idfc Investment Advisors Limited BOARD OF DIRECTORS Mr. Vikram Limaye Chairman Mr. Sunil Kakar Mr. Sadashiv Rao Dr. Rajeev Uberoi AUDITORS M. P. Chitale & Co. Chartered Accountants PRINCIPAL BANKERS HDFC Bank Limited REGISTERED OFFICE One India Bulls Centre, 841, Jupiter Mills Compound, Senapati Bapat Marg, Elphinstone Road (West) Mumbai - 400 013 29
D i r e ct o r s R e p o r t TO THE MEMBERS We are pleased to present the Fifth Annual Report to the Members, alongwith the Audited Profit and Loss Account for the period ended and the Balance Sheet as on. FINANCIAL RESULTS Year ended () Year ended Gross Income 170,036,045 272,062,246 Profit before Interest, 14,622,674 74,500,907 Depreciation & Tax Provision for Tax 7,955,803 5,031,104 Profit after Tax 6,666,871 69,469,803 PRINCIPAL ACTIVITIES The Company is registered as a Portfolio Manager with the Securities & Exchange Board of India (SEBI) to carry out Portfolio Management Services pursuant to SEBI (Portfolio Managers) Regulations, 1993. IDFC Hybrid Infrastructure Portfolio (HIP) was the first portfolio offering for domestic retail investors under the PMS platform of the Company. The investment objective of HIP is to invest in permitted securities/instruments issued by companies operating in the Infrastructure space, and endeavour to achieve risk adjusted medium to long-term capital appreciation. The proposed investment strategy would be to provide growth capital for business opportunities especially to mid-sized companies with sound track record and reputation and ride the growth curve with them and to optimise Returns through Portfolio Diversification. This PMS offering received overwhelming response from investors. HIP - discretionary portfolio collected approximately 451.78 crs in capital commitment and approx 134.58 crs of initial contribution. The average portfolio size was approx 21.35 lakh. HIP investors have been given online access wherein they can log into the website for a 24x7 access to Portfolio and Capital Registers. More reports are planned and would be subsequently added to the bouquet of existing Reports. The quarterly newsletters from the Fund Managers would also be made available on the site. The second PMS product offering was IDFC Growth Portfolio (IGP). The investment objective of IGP is to seek to generate capital appreciation over the medium term by investing in a diversified pool of listed equities. This portfolio shall endeavour to invest in companies that are expected to benefit from the consumption boom that is expected to take place in India over the next few years. The third PMS product offering was IDFC Agriculture Opportunities Portfolio (AOP) with an objective of ensuring capital appreciation over the medium term by investing in a diversified pool of listed equities. The portfolio shall endeavour to invest in companies that are expected to benefit from agriculture and agri-products related opportunities in India over the next 5 to 6 years. The fourth PMS product offering was IDFC Farm to Fork Portfolio with an objective of ensuring capital appreciation over the medium term by investing in a diversified pool of listed equities. The portfolio shall endeavour to invest in companies that are expected to benefit from the growth in prices of food and food-related products in India over the next 5 to 6 years. The fifth PMS product offering was IDFC Farm Opportunities Portfolio with an objective of ensuring capital appreciation over the medium term by investing in a diversified pool of listed equities. The portfolio shall endeavour to invest in companies that are expected to benefit from the growth in prices of food and food-related products in India over the next 5 to 6 years. The sixth PMS product offering was IDFC India Consumption Portfolio with an objective of ensuring capital appreciation over the medium term by investing in a diversified pool of listed equities. The portfolio shall endeavour to invest in companies that are expected to benefit from the growth in prices of food and food-related products in India over the next 5 to 6 years. The seventh PMS product offering was IDFC Aspire Portfolio with an objective of ensuring capital appreciation over the medium term by investing in a diversified pool of listed equities. The portfolio shall endeavour to invest in companies that are expected to benefit from the consumption boom that is expected to take place in India over the next few years. The Company also acts as an Investment Advisor to India Infrastructure Opportunities Fund Ltd. ( the Fund ), and its activities are to provide investment advisory services, identify, evaluate investment opportunities to the Fund and to monitor investments of the Fund in the Indian companies. DIVIDEND The Company wishes to plough back profits into the