Financial instruments |
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| Financial instruments | 19. Financial instruments
The carrying value of financial instruments by categories as at March 31, 2025 is as follows:
The carrying value of financial instruments by categories as at March 31, 2026 is as follows:
Offsetting financial assets and liabilities The following table contains information on financial assets and financial liabilities subject to offsetting:
For the financial assets and liabilities subject to offsetting or similar arrangements, each agreement between the Company and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis. In the absence of such an election, financial assets and liabilities will be settled on a gross basis and hence are not offset. Fair value
Financial assets and liabilities include cash and cash equivalents, trade receivables, unbilled receivables, finance lease receivables, employee and other advances, eligible current and non-current assets, loans, borrowings and bank overdrafts, lease liabilities, trade payables and accrued expenses, and eligible current and non-current liabilities.
The fair value of cash and cash equivalents, trade receivables, unbilled receivables, short-term loans, borrowings and bank overdrafts, lease liabilities, trade payables and accrued expenses, other current financial assets and liabilities approximate their carrying amount largely due to the short-term nature of these instruments. Finance lease receivables are periodically evaluated based on individual credit worthiness of customers. Based on this evaluation, the Company records allowance for estimated credit losses on these receivables. As at March 31, 2025 and 2026, the carrying value of such financial assets, net of allowances, and liabilities approximates the fair value.
The Company’s Unsecured Notes 2026 are contracted at fixed coupon rate of 1.50% and market yield on these loans as of March 31, 2026 was 4.48%.
Investments in short-term mutual funds and fixed maturity plan mutual funds, which are classified as FVTPL are measured using net asset values at the reporting date multiplied by the quantity held. Fair value of investments in non-convertible debentures, government securities, commercial papers and bonds classified as FVTOCI is determined based on the indicative quotes of price and yields prevailing in the market at the reporting date. Fair value of investments in equity instruments classified as FVTOCI or FVTPL is determined using market approach primarily based on market multiples method.
The fair value of derivative financial instruments is determined based on observable market inputs including currency spot and forward rates, yield curves and currency volatility.
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 – Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). There were no transfers between Levels 1, 2 and 3 during the years ended March 31, 2025 and 2026. The following table presents fair value hierarchy of assets and liabilities measured at fair value on a recurring basis:
The following methods and assumptions were used to estimate the fair value of the Level 2 financial instruments included in the above table.
The following methods and assumptions were used to estimate the fair value of the Level 3 financial instruments included in the above table.
The following table presents changes in Level 3 assets and liabilities for the years ended March 31, 2025 and 2026:
(1) During the year ended March 31, 2025, as a result of an acquisition by other investors, the Company sold its shares of equity instruments in six companies at a fair value of ₹ 1,281 and recognized a cumulative loss of ₹ 175 in other comprehensive income and cumulative gain of ₹ 152 in consolidated statement of income. (2) During the year ended March 31, 2026, as a result of an acquisition by other investors, the Company sold its shares of equity instruments in three companies at a fair value of ₹ 585 and recognized a cumulative gain of ₹ 389 in other comprehensive income and cumulative loss of ₹ 138 in consolidated statement of income.
(1) Towards change in fair value of earn-out liability as a result of changes in estimates of revenue and earnings over the earn-out period.
As at March 31, 2025 and 2026, every 1% increase/decrease in the unobservable inputs used to estimate the fair value of investment in equity instruments, fair value of contingent consideration and liability on written put options to non-controlling interests, does not have a material impact on its fair value.
Derivative assets and liabilities:
The Company is exposed to currency fluctuations on foreign currency assets/liabilities, forecasted cash flows denominated in foreign currency and net investment in foreign operations. The Company is also exposed to interest rate fluctuations on investments in floating rate financial assets and floating rate borrowings. The Company follows established risk management policies, including the use of derivatives to hedge foreign currency assets/liabilities, interest rates, foreign currency forecasted cash flows and net investment in foreign operations. The counterparties in these derivative instruments are primarily banks and the Company considers the risks of non-performance by the counterparty as immaterial. The following table presents the aggregate contracted principal amounts of the Company's derivative contracts outstanding:
^ Value is less than 0.5
(1) U.S.$ 752 and U.S.$ 944 includes U.S.$/PHP sell forward of U.S.$ 197 and U.S.$ 242 as at March 31, 2025 and 2026, respectively.
