.
ii. Evaluation of performance of the Chairman of the Company, taking into views of Executive and Non-Executive Directors.
iii. Evaluation of the quality, content and timelines of flow of information between the Management and the Board that is necessary for the Board to effectively and reasonably perform its duties.
19. Criteria for selection of candidates for appointment as Directors, Key Managerial Personnel and Senior Management Personnel:
The Nomination and Remuneration Committee has laid down a well-defined criteria for selection of candidates for appointment as Directors, Key Managerial Personnel and Senior Management Personnel in the Nomination and Remuneration Policy recommended by them and approved by the Board of Directors in May 2014, extract of which is attached to the Board''s Report, set out at Annexure II. The same is also available on the Company website and can be accessed by weblink http://www. hccindia.com/pdf/Nomination-and-Remuneration-Policy.pdf
20. Remuneration Policy for Directors, Key Managerial Personnel and Senior Management Employees:
The Nomination and Remuneration Committee has laid down the policy for remuneration of Directors, Key Managerial Personnel and Senior Management Personnel in the Nomination and Remuneration Policy recommended by them and approved by the Board of Directors in May 2014, extract of which is attached to Board''s Report set out at Annexure II. The same is also available on the Company website and can be accessed by weblink http://www.hccindia.com/pdf/Nomination-and-Remuneration-Policy.pdf
21. CSR Policy:
A brief outline of the Corporate Social Responsibility (CSR)
Policy as recommended by the CSR Committee of the Directors and approved by the Board of Directors of the Company in May 2014 and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure III of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. The said CSR policy is also available on the Company website and can be accessed by weblink http://www.hccindia.com/pdf/HCC_Corporate_Social_ Responsibility_Policy.pdf
22. Related Party Transactions:
All the related party transactions entered during the year were in the ordinary course of business and on an arm''s length basis. The related party transactions attracting the compliance under Section 177 of the Companies Act, 2013 and / or SEBI Listing Regulations were placed before the Audit Committee for necessary approval/review.
The routine related party transactions was placed before the Audit Committee for their omnibus approval. A statement of all related party transactions entered was presented before the Audit Committee on a quarterly basis, specifying the nature, value and any other related terms and conditions of the transactions.
There are no transactions to be reported in Form AOC-2 in terms of Section 134 of the Act read with Companies (Accounts) Rules, 2014. Further the details of the transactions with related parties are provided in the Company''s financial statements in accordance with the Indian Accounting Standards.
The Related Party Transactions Policy as approved by the Board of Directors of the Company has been uploaded on the website of the Company at http://www.hccindia.com/pdf/HCC_Policy_ for_Related_Party_Transactions.pdf
23. Business Responsibility Statement
As per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Business Responsibility Report, prepared on a voluntary basis covering the principle wise performance of the Company on the nine principles as per National Voluntary Guidelines (NVGs) is attached to this Annual Report.
24. Directors'' Responsibility Statement
In accordance with the provisions of Section 134 of the Companies Act, 2013, your Directors confirm that:
(a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any.
(b) the selected accounting policies were applied consistently and the Directors made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2018 and of the profit of the Company for the year ended on that date.
(c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act,2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.
(d) the annual accounts have been prepared on a going concern basis.
(e) the internal financial controls have been laid down to be followed by the Company and such controls are adequate and are generally operated effectively during the year.
Internal financial control over carrying cost of investment in subsidiaries and recoverability of dues from subsidiaries, is covered under internal financial control.
The management is of the view that diminution in the carrying cost of investment in subsidiaries, if any, is temporary in nature and recoverability of dues from subsidiaries are good. The view of the management is also supported by a third party expert report.
However, in view of the uncertainties involved, your Auditors have given a qualified opinion in their report in this regard, without quantifying the impact. Other than this, your Auditors have opined that the Company has in, all material respects, maintained adequate internal financial controls over financial reporting (IFCoFR) and that they were operating effectively. This response by Directors is based on the management note given under Para 30 of this report.
25. Industrial Relations
The industrial relations continued to be generally peaceful and cordial during the year.
