Notes to the consolidated financial statements

2.13 Equity

Share capital and share premium

The Company has only one class of shares referred to as equity shares having a par value of Rupee Symbol5/-. The amount received in excess of the par value has been classified as share premium. Additionally, share-based compensation recognized in net profit in the statement of comprehensive income is credited to share premium. 28,33,600 shares were held by the controlled trust, each as of March 31, 2011 and March 31, 2010.

Retained earnings

Retained earnings represent the amount of accumulated earnings of the Company.

Other components of equity

Other components of equity consist of currency translation and fair value changes on available-for-sale financial assets.

The Company’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value. In order to maintain or achieve an optimal capital structure, the Company may adjust the amount of dividend payment, return capital to shareholders, issue new shares or buy back issued shares. As of March 31, 2011, the Company has only one class of equity shares and has no debt. Consequent to the above capital structure there are no externally imposed capital requirements.

The rights of equity shareholders are set out below.

2.13.1 Voting

Each holder of equity shares is entitled to one vote per share. The equity shares represented by American Depositary Shares (ADS) carry similar rights to voting and dividends as the other equity shares. Each ADS represents one underlying equity share.

2.13.2 Dividends

The Company declares and pays dividends in Indian rupees. Indian law mandates that any dividend declared out of accumulated distributable profits can be done only after the transfer to a general reserve of a specified percentage of net profit computed in accordance with current regulations. The remittance of dividends outside India is governed by the Indian law on foreign exchange and is subject to applicable distribution taxes.

The amount of per share dividend recognized as distributions to equity shareholders for the years ended March 31, 2011 and March 31, 2010 was Rupee Symbol55.00 and Rupee Symbol23.50, respectively. The dividend for the year ended March 31, 2011 includes Rupee Symbol15.00 per share of final dividend for the year ended March 31, 2010 and Rupee Symbol10.00 per share of interim dividend and Rupee Symbol30.00 per share of 30th year special dividend, authorized by the Board on its meeting held on October 15, 2010. The dividend for the year ended March 31, 2010 includes Rupee Symbol13.50 per share of final dividend for the year ended March 31, 2009 and Rupee Symbol10.00 per share of interim dividend.

The Board of Directors, in their meeting on April 15, 2011, proposed a final dividend of approximately Rupee Symbol20 per equity share. The proposal is subject to the approval of shareholders at the Annual General Meeting to be held on June 11, 2011, and if approved, would result in a cash outflow of approximately Rupee Symbol1,336 crore, inclusive of corporate dividend tax of Rupee Symbol187 crore.

2.13.3 Liquidation

In the event of liquidation of the Company, the holders of shares shall be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. However, no such preferential amounts exist currently, other than the amounts held by irrevocable controlled trusts. The amount distributed will be in proportion to the number of equity shares held by the shareholders.

For irrevocable controlled trusts, the corpus would be settled in favor of the beneficiaries.

2.13.4 Share options

There are no voting, dividend or liquidation rights to the holders of options issued under the Company’s share option plans.

2.14 Other income

Other income consists of the following :

in Rupee Symbolcrore

Year ended March 31,

2011

2010

Interest income on deposits and certificates of deposit

1,133

779

Exchange gains / (losses) on forward and options contracts

56

299

Exchange gains / (losses) on translation of other assets and liabilities

(14)

(269)

Income from available-for-sale financial assets / investments

23

160

Others

13

21

1,211

990

2.15 Operating leases

The Company has various operating leases, mainly for office buildings, that are renewable on a periodic basis. Rental expense for operating leases was Rupee Symbol146 crore and Rupee Symbol125 crore for the years ended March 31, 2011 and March 31, 2010, respectively.

The schedule of future minimum rental payments in respect of non-cancellable operating leases is as follows :

in Rupee Symbolcrore

As of March 31,

2011

2010

Within one year of the Balance Sheet date

109

84

Due in a period between one year and five years

251

249

Due after five years

71

62

The operating lease arrangements extend up to a maximum of ten years from their respective dates of inception, and relates to rented overseas premises. Some of these lease agreements have a price escalation clause.

2.16 Employees Stock Option Plans (ESOP)

1998 Employees Stock Option Plan (‘the 1998 Plan’)

The Company’s 1998 Plan provides for the grant of non-statutory share options and incentive share options to employees of the Company. The establishment of the 1998 Plan was approved by the Board of Directors in December 1997 and by the shareholders in January 1998. The Government of India has approved the 1998 Plan, subject to a limit of 1,17,60,000 equity shares representing 1,17,60,000 ADS to be issued under the 1998 Plan. All options granted under the 1998 Plan are exercisable for equity shares represented by ADSs. The options under the 1998 Plan vest over a period of one through four years and expire five years from the date of completion of vesting. The 1998 Plan is administered by a compensation committee comprising four members, all of whom are independent members of the Board of Directors. The term of the 1998 Plan ended on January 6, 2008, and consequently no further shares will be issued to employees under this plan.