business. In view of this, the Directors do not recommend any dividend for the year ended. PUBLIC DEPOSITS During the year under review, your Company has not accepted deposits under the provisions of Section 58-A of the Companies Act, 1956. SHARE CAPITAL No further equity share capital was issued by the Company during the year. DIRECTORS In terms of the provisions of the Articles of Association of the Company and Companies Act, 1956, Mr. Vikram Limaye would retire at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. Mr. Naval Bir Kumar and Mr. L. K. Narayan resigned from the directorship of the Company with effect from February 15, 2011 and March 24, 2011 respectively. The Board wishes to place on record its sincere appreciation for their guidance and valuable contribution to the Company. In accordance with the provisions of the Companies Act, 1956 and the Company s Articles of Association, Dr. Rajeev Uberoi, Mr. Sadashiv Rao and Mr. Sunil Kakar were appointed as additional directors of the Company by the Board of Directors during the year. 30 IDFC Annual Repo rt 10 11
They would hold office till the conclusion of the forthcoming Annual General Meeting. The members are requested to consider their appointment as directors of the Company. AUDIT COMMITTEE The Audit Committee consists of four Directors, Mr. Vikram Limaye as Chairman, Dr. Rajeev Uberoi, Mr. Sadashiv Rao and Mr. Sunil Kakar. The functions of the Committee include reviewing the half yearly and annual financial statements, internal control systems and significant accounting policies of the Company and discussing the audit findings and recommendations of the internal and statutory auditors of the Company. 4 Board and 2 Audit Committee meetings was held during the year. AUDITORS It is proposed to re-appoint M/s. M. P. Chitale as the statutory auditors to audit the accounts of the Company for the financial year ending March 31, 2012. M/s. M. P. Chitale & Co., have confirmed that their re-appointment, if made, would be in conformity with the provisions of Sections 224 and 226 of the Companies Act, 1956 as have also indicated their willingness to be appointed. You are requested to consider their appointment. FOREIGN EXCHANGE EARNINGS AND EXPENDITURE The details of income or expenditure in foreign currency are given in Note No. 11 of Schedule 12 to the Financial Statement. PERSONNEL AND OTHER MATTERS As required by the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies ( of Employees) Rules, 1975, as amended, names and other particulars of the employees are set out in the annexure to the Directors Report. Since the Company does not own any manufacturing facility, the disclosure of information on other matters required to be disclosed in terms of Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of in the Report of Board of Directors) Rules, 1998, are not applicable and hence not given. DIRECTORS RESPONSIBILITY STATEMENT The Directors confirm that: in the preparation of the annual accounts, the applicable accounting standards have been followed alongwith proper explanation relating to the material departures; they have selected such accounting policies and applied them consistently and made judgements 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 and the profit or loss of the Company for that period; they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and detecting fraud and other irregularities; and they have prepared the annual accounts on a going concern basis. ACKNOWLEDGEMENTS The Directors thank the investors of India Infrastructure Opportunities Fund, clients of discretionary PMS and regulatory authorities such as the Reserve Bank of India and the Securities & Exchange Board of India for their continued support to the Company. The Directors also express their gratitude for the unstinted support and guidance received from IDFC Asset Management Company Limited and other IDFC group companies. For and on behalf of the Board of Directors Vikram Limaye Chairman Mumbai April 27, 2011 31
A u d i t o r s R e p o r t To The Members of IDFC Investment Advisors Limited We have audited the attached Balance Sheet of IDFC Investment Advisors Limited as at and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 1. Without qualifying our opinion, we draw attention to Note No. 6 of the Financial Statements regarding payment of Managerial Remuneration in excess of the limits specified by the relevant provisions of the Companies Act, 1956. The Company is in the process of making application to the appropriate authority for approval of such excess payment. Pending outcome of the Company s proposed application, no adjustment has been made to the accompanying financial statements in this regard. 