26. Transfer of Unclaimed Dividend and Equity Shares to Investor Education and Protection Fund (IEPF)
Pursuant to the applicable provisions of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 ("the IEPF Rules"), all unpaid or unclaimed dividends are required to be transferred by the Company to IEPF after the completion of seven years. Further, according to the IEPF Rules, the shares on which dividend has not been paid or claimed by the shareholders for seven consecutive years or more shall also be transferred to IEPF Accordingly during the year under review, the Company has transferred the unclaimed dividend for the financial year 2009 10 of Rs, 16,04,376 to IEPF and 10,30,389 corresponding equity Shares of face value Rs, 1/- for a total face value of Rs, 10,30,389/-, as per the IEPF Rules to the IEPF account.
27. Particulars of Employees and other additional information.
Disclosures with respect to the remuneration of Directors and employees as required under Section 197 of Companies Act, 2013 and Rule 5 (1) Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 has been set out at Annexure IV to this Report.
The information as per Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014 will be provided upon request by any Member of the Company. In terms of Section 136 of the Companies Act, 2013, the Annual Report including the Board''s Report and the Audited Accounts are being sent to the Members excluding the same. Any Member interested in obtaining a copy of the same may write to the Company Secretary at the Registered Office of the Company.
28. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo.
The information relating to the Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo as required to be disclosed under the Companies (Accounts) Rules, 2014, is given in Annexure V forming part of this Report.
29. Secretarial Standards
The Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India.
30. Statutory Auditors
The Members of the Company had, at the 88th Annual General Meeting ("AGM") held on June 20, 2014, approved the appointment of M/s Walker Chandiok & Co. LLP Chartered Accountants, Mumbai, bearing ICAI Registration No. 001076N as the Statutory Auditors of the Company, to hold office from the conclusion of that AGM until the conclusion of the 6th AGM held thereafter.
As per the existing appointment of M/s. Walker Chandiok & Co. LLP Chartered Accountants, Mumbai, their remainder audit period covers the fifth and last year of their appointment up to the conclusion of the next Annual General Meeting to be held in the financial year 2019-20.
As required under Section 139 of the Companies Act, 2013, the Company has obtained a written consent from the Auditors to their continued appointment and also a certificate from them to the effect that their existing appointment is in accordance with the conditions prescribed under the Companies Act, 2013 and the rules made there under.
30. Statutory Auditors'' Remarks
a. Statutory Auditor''s Qualification :
The Auditors'' Report to the Members on the Audited Financial Results of the Company for the financial year ended March 31, 2018 contains the following qualification(s) :
As stated in Note 33(a) to the standalone financial statements, the Company''s non-current investments as at March 31 2018 include investments aggregating Rs, 630.83 crore in two of its subsidiaries; and non-current loans, other non-current financial assets and other current financial assets as at that date include dues from such subsidiaries aggregating Rs, 580.75 crore,
Rs, 43.42 crore and Rs, 6.63 crore, respectively, being considered good and recoverable by the management considering the factors stated in the aforesaid note including valuation report from an independent valuer. However, these subsidiaries have accumulated losses and their consolidated net worth is fully eroded. Further, these subsidiaries are facing liquidity constraints due to which they may not be able to realize projections made as per their respective business plans. In the absence of sufficient appropriate evidence, we are unable to comment upon the carrying value of these non-current investments and recoverability of the aforesaid dues and the consequential impact, if any, on the accompanying standalone financial statements. Our audit opinion on the standalone financial statements for the year ended March 31, 2017 was also qualified in respect of this matter.
In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including Ind AS specified under Section 133 of the Act, of the state of affairs (financial position) of the Company as at March 31, 2018, and its profit (financial performance including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.
b. Statutory Auditor''s Qualification on the Internal Financial Controls relating to the above matter
In our opinion, according to the information and explanations given to us and based on our audit procedure performed, the following material weakness has been identified in the operating effectiveness of the Company''s IFCoFR as at March 31, 2018:
The Company''s internal financial controls in respect of supervisory and review controls over process of determining of (a) carrying value of the Company''s non-current investments in its subsidiaries; and (b) recoverability of non-current loans, other non-current financial assets and other current financial assets due from such subsidiaries were not operating effectively. Absence of aforesaid assessment in accordance with the accounting principles generally accepted in India could potentially result in a material misstatement in the carrying value of investments in such subsidiaries and the aforesaid dues from such subsidiaries and consequently, could also impact the profit (financial performance including other comprehensive income) after tax.