1999 Employees Stock Option Plan (‘the 1999 Plan’)

In the year 2000, the Company instituted the 1999 Plan. The Board of Directors and shareholders approved the 1999 Plan in June 1999. The 1999 Plan provides for the issue of 5,28,00,000 equity shares to employees. The 1999 Plan is administered by a compensation committee comprising four members, all of whom are independent members of the Board of Directors.

Under the 1999 Plan, options will be issued to employees at an exercise price, which shall not be less than the Fair Market Value (FMV) of the underlying equity shares on the date of grant. Under the 1999 Plan, options may also be issued to employees at exercise prices that are less than FMV only if specifically approved by the shareholders of the Company in a general meeting. All options under the 1999 Plan are exercisable for equity shares. The options under the 1999 Plan vest over a period of one through six years, although accelerated vesting based on performance conditions is provided in certain instances and expire over a period of six months through five years from the date of completion of vesting. The term of the 1999 Plan ended on June 11, 2009, and consequently no further shares will be issued to employees under this plan.

The activity in the 1998 Plan and 1999 Plan during the year ended March 31, 2011 and March 31, 2010 are set out as follows :

 

Year ended March 31, 2011

Year ended March 31, 2010

Shares arising out of options

Weighted average exercise price

Shares arising out of options

Weighted average exercise price

1998 Plan :

Outstanding at the beginning

2,42,264

613

9,16,759

904

Forfeited and expired

(3,519)

722

(60,424)

1,550

Exercised

(1,88,675)

600

(6,14,071)

854

Outstanding at the end

50,070

683

2,42,264

613

Exercisable at the end

50,070

683

2,42,264

613

1999 Plan :

Outstanding at the beginning

2,04,464

869

9,25,806

1,253

Forfeited and expired

(18,052)

964

(3,40,264)

1,968

Exercised

(1,37,692)

823

(3,81,078)

821

Outstanding at the end

48,720

962

2,04,464

869

Exercisable at the end

40,232

717

1,84,759

735

The weighted average share price of options exercised under the 1998 Plan during the year ended March 31, 2011 and March 31, 2010 was Rupee Symbol2,950 and Rupee Symbol2,266, respectively. The weighted average share price of options exercised under the 1999 Plan during the year ended March 31, 2011 and March 31, 2010 was Rupee Symbol2,902 and Rupee Symbol2,221 respectively.

The cash expected to be received upon the exercise of vested options for the 1998 Plan and 1999 Plan is Rupee Symbol3 crore each.

The following table summarizes information about share options outstanding and exercisable as of March 31, 2011 :

 

Range of exercise prices per share (Rupee Symbol)

Options outstanding

Options exercisable

No. of shares arising out of options

Weighted average remaining contractual life

Weighted average exercise price

No. of shares arising out of options

Weighted average remaining contractual life

Weighted average exercise price

1998 Plan :

300 – 700

24,680

0.73

587

24,680

0.73

587

701 – 1,400

25,390

0.56

777

25,390

0.56

777

50,070

0.65

683

50,070

0.65

683

1999 Plan :

300 – 700

33,759

0.65

448

33,759

0.65

448

701 – 2,500

14,961

1.71

2,121

6,473

1.71

2,121

48,720

0.97

962

40,232

0.82

717

The following table summarizes information about share options outstanding and exercisable as of March 31, 2010 :

 

Range of exercise prices per share (Rupee Symbol)

Options outstanding

Options exercisable

No. of shares arising out of options

Weighted average remaining contractual life

Weighted average exercise price

No. of shares arising out of options

Weighted average remaining contractual life

Weighted average exercise price

1998 Plan :

300 – 700

1,74,404

0.94

551

1,74,404

0.94

551

701 – 1,400

67,860

1.27

773

67,860

1.27

773

2,42,264

1.03

613

2,42,264

1.03

613

1999 Plan :

300 – 700

1,52,171

0.91

439

1,52,171

0.91

439

701 – 2,500

52,293

1.44

2,121

32,588

1.20

2,121

2,04,464

1.05

869

1,84,759

0.97

735

The share-based compensation recorded for the year ended March 31, 2011 was nil and for year ended March 31, 2010 was Rupee Symbol1 crore.