2. As required by the Companies Auditor s Report Order (CARO) 2003, issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose as Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order. 3. Further to our comments in the Annexure referred to in paragraph (1) above, we state that: (a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; (b) In our opinion, proper books of account as required by law have been kept by the Company, so far as appears from our examination of those books; (c) (d) (e) (f) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with in this report are in agreement with the books of account; In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in Section 211 (3C) of the Companies Act, 1956 to the extent applicable; On the basis of written representation received by the Company from the directors, we report that none of the directors is disqualified as on from being appointed as a director in terms of clause (g) of sub section (1) of Section 274 of the Companies Act, 1956; In our opinion and to the best of our information and according to the explanations given to us, the accounts read with notes thereon give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in so far as it relates to the Balance Sheet, of the state of affairs of the Company as at, (ii) in so far as it relates to the Profit and Loss Account, of the profit of the Company for the year ended on that date, and (iii) in so far as it relates to the Cash Flow Statement of the Company for the year ended on that date. For M. P. Chitale & Co. Chartered Accountants Firm Reg. No. 101851W Vidya Barje Partner (Membership No. 104994) Mumbai April 27, 2011 32 IDFC Annual Repo rt 10 11
a n n e x u r e to the auditors report Annexure referred to in paragraph 1 of the report of even date of the Auditors to the members of IDFC Investment Advisors Limited (i) (a) The Company has maintained proper records, showing full particulars including quantitative details and situation of Fixed Assets. (b) The fixed assets were physically verified during the year by the Management in accordance with a programme of verification, which in our opinion provides for the physical verification of all the fixed assets at reasonable intervals and discrepancies observed during the verification have been properly dealt with in the books of account. (c) The Company has not disposed of substantial part of fixed assets during the year. (ii) The Company has not granted any loans to companies, firms or other parties covered in the Register maintained under Section 301 of the Companies Act, 1956. (iii) The Company has not taken any loans from companies, firms or other parties covered in the Register maintained under Section 301 of the Companies Act, 1956. (iv) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for purchase of fixed assets and for the services rendered. (v) In our opinion and according to the information and explanations given to us, there are no transactions that need to be entered into a Register in pursuance of Section 301 of the Companies Act, 1956. (vi) In our opinion and according to the information and explanations given to us, the Company has not accepted any deposits from the public. (vii) Company has an internal audit system commensurate with its size and nature of business. (viii) Central Government has not prescribed maintenance of cost records under Section 209 (1) (d) of the Companies Act, 1956. (ix) (a) According to the information and explanations given to us and the records of the Company examined by us, in our opinion, the Company is regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and any other statutory dues as applicable with the appropriate authorities. According to the information and explanations given to us, there were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and any other statutory dues outstanding as at for a period of more than six months from the date they became payable. (b) There are no dues of Income-tax, Sales-tax, Wealth Tax, Service Tax or Cess which have not been deposited on account of any dispute except as disclosed below. Amount in Details of income tax which were not deposited as on on account of dispute are: Period to which it relates Forum where the dispute is pending 8,044,089 A.Y. 2008-09 CIT (Appeal) 3,224,881 A.Y. 2007-08 The Company is about to make appeal to Tribunal (x) The Company does not have accumulated losses at the end of the financial year and it has not incurred any cash losses in the financial year ended on that date or in the immediately preceding financial year. (xi) In our opinion and according to the information and explanations given to us, during the year, the Company has not taken any loan and no amounts were due towards principal or interest to financial institution, bank or debenture holders during the