A ''material weakness'' is a deficiency, or a combination of deficiencies, in IFCoFR, such that there is a reasonable possibility that a material misstatement of the Company''s annual or interim financial statements will not be prevented or detected on a timely basis.
In our opinion, except for the possible effects of the material weakness described above in the Basis for Qualified Opinion paragraph, the Company has, in all material respects, maintained adequate IFCoFR as at March 31, 2018, based on internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note issued by the ICAI and the Company''s IFCoFR were operating effectively as at March 31, 2018.
We have considered the material weakness identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the standalone financial statements of the Company as at and for the year ended March 31, 2018, and the material weakness has affected our opinion on the standalone financial statements of the Company and we have issued a qualified opinion on the standalone financial statements.
The Company, as at March 31, 2018, has (i) a non-current investment amounting to Rs, 612.40 crore (March 31, 2017: Rs, 612.40 crore), non-current loans amounting to Rs, 428.19 crore (March 31, 2017: Rs, 380.86 crore) and other non-current financial assets amounting to Rs, 24.35 crore (March 31, 2017: Rs, 21.72 crore) in HREL, a subsidiary, which is holding 68.70% share in Lavasa Corporation Limited (LCL), a step down subsidiary, and
(ii) a non-current investment amounting to Rs, 18.43 crore (March 31, 2017: Rs, 18.43 crore), non-current loans amounting to Rs, 152.56 crore (March 31, 2017: Rs, 131.56 crore), other noncurrent financial assets amounting to Rs, 19.07 crore (March 31, 2017: Rs, 16.45 crore) and other current financial assets amounting to Rs, 6.63 crore (March 31, 2017: Rs, 4.77 crore) in LCL. While such entities have incurred losses during their initial years and consolidated net-worth of both entities as at March
31, 2018 has been fully eroded, the underlying projects in such entities are in the early stages of development and are expected to achieve adequate profitability on substantial completion and/ or have current market values of certain properties which are in excess of the carrying values. The net-worth of these subsidiaries does not represent their true market value as the value of the underlying investments/ assets, based on valuation report of an independent valuer, is substantially higher. Therefore, based on certain estimates like future business plans, growth prospects and other factors, the management believes that the realizable amount of these subsidiaries is substantially higher than the carrying value of the investments, non-current loans, other non-current financial assets and other current financial assets due to which these are considered as good and recoverable.
Based on the above, management believes that the Company''s internal financial control in respect of assessment of the carrying value of investments, recoverability of non-current loans, other non-current financial assets and other current financial assets in subsidiaries were operating effectively and there is no material weakness in such controls and procedures.
31. Secretarial Audit:
Secretarial Audit for the financial year 2017-18 was conducted by M/s. BNP Associates, Company Secretaries in Practice in accordance with the provisions of Section 204 of the Companies Act, 2013. The Secretarial Auditor''s Report is attached to this Report at Annexure VI wherein the following observation has been made by the Secretarial Auditor.
In respect of its Non- Convertible Debentures, for which listing got revived on July 7, 2017, the respective compliances under Regulation 50(1) and 60 of SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 were complied by the Company only from November 2, 2017.
The S4A Scheme was implemented for the Company in January 2017 and related formalities were under completion by few Lenders. In view of the same, respective debt compliances under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 were reported/disclosed to the Stock Exchanges and the Debenture Trustees, as applicable, from November 2, 2017, which was the date of publication of the limited reviewed results for the quarter ended 30thSeptember 2017, during which quarter the NCDs listing got revived. Thereafter the Company has continued to comply with the debt related provisions of the said regulations in a timely manner.
32. Cost Audit :
In compliance with the provisions of Section 148 of the Companies Act, 2013, the Board of Directors of the Company at its meeting held on August 3, 2017 had appointed M/s. Joshi Apte & Associates, Cost Accountants as Cost Auditors of the Company for the financial year 2017-18. In terms of the provisions of Section 148 of the Companies Act, 2013 read with The Companies (Audit and Auditors) Rules, 2014, the remuneration of the Cost Auditors has to be ratified by the Members. Accordingly, necessary resolution is proposed at the ensuing AGM for ratification of the remuneration payable to the Cost Auditors for financial year 2017-18.
