Notes to the consolidated financial statements

2.20 Segment reporting

IFRS 8 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Company’s operations predominantly relate to providing IT solutions, delivered to customers located globally, across various industry segments.

The Chief Operating Decision Maker evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by industry classes and geographic segmentation of customers. Accordingly, segment information has been presented both along industry classes and geographic segmentation of customers. The accounting principles used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the significant accounting policies.

Industry segments for the Company are primarily financial services comprising enterprises providing banking, finance and insurance services, manufacturing enterprises, enterprises in the telecommunications (telecom) and retail industries, and others such as utilities, transportation and logistics companies.

Geographic segmentation is based on business sourced from that geographic region and delivered from both on-site and off-shore. North America comprises the United States of America, Canada and Mexico, Europe includes continental Europe (both the east and the west), Ireland and the United Kingdom, and the Rest of the World comprising all other places except those mentioned above and India.

Revenue and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable to that segment. Allocated expenses of segments include expenses incurred for rendering services from the Company’s offshore software development centers and on-site expenses, which are categorized in relation to the associated turnover of the segment.

Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying assets are used interchangeably. Management believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as ‘unallocated’ and adjusted against the total income of the Company.

Fixed assets used in the Company’s business are not identified to any of the reportable segments, as these are used interchangeably between segments. Management believes that it is currently not practical to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.

Geographical information on revenue and industry revenue information is collated based on individual customers invoiced or in relation to which the revenue is otherwise recognized.

2.20.1 Industry segments

in Rupee Symbolcrore

Year ended March 31, 2011

Financial services

Manufacturing

Telecom

Retail

Others

Total

Revenues

9,862

5,393

3,549

3,898

4,799

27,501

Identifiable operating expenses

4,122

2,311

1,420

1,647

2,100

11,600

Allocated expenses

2,456

1,370

899

990

1,218

6,933

Segment profit

3,284

1,712

1,230

1,261

1,481

8,968

Unallocable expenses

866

Operating profit

8,102

Other income, net

1,211

Profit before income taxes

9,313

Income tax expense

2,490

Net profit

6,823

Depreciation and amortization

862

Non-cash expenses other than depreciation and amortization

4

in Rupee Symbolcrore

Year ended March 31, 2010

Financial services

Manufacturing

Telecom

Retail

Others

Total

Revenues

7,731

4,506

3,661

3,035

3,809

22,742

Identifiable operating expenses

3,068

1,993

1,284

1,243

1,544

9,132

Allocated expenses

1,953

1,139

926

767

964

5,749

Segment profit

2,710

1,374

1,451

1,025

1,301

7,861

Unallocable expenses

951

Operating profit

6,910

Other income, net

990

Profit before income taxes

7,900

Income tax expense

1,681

Net profit

6,219

Depreciation and amortization

942

Non-cash expenses other than depreciation and amortization

3

2.20.2 Geographic segments

in Rupee Symbolcrore

Year ended March 31, 2011

North America

Europe

India

Rest of the World

Total

Revenues

17,958

5,927

599

3,017

27,501

Identifiable operating expenses

7,658

2,467

281

1,194

11,600

Allocated expenses

4,555

1,488

144

746

6,933

Segment profit

5,745

1,972

174

1,077

8,968

Unallocable expenses

866

Operating profit

8,102

Other income, net

1,211

Profit before income taxes

9,313

Income tax expense

2,490

Net profit

6,823

Depreciation and amortization

862

Non-cash expenses other than depreciation and amortization

4

in Rupee Symbolcrore

Year ended March 31, 2010

North America

Europe

India

Rest of the World

Total

Revenues

14,972

5,237

270

2,263

22,742

Identifiable operating expenses

6,067

2,093

80

892

9,132

Allocated expenses

3,784

1,325

68

572

5,749

Segment profit

5,121

1,819

122

799

7,861

Unallocable expenses

951

Operating profit

6,910

Other income, net

990

Profit before income taxes

7,900

Income tax expense

1,681

Net profit

6,219

Depreciation and amortization

942

Non-cash expenses other than depreciation and amortization

3

2.20.3 Significant clients

No client individually accounted for more than 10% of the revenues in the year ended March 31, 2011 and March 31, 2010.

2.21 Litigation

The Company is subject to legal proceedings and claims which have arisen in the ordinary course of its business. The Company’s management does not reasonably expect that legal actions, when ultimately concluded and determined, will have a material and adverse effect on the results of operations or the financial position of the Company.

2.22 Tax contingencies

The Company has received demands from the Indian taxation authorities for payment of additional tax of Rupee Symbol671 crore including interest of Rupee Symbol177 crore, upon completion of their tax review for fiscal 2005, 2006 and 2007. The tax demands are mainly on account of disallowance of a portion of the deduction claimed by the Company under Section 10A of the Income tax Act. The deductible amount is determined by the ratio of export turnover to total turnover. The disallowance arose from certain expenses incurred in foreign currency being reduced from export turnover but not reduced from total turnover. The tax demand for fiscal 2007 also includes disallowance of portion of profit earned outside India from the STP units and disallowance of profits earned from SEZ units. The matter for fiscal 2005, fiscal 2006 and fiscal 2007 is pending before the Commissioner of Income tax (Appeals), Bangalore.

The Company is contesting the demands and management and its tax advisors believe that its position will likely be upheld in the appellate process. No additional provision has been accrued in the financial statements for the tax demands raised. The Management believes that the ultimate outcome of this proceeding will not have a material adverse effect on the Company’s financial position and results of operations.