year. (xii) According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (xiii) According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other securities. (xiv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions. (xv) According to the information and explanations given to us, the Company has not taken any term loan. (xvi) According to the information and explanations given to us, during the year, the Company has not raised any funds. (xvii) During the year, the Company has not made any preferential allotment of shares to parties and companies covered and recorded in the register maintained under Section 301 of the Act. (xviii) According to the information and explanations given to us, the Company has not issued any debentures up to. (xix) The Company has not raised money from public issue. (xx) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year. (xxi) Considering the nature of the business and the services rendered by the Company, clauses (ii) and (xiii) under Clause 4 of the CARO are not applicable. For M. P. Chitale & Co. Chartered Accountants Firm Reg. No. 101851W Vidya Barje Partner (Membership No. 104994) Mumbai April 27, 2011 33
B A L A N C E S H E E T AS AT MARCH 31, 2011 Schedule As at As at SOURCES OF FUNDS Shareholders Funds Share Capital 1 100,000,000 100,000,000 Reserves and Surplus 2 15,587,980 8,921,109 Deferred Tax Liability 381,104 115,587,980 109,302,213 APPLICATION OF FUNDS Fixed Assets 3 Gross Block 9,766,148 9,194,361 Less: Accumulated Depreciation and Amortisation 5,849,924 3,460,917 Net Block 3,916,224 5,733,444 Investments 4 98,281,920 40,043,030 Deferred Tax Asset 863,093 Current Assets, Loans and Advances Sundry Debtors 5 4,988,544 100,927,991 Cash and Bank Balances 6 3,165,752 705,336 Loans and Advances 7 36,806,276 43,932,349 (A) 44,960,572 145,565,676 Less: Current Liabilities and Provisions 8 Current Liabilities 28,387,713 80,839,937 Provisions 4,046,116 1,200,000 (B) 32,433,829 82,039,937 Net Current Assets (A)-(B) 12,526,743 63,525,739 115,587,980 109,302,213 Notes to the Accounts 15 The Schedules referred to above and notes to the accounts form an integral part of the Balance Sheet As per our report of even date for M. P. Chitale & Co. Chartered Accountants Firm Reg. No. 101851W for and on behalf of the board OF DIRECTORS OF IDFC investment advisors LIMITED Vidya BarjE vikram limaye SAdashiv rao Partner Director Director (Membership No. 104994) Mumbai April 27, 2011 Jyothi krishnan Company Secretary 34 IDFC Annual Repo rt 10 11
P R O F I T A N D L O S S A C C O U N T FOR THE YEAR ENDED MARCH 31, 2011 INCOME Schedule Operating Income 9 165,309,995 269,842,048 Other Income 10 4,726,050 2,220,198 EXPENDITURE 170,036,045 272,062,246 Interest & Other Charges 11 206,192 (893,327) Personnel Expenses 12 86,149,262 57,232,740 Establishment Expenses 13 301,252 768,429 Operating and Other Expenses 14 66,358,982 138,941,795 Depreciation and Amortisation 3 2,397,681 1,511,702 155,413,369 197,561,339 Profit/(Loss) Before Tax 14,622,674 74,500,907 Income Taxes - Current Tax 9,200,000 4,650,000 - Deferred Tax Charge/(Credit) (1,244,197) 381,104 Profit/(Loss) After Tax 6,666,871 69,469,803 Balance Brought Forward 8,921,109 (60,548,694) Balance Carried to Balance Sheet 15,587,980 8,921,109 Earnings/(Loss) per share Basic and Diluted (Face Value 10) 0.67 7.48 Number of equity shares in calculating basic earning per share 10,000,000 9,282,192 Notes to the Accounts 15 The Schedules referred to above and the notes to the accounts form an integral part of the Profit and Loss Account As per our report of even date for M. P. Chitale & Co. Chartered Accountants Firm Reg. No. 101851W for and on behalf of the board OF DIRECTORS OF IDFC investment advisors LIMITED Vidya BarjE vikram limay E SAdashiv rao Partner Director Director (Membership No. 104994) Mumbai April 27, 2011 Jyothi krishnan Company Secretary 35
c a s h f l ow ST AT E M E N T for the year ended march 31, 2011 A. Cash Flow from Operating Activities Profit/(Loss) Before Tax 14,622,674 74,500,904 Adjustments for: Provision for Gratuity 4,046,116 Depreciation/Amortisation 2,397,681 1,511,702 Fixed Asset Written off 27,217 Operating loss before Working Capital Changes 21,066,471 76,039,823 Movements in working capital: (Increase)/Decrease in Loans and Advances 7,781,448 (21,792,403) (Increase)/Decrease in Sundry Debtors 95,939,447 (97,051,279) Increase/(Decrease) in Current Liabilities (56,498,340) 47,787,321 Increase/(Decrease) in Provisions 2,846,116 17,804,135 Cash generated from Operations 71,135,142 22,787,597 Direct Taxes Paid (9,855,370) (11,514,397) NET CASH (USED IN)/FROM OPERATING ACTIVITIES (A) 61,279,772 11,273,200 B. Cash flow from Investing Activities Purchase of Fixed Assets (603,791) (5,559,779) Sale Proceeds from Fixed Assets 23,325 NET CASH (USED IN)/FROM INVESTING