The Company determines the existence of an economic relationship between the hedging instrument and the hedged item based on the currency, amount and timing of its forecasted cash flows. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.
If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in consolidated statement of income at the time of the hedge relationship rebalancing.
The following table summarizes activity in the cash flow hedging reserve within equity related to all derivative instruments classified as cash flow hedges:
(1) Includes net (gain)/loss reclassified to revenue of ₹ 394 and ₹ 6,093 for the years ended March 31, 2025 and 2026, respectively; net (gain)/loss reclassified to cost of revenues of ₹ (51) and ₹ (877) for the years ended March 31, 2025 and 2026, respectively; net (gain)/loss reclassified to finance expenses of ₹ (213) and ₹ (53) for the years ended March 31, 2025 and 2026, respectively and net (gain)/loss reclassified to finance and other income of ₹ 73 and ₹ Nil for the years ended March 31, 2025 and 2026, respectively.
The related hedge transactions for balance in cash flow hedging reserves as at March 31, 2026 are expected to occur and be reclassified to the consolidated statement of income over a period of 12 months.
As at March 31, 2025 and 2026, there were no material gains or losses on derivative transactions or portions thereof that have become ineffective as hedges or associated with an underlying exposure that did not occur.
Sale of financial assets
From time to time, in the normal course of business, the Company transfers accounts receivables, unbilled receivables and net investment in finance lease receivables (financial assets) to banks. Under the terms of the arrangements, the Company either substantially transfers its risks and rewards or surrenders control over the financial assets and transfer is without recourse. Accordingly, on such transfers the financial assets are derecognized and considered as sale of financial assets. Gains and losses on the sale of financial assets without recourse are recorded in finance expenses, at the time of sale based on the carrying value of the financial assets and fair value of servicing liability. The incremental impact of such transactions on our cash flow and liquidity for the years ended March 31, 2024, 2025 and 2026 is not material. Financial risk management
Market Risk
Market risk is the risk of loss of future earnings, to fair values or to future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments, foreign currency receivables, payables and loans and borrowings.
The Company’s exposure to market risk is a function of investment and borrowing activities and revenue generating activities in foreign currency. The objective of market risk management is to avoid excessive exposure of the Company’s earnings and equity to losses.
Risk Management Procedures
The Company manages market risk through a corporate treasury department, which evaluates and exercises independent control over the entire process of market risk management. The corporate treasury department recommends risk management objectives and policies, which are approved by senior management and the Company’s Audit, Risk and Compliance Committee. The activities of this department include management of cash resources, implementing hedging strategies for foreign currency exposures, loans and borrowing strategies, and ensuring compliance with market risk limits and policies.
Foreign currency risk
The Company operates internationally, and a major portion of its business is transacted in several currencies. Consequently, the Company is exposed to foreign exchange risk through receiving payment for sales and services in the United States and elsewhere and making purchases from overseas suppliers in various foreign currencies. The exchange rate risk primarily arises from foreign exchange revenue, receivables, cash balances, forecasted cash flows, payables and foreign currency loans and borrowings. A significant portion of the Company’s revenue is in the U.S. Dollars, Pound Sterling, Euro, Indian Rupees, Australian Dollars and Canadian Dollars, while a large portion of costs are in Indian Rupees. The exchange rate between the Indian Rupee and these currencies has fluctuated significantly in recent years and may continue to fluctuate in the future. Appreciation of the Indian Rupee against these currencies can adversely affect the Company’s results of operations.
The Company evaluates exchange rate exposure arising from these transactions and enters into foreign currency derivative instruments to mitigate such exposure. The Company follows established risk management policies, including the use of derivatives like foreign exchange forward/option contracts to hedge forecasted cash flows denominated in foreign currency.
The Company has designated certain derivative instruments as cash flow hedges to mitigate the foreign exchange exposure of forecasted highly probable cash flows.