33. Risk Management:
The Company has established a well-documented and robust risk management framework under the provisions of Companies Act, 2013. The Company has constituted Risk Management Committee in place, which has been delegated with the authority by the Board to review and monitor the implementation of the Risk Management Policy of the Company.
Under this framework, risks are identified across all business processes of the Company on a continuous basis. Once identified, these risks are managed systematically by categorizing them into Enterprise Level Risk & Project Level Risk. These risks are further broken down into various subcategories of risks such as operational, financial, contractual, order book, project cost & time overrun etc. and proper documentation is maintained in the form of activity log registers, mitigation, reports; and monitored by respective functional heads. Review of these risk and documentation is undertaken by Risk Review Committee regularly at agreed intervals but at least once in a quarter and mainly during Quarterly project reviews
Risk Review Committee was successful in early identification of financial risk related to borrowing structure & cash flow mismatch due to late realization of claims lodged with clients. These risk were materially mitigated during the last year by implementing financial restructuring scheme introduced by Reserve Bank of India known as ''Scheme for Sustainable Structuring of Stressed Assets (S4A)'' with lenders successfully and issue of guidelines by Cabinet Committee of Economic Affairs (CCEA) for release of 75% of arbitration awards in favour of infrastructure companies, respectively. Company has been able to realize substantial monies under CCEA guidelines from its clients. Monies received have been used towards payments to lender thereby reducing lenders dues.
On introduction & implementation of Accounting Standard Indian Accounting Standards (''IND-AS'') under Companies Act, 2013 which is applicable from last year, Company in its Notes to Accounts have disclosed risk management objectives and policies for managing financial and reporting risk. (Refer Note 40 to Accounts)
34. Internal Control Systems and their adequacy
The Company has Internal Control Systems, commensurate with the size, scale and complexity of its operations. The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control systems in the Company, its compliance with operating systems, accounting procedures and policies within the Company Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls Significant observations and corrective actions thereon are presented to the Audit Committee from time to time.
35. Internal Financial Controls and their adequacy
The Company has in place adequate internal financial controls commensurate with the size, scale and complexity of its operations. The Company has policies and procedures in place for ensuring proper and efficient conduct of its business, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. The Company has adopted accounting policies, which are in line with the Accounting Standards and the Companies Act, 2013.
36. Vigil Mechanism Policy:
The Company has a vigil mechanism policy to deal with instances of fraud and mismanagement, if any. The vigil mechanism policy is uploaded on the website of the Company at www.hccinida.com
37. Sexual Harassment:
HCC has always believed in providing a conducive work environment devoid of discrimination and harassment including sexual harassment. HCC has a well formulated Policy on Prevention & Redress of Sexual Harassment. The objective of the policy is to prohibit, prevent and address issues of sexual harassment at the workplace. This policy has striven to prescribe a code of conduct for the employees and all employees have access to the Policy document and are required to strictly abide by it. The policy covers all employees, irrespective of their nature of employment and also applicable in respect of all allegations of sexual harassment made by an outsider against an employee. During the year 2017-18, no case of Sexual Harassment was reported.
38. Reporting of Frauds :
There have been no instances of fraud reported by the Statutory Auditors under Section 143 of the Act read with relevant Rules framed there under either to the Company or to the Central Government.
39. Significant and material Orders passed by the Regulators/Courts, if any:
There are no significant or material orders passed by the Regulators or Courts or Tribunals which would impact the going concern status of your Company and its future operations.
40. Material changes & commitment if any, affecting financial position of the Company from the end of financial year till the date of the report:
There have been no material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year to which the Financial Statements relate and the date of this Report.
41. Extract of Annual Return:
The details forming part of the extract of Annual Return in prescribed Form MGT 9 is set out as Annexure VII and forms a part of this Report.
Your Directors would like to acknowledge and place on record their sincere appreciation to all stakeholders, clients, Financial Institutions, Banks, Central and State Governments, the Company''s valued investors and all other business partners for their continued co-operation and support received during the year.
Your Directors recognize and appreciate the efforts and hard work of all the employees of the Company and their continued contribution to promote its development.
For and on behalf of Board of Directors,
Chairman & Managing Director
Hincon House, Lal Bahadur Shastri Marg Vikhroli (West),
Mumbai 400 083
Place : Mumbai
Date : May 3, 2018
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