ACTIVITIES (B) (580,466) (5,559,779) C. Cash flow from Financing Activities Proceeds from Issue of Share Capital 20,000,000 NET CASH FROM FINANCING ACTIVITIES (C) 20,000,000 Net change in Cash and Cash Equivalent (A+B+C) 60,699,306 25,713,421 Cash and Cash Equivalent as at the beginning of the year 40,748,366 15,034,945 Cash and Cash Equivalent as at the end of the year (Refer Note below) 101,447,672 40,748,366 (60,699,306) (25,713,421) Note to Cash Flow Statement: Cash and Cash Equivalents End of the period Beginning of the period Cash and Bank Balance as per Schedule 6 3,165,752 705,336 Add: Investment at cost as per Schedule 4 98,281,920 40,043,030 101,447,672 40,748,366 As per our report of even date for M. P. Chitale & Co. Chartered Accountants Firm Reg. No. 101851W for and on behalf of the board OF DIRECTORS OF IDFC investment advisors LIMITED Vidya BarjE vikram limaye SAdashiv rao Partner Director Director (Membership No. 104994) Mumbai April 27, 2011 Jyothi krishnan Company Secretary 36 IDFC Annual Repo rt 10 11
S C H E D U L E S ANNEXED TO AND FORMING PART OF THE ACCOUNTS Schedule 1 Share Capital As at As at Authorised: 10,000,000 Equity shares of 10/- each 100,000,000 100,000,000 Issued, Subscribed and Paid-Up 10,000,000 Equity shares of 10/- each, fully paid-up 100,000,000 100,000,000 (All the above shares are held by IDFC Asset Management Company Limited, the Holding Company and its Nominees) 100,000,000 100,000,000 Schedule 2 Reserves & Surplus As at As at Profit and Loss Account Balance as per last account 8,921,109 8,921,109 Add: Transferred from Profit and Loss Account 6,666,871 15,587,980 8,921,109 Schedule 3 Fixed Assets Description Gross Block Depreciation and amortisation Net Block As at April 1, 2010 Additions Deletions As at March 31, 2011 As at April 1, 2010 Additions Deletions As at March 31, 2011 As at March 31, 2011 As at March 31, 2010 TANGIBLES Furniture and Fittings 66,110 233,522 299,632 44,268 34,988 79,256 220,376 21,842 Office Equipment 1,167,978 101,470 32,000 1,237,448 509,921 197,508 8,674 698,755 538,693 658,057 Computer Hardware 1,498,006 260,795 1,766,801 1,203,434 186,232 1,389,666 377,135 294,572 INTANGIBLES Computer Software 6,462,267 6,462,267 1,703,294 1,978,953 3,682,247 2,780,020 4,758,973 Total 9,194,361 603,787 32,000 9,766,148 3,460,917 2,397,681 8,674 5,849,924 3,916,224 5,733,444 Previous Year 3,693,184 5,559,779 58,602 9,194,361 1,980,600 1,511,702 31,385 3,460,917 5,733,444 37
Schedule 4 Investments - (Current,Unquoted) (At lower of cost and market value) As at As at Units in Mutual Fund Nil units of IDFC Money Manager Fund-Treasury Plan - Inst Plan B 40,043,030 (Daily Dividend Reinvestment Plan) 6,264,358.896 units of Face Value of 10 (Cost 15.689) each in 98,281,920 IDFC Money Manager Fund-Treasury Plan - Inst Plan B (Growth) 98,281,920 40,043,030 Aggregate amount of Investments in Unquoted Mutual Funds Cost 98,281,920 40,043,030 Market Value 98,370,481 40,043,030 Schedule 5 Sundry Debtors (Unsecured, Considered Good) As at As at Debtors (less than six months) 4,988,544 100,927,991 4,988,544 100,927,991 Schedule 6 Cash and Bank Balances As at As at Balance with a Scheduled Bank in Current Account 3,165,752 705,336 3,165,752 705,336 Schedule 7 Loan and Advances (Unsecured, Considered Good) As at As at Advances Recoverable in Cash or in Kind or for value to be received 23,099,201 30,880,645 Advance Payment of Income Tax (Net of Provisions) 13,707,075 13,051,704 36,806,276 43,932,349 Schedule 8 Current Liabilities and Provisions As at As at CURRENT LIABILITIES Sundry Creditors for Expenses 26,822,385 47,723,065 (Other than Micro, Medium and Small Enterprises) Intercompany Payables 4,137,462 Fees Accrued in Advance 27,604,722 Statutory Dues 1,565,328 1,374,688 28,387,713 80,839,937 PROVISIONS Provision for Retirement Benefits 4,046,116 1,200,000 4,046,116 1,200,000 32,433,829 82,039,937 Schedule 9 Operating Income Portfolio Management Fees 116,099,218 135,625,714 Performance Fees 15,347,197 108,292,077 Advisory Fees 33,863,580 25,924,257 165,309,995 269,842,048 38 IDFC Annual Repo rt 10 11
Schedule 10 Other Income Dividend from Units of Mutual Fund 4,686,050 2,200,153 Profit on Sale of Investments 40,000 45 Miscellaneous Income 20,000 4,726,050 2,220,198 Schedule 11 Interest & Other Charges Other Charges 206,192 (893,327) 206,192 (893,327) Schedule 12 Personnel Expenses Salaries and Bonus 84,687,671 55,674,188 Contribution to Provident Fund and Other Funds 1,120,426 928,445 Staff Training and Welfare Expenses 341,165 630,107 86,149,262 57,232,740 Schedule 13 Establishment Expenses Lease Rent 133,001 491,033 Rates & Taxes 88,183 Insurance Charges 160,703 Repairs and Maintenance - Others 7,548 189,213 301,252 768,429 Schedule 14 Operating and Other Expenses Brokerage Expenses 45,137,246 125,522,013 Travelling and Conveyance 1,270,796 1,344,874 Advertisement and Publicity 350,603 1,078,148 Postage, Telephone and Telex 1,517,477 982,686 Computer Software Expenses 1,965,419 417,889 Printing and Stationery 1,650,372 1,501,423 Professional Fees 4,686,809 3,783,537 Loss on Foreign Exchange Fluctuation 2,618,630 16,808 Operational Losses 12,813 Fixed Asset Written off 27,217 Miscellaneous Expenses 6,465,492 3,697,779 Auditors Remuneration - Audit Fees 250,000 489,333 - Tax Audit Fees 75,000 67,275 - Other Services 344,597 - Out of Pocket Expenses 26,541 66,358,982 138,941,795 39