As at March 31, 2026, a ₹ 1 increase in the spot exchange rate of the Indian Rupee with the U.S. Dollar would result in an approximately ₹ 2,756 (including consolidated statement of income of ₹ 683 and other comprehensive income of ₹ 2,073) decrease in the fair value, and a ₹ 1 decrease would result in an approximately ₹ 2,743 (including consolidated statement of income of ₹ 683 and other comprehensive income of ₹ 2,060) increase in the fair value of foreign currency dollar denominated derivative instruments (forward and option contracts).
The below table presents foreign currency risk from non-derivative financial assets/(liabilities) as at March 31, 2025 and 2026:
(1) Other currencies reflect currencies such as Saudi Riyal, Swiss Franc, Singapore Dollar, United Arab Emirates Dirham and Polish Zloty.
(1) Other currencies reflect currencies such as Singapore Dollar, Swiss Franc, Polish Zloty, United Arab Emirates Dirham and Swedish Krona.
As at March 31, 2025 and 2026, respectively, every 1% increase/decrease in the respective foreign currencies compared to functional currency of the Company increase/decrease the Company’s profit before taxes by approximately ₹ 789 and ₹ 802, respectively.
Interest rate risk
Interest rate risk primarily arises from floating rate borrowings, including various revolving and other lines of credit.
The Company’s investments are primarily in short-term investments, which do not expose it to significant interest rate risk.
Interest rate risk primarily arises from floating rate borrowing, including various revolving and other lines of credit. If interest rates were to increase by 100 bps as on March 31, 2026, additional net annual interest expense on floating rate borrowing would amount to approximately ₹ 799. Certain borrowings are also transacted at fixed interest rates.
Credit risk
Credit risk arises from the possibility that customers may not be able to settle their obligations as agreed. To manage this, the Company periodically assesses the credit rating and financial reliability of customers, considering the financial condition, current economic trends, forward-looking macroeconomic information, analysis of historical bad debts and ageing of accounts receivable. No single customer accounted for more than 10% of the accounts receivable as at March 31, 2025 and 2026, or revenues for the years ended March 31, 2024, 2025 and 2026. There is no significant concentration of credit risk.
Trade receivables and unbilled receivables are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a customer to engage in a repayment plan with the Company.
Refer to Note 9 for changes in the allowance for lifetime expected credit loss. Counterparty risk
Counterparty risk encompasses issuer risk on marketable securities, settlement risk on derivative and money market contracts and credit risk on cash and time deposits. Issuer risk is minimized by only buying securities in India which are at least AA rated by Indian rating agencies. Settlement and credit risk is reduced by the policy of entering into transactions with counterparties that are usually banks or financial institutions with acceptable credit ratings. Exposure to these risks are closely monitored and maintained within predetermined parameters. There are limits on credit exposure to any financial institution. The limits are regularly assessed and determined based upon credit analysis including financial statements and capital adequacy ratio reviews.
Cash and cash equivalents include demand deposits of ₹ 3,546 and bank balances of ₹ 83,236 held with two banks having high credit ratings, which are individually in excess of 10% or more of the Company’s total cash and cash equivalents as at March 31, 2026. Refer to Note 11.
The Company did not have any significant concentration of investment risk, as no investments with any single counterparty exceeded 10% of total investments as at March 31, 2026. Refer to Note 8. Liquidity risk
Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. The Company’s corporate treasury department is responsible for liquidity and funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s net liquidity position through rolling forecasts based on the expected cash flows. As at March 31, 2026, cash and cash equivalents are held with major banks and financial institutions.
The table below provides details regarding the remaining contractual maturities of financial liabilities at the reporting date. The amounts include estimated interest payments and exclude the impact of netting agreements, if any.
(1) Includes future cash outflow towards estimated interest on loans, borrowings and bank overdrafts, and lease liabilities. (2) Includes future cash outflow towards estimated interest on contingent consideration and liability on written put options to non-controlling interests. The balanced view of liquidity and financial indebtedness is stated in the table below. The management for external communication with investors, analysts and rating agencies uses this calculation of the net cash position:
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