Schedule 15 Notes to the Financial Statements 1 Nature of Operations The Company provides portfolio management services through its various products. It also provides investment advisory services to Indian as well as Offshore Funds. 2 Statement of Significant Accounting Policies A. System of Accounting The Company adopts the accrual concept in the preparation of the accounts. The preparation of financial statements as per this policy requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. B. Inflation Assets and liabilities are recorded at historical cost to the Company. These costs are not adjusted to reflect the changing value in the purchasing power of money. C. Fixed Assets and Intangible Assets Fixed assets are stated at cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated depreciation. Leasehold Improvements are shown at historical cost less accumulated amortisation. Intangible Assets comprising of system software and licenses purchased, are stated at cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated depreciation. Any expenses on such software for support and maintenance payable annually are charged to revenue. D. Depreciation and Amortisation Depreciation on Fixed Assets Depreciation is charged at the rates prescribed in Schedule XIV of the Companies Act, 1956 as per Written Down Value Method. Any asset costing 5,000/- or less is written off in the year of its purchase. Depreciation on additions during the year is provided on a pro-rata basis. Depreciation on Intangible Assets Depreciation on intangible assets is charged @ 33.33% per annum on straight line basis from the date of acquisition. Depreciation on Mobiles Depreciation on mobile handsets is charged @ 50.00% per annum on straight line basis from the date of purchase. E. Investments Long-term Investments are carried at acquisition cost. A provision is made for diminution other than temporary on an individual basis. Current Investments are carried at the lower of cost or fair value on an individual basis. F. Revenue Recognition Revenue is recognised when no significant uncertainty as regards to its measurement and collection exists. G. Operating Leases Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments under operating leases are charged to the Profit and Loss Account, on a straight line basis, over the lease term. H. Income Taxes The accounting treatment for income tax in respect of the Company s income is based on the Accounting Standard 22 on Accounting for Taxes on Income issued by the Institute of Chartered Accountants of India. The provision made for income tax in the accounts comprises both, the current tax and deferred tax. The deferred tax assets and liabilities for the year, arising on account of timing differences, are recognised in the Profit and Loss Account and the cumulative effect thereof is reflected in the Balance Sheet. 40 IDFC Annual Repo rt 10 11
I. Foreign Currency Transactions The transactions in Foreign exchange are accounted at exchange rate prevailing on the date of transactions. Any exchange gains or losses arising from the settlement of such transactions are recognised in the Profit and Loss Account. Receivables/Payables in foreign currency at the year-end are translated at the year-end exchange rate. J. Provisions A provision is recognised when the Company has a present obligation as a result of past event; 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. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. K. Retirement Benefits Till July 31, 2010 all the employees were seconded from Infrastructure Development Finance Company Limited to the Company. Hence, the Company have not provided for the retirement benefits of the employees till July 31, 2010. Since August 1, 2010, the employees were transferred to the Company and hence the provisions have been made for the retirement benefits of the employees as per the terms of employment. The net present value of the Company s obligation towards Gratuity to employees is based on actuarial valuation determined as at the Balance Sheet date and actuarial gains & losses are recognised in the Profit and Loss Account. The Company s contribution to Provident Fund is deposited with Regional Provident Fund Commissioner and is charged to Profit and Loss Account every year. L. Brokerage Expenses Brokerage is paid to brokers as per the terms of agreement entered into with respective brokers. In case of IDFC Hybrid Infrastructure Portfolio ( HIP ) product, the Company amortises the brokerage expenses of corporate brokers over the tenure of agreement. 3 Segment Information The Company is engaged in the business of providing investment advisory services. During the year, the Company was engaged in only one business segment. As such, there are no separate reportable segments as per Accounting Standards 17 on Segment Reporting issued by Institute of Chartered Accountants of India. 4 Miscellaneous Expenses include business centre expenses of 2,676,000/- paid to IDFC Asset Management Company Ltd. towards share of premises and maintenance costs as per the service level agreement entered between these companies. 5 Personnel Expenses include ESOP compensation cost of 582,535/- paid to Infrastructure Development Finance Company Limited (IDFC) towards ESOP grants given to the employees of the parent company under the IDFC ESOP scheme. The parent company follows the intrinsic method for computing the compensation cost, for options granted under the scheme. The difference if any, between the intrinsic value and the grant price, being the compensation cost is amortised over the vesting period of the options. 6 Managerial Remuneration (i) Salary 3,229,836 (ii) Contribution to Provident and Other Funds 51,096 3,280,932 i) Managerial Remuneration paid by the Company during the period, exceeds the remuneration payable in accordance with the provisions of Section 198 of the Companies Act, 1956 read with Schedule XIII of the said Act by 2,387,752/-. The Company is in process of obtaining approval of the Central Government under Section 198/309 of the Companies Act, 1956 in respect of payment of remuneration to the Manager in excess of the amounts permissible under the Companies Act. In case the Central Government does not give approval for the managerial remuneration paid, the remuneration paid in excess of the remuneration permissible under the Companies Act would be recovered by the Company from the employee. 41
7 Auditors remuneration Audit Fees 250,000 489,333 Tax Audit Fees 75,000 67,275 Other Services 344,597 Out of Pocket Expenses 26,541 696,138 556,608 8 Earnings Per Share Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The relevant details as described above are as follows: Net Profit/(Loss) () 6,666,871 69,469,803 Weighted average number of equity shares (Nos.) 10,000,000 9,282,192 Basic Profit/(Loss) Per Share () 0.67 7.48 Face Value Per Share () 10.00 10.00 9 As per Accounting Standard 15 on Employee Benefits as notified by the Companies (Accounting Standards) Rules, 2006, the following disclosures are made as required: i. The Company has recognised the following amounts in the Profit and Loss Account towards defined contribution plans which are included in Personnel Costs for the period ended : Current Period Provident Fund 1,120,426 ii. The details of the Company s post-retirement benefit plans for gratuity for its employees are given below which is certified by the actuary and relied upon by the auditors: Current Period Change in the Defined Benefit Obligations: Liability at the beginning of the year Current Service Cost 4,242,958 Interest Cost 223,175 Benefits Paid Actuarial Loss (420,017) Liability as at the end of the year 4,046,116 Fair Value of Plan Assets: Fair Value of Plan Assets at the beginning of the year Expected Return on Plan Assets Contributions Benefits Paid Actuarial Loss on Plan Assets Fair Value of Plan Assets at the end of the year Total Actuarial Loss to be recognised Actual Return on Plan Assets: Expected Return on Plan Assets Actuarial Loss on Plan Assets Actuarial Return on Plan Assets Amount recognised in the Balance Sheet: Liability at the end of the year 4,046,116 Fair Value of Plan Assets at the end of the year Amount recognised in the Balance Sheet under Provision for Retirement Benefits 4,046,116 Expense recognised in the Profit AND Loss Account: Current Service Cost 4,242,958 42 IDFC Annual Repo rt 10 11
Current Period Interest Cost 223,175 Expected Return on Plan Assets Net Actuarial Loss to be recognised (420,017) Expense recognised in the Profit and Loss Account under Personnel Costs 4,046,116 Reconciliation of the Liability Recognised in the Balance Sheet: Opening Net Liability Expense recognised 4,046,116 Contribution by the Company Amount recognized in the Balance Sheet under Provision for Retirement Benefit 4,046,116 Principal Assumptions: Current Period % Discount Rate 8.30% Expected Rate of Return on Assets Salary Escalation Rate 8.00% 10 Pursuant to change in the Leave policy the sick leave benefit provision of 1,200,000/- has been written back in the current year. 11 Staff Expenses include additional charge of 30,076,664/- on account of change in estimate in provision of bonus in previous year ended. 12 Related Party Disclosures under Accounting Standard 18: (a) Relationships: Ultimate Holding Company: Infrastructure Development Finance Company Limited Holding Company: IDFC Asset Management Company Limited Fellow Subsidiaries: IDFC AMC Trustee Company Limited IDFC Pension Fund Management Company Limited IDFC Investment Managers (Mauritius) Limited Key Management Personnel: Mr. Naval Bir Kumar, Director (upto February 15, 2011) Mrs. Sheela Krishnan Manager (b) The following transactions were carried out with the related parties in the ordinary course of business during the year: Name of the related party and nature of relationship Infrastructure Development Finance Company Limited (Ultimate Holding Company) IDFC Asset Management Company Limited (Holding Company) Reimbursement of expenses 58,432,086 38,387,406 (Based on the debit notes received) Management Fee Income 7,140,059 1,946,125 Management Fees Received in Advance 5,888,875 Subscription towards Equity Share Capital 100,000,000 Reimbursement of expenses 12,350,266 6,630,697 (Based on the debit notes received) Business Centre Fees Paid 2,951,628 Advances taken and repaid (Net of advances given) 2,771,294 (c) Following are the balances outstanding as at the year-end: Name of the related party and nature of relationship As at As at Payable to Infrastructure Development Finance Company Limited (Ultimate Holding Company) 4,137,462 43
13 Deferred Tax Assets /(Liabilities) (a) Depreciation (417,422) (347,886) (b) Preliminary Expense (32,450) (33,218) (c) Gratuity 1,312,965 Net Deferred Tax Asset/(Liability) 863,093 (381,104) 14 Other Statutory Information EARNINGS IN FOREIGN CURRENCY Advisory Fees 33,477,914 132,512,497 EXPENDITURE IN FOREIGN CURRENCY Travelling Expense 98,637 Membership and Subscription Charges 238,390 242,940 238,390 341,577 15 The Company has no amounts due to any micro, small and medium enterprises as defined under section 7 (1) (a)/ 7 (1) (b)/ 7 (1) of Micro Small and Medium Enterprises Development Act, 2006 as on. 16 Contingent liabilities not provided for in respect of: (a) Claims not acknowledged as debts in respect of Income-tax demand, disputed by the Company in respect of A.Y. 2008-09. The matters in dispute are under CIT appeal. (b) Income-tax demand, disputed by the Company in respect of A.Y. 2007-08. Appeal to be filed with Tribunal. 8,044,089 6,624,881 6,624,881 17 Details of Movement in Provisions, in terms of Accounting Standard 29 issued by the Institute of Chartered Accountants of India, are as under: Nature of Provision Opening Balance as on 01/04/2010 Additions made during the year Deletions made during the year Closing Balance as on 31/03/2011 Provision for Income Tax 4,650,000 9,200,000 13,850,000 Provision for Deferred Tax Asset/(Liability) (381,104) 1,244,197 863,093 Contingent Liability 6,624,881 8,044,089 14,668,970 18 There are no contracts remaining to be executed on capital account and not provided for as at (Previous Year Nil). 19 The figures for the previous year have been regrouped/rearranged wherever necessary to conform to the current year s classification. As per our report of even date for M. P. Chitale & Co. Chartered Accountants Firm Reg. No. 101851W for and on behalf of the board OF DIRECTORS OF IDFC investment advisors LIMITED Vidya BarjE vikram limay E SAdashiv rao Partner Director Director (Membership No. 104994) Jyothi krishnan Mumbai April 27, 2011 Company Secretary 44 IDFC Annual Repo rt 10 11
B A L A N C E S H E E T a b st r a ct and company s general business profile I. Registration Details Registration No. State Code Balance Sheet Date U 7 4 9 2 0 M H 2 0 0 6 P L C 1 6 0 9 3 7 1 1 3 1 0 3 2 0 1 1 II. Capital raised during the year (amount in 000) Public Issue Right Issue N I L N I L Bonus Issue Private Placement N I L N I L III. position of mobilisation and deployment of funds (amount in 000) Total Liabilities Total Assets 1 1 5 5 8 8 1 1 5 5 8 8 Sources of Funds Paid-up Capital Reserves and Surplus application of funds 1 0 0 0 0 0 Secured Loans N I L Net Fixed Assets 1 1 5 5 8 8 Unsecured Loans N I L Investments 3 9 1 6 9 8 2 8 2 Net Current Assets 1 2 5 2 7 IV. performance of the company (amount in 000) Turnover/Income 1 7 0 0 3 6 Profit Before Tax Deferred Tax Asset 8 6 3 Total Expenditure 1 5 5 4 1 3 Profit After Tax 1 4 6 2 3 6 6 6 7 Earnings per Share (in ) Dividend % 0. 6 7 N I L V. generic names of principal services of the company (as per monetary terms) Item Code No. (ITC Code) Product Description N I L P O R T F O L I O M A N A G E M E N T 45