Annexure XIV Continued… - Edelweiss

of our proportional ownership interest within the following two to three years. We estimate that these will
amount to approximately ` 1,450.00 million and ` 1,080.00 million, respectively. For further details, please
see the section titled "Our Business – Other Investments" on page 173 of this Draft Red Herring Prospectus.
Divestment of Aryan Ispat and Power Private Limited and related sponge iron business
On April 9, 2011, we sold our sponge iron business, which we do not regard as core to our strategy going
forward, which is to focus on our coal beneficiation and power generation businesses. The sale was
consummated through our divestment of 81.20% of the equity share capital of Aryan Ispat and Power Private
Limited, through which we operated our sponge iron business. The assets of Aryan Ispat and Power Private
Limited also include an 18 MW power project and a coal beneficiation plant with a designed capacity of 0.70
million tons per annum. The gross proceeds of the sale amounted to ` 31.79 million. Our sponge iron business
generated ` 479.76 million in revenue in Fiscal 2010 and ` 828.13 million in the nine months ending
December 31, 2010. Our sponge iron business recorded losses in both periods. The sale resulted in a one-time
loss of ` 946.90 million. This transaction will have a significant effect on our results of operations in Fiscal
2012 and consequently our results of operations for that and subsequent periods may not be directly
comparable to prior periods. For further details, please see the section titled "Financial Statements — Proforma
Financial Information — Unaudited Pro-Forma Condensed Consolidated Profit and Loss Account" on
page F-68 of this Draft Red Herring Prospectus.
Critical Accounting Policies
Our financial statements have been prepared in accordance with Indian GAAP. The financial statements are
prepared under the historical cost convention, on the accounting principles of a going concern and as per
applicable accounting standards. Our significant accounting policies are set forth in Note 1 to Annexure III to
our restated consolidated financial information included on page F-9 of this Draft Red Herring Prospectus.
Indian GAAP requires that we adopt accounting policies and make estimates that our Directors believe are
most appropriate in the circumstances for the purposes of giving a true and fair view of our results of
operations and the understanding of our financial condition and results of operations. The preparation of our
financial statements requires us to make difficult and subjective judgments in selecting appropriate estimates
and assumptions, which affect the amounts reported in our financial statements. By their nature, these
judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical
experience, terms of existing contracts, our observance of trends in the industry and information available from
other outside sources, as appropriate. There can be no assurance that our judgments will prove correct or that
actual results reported in future periods will not differ from our expectations reflected in our accounting
treatment of certain items.
While we believe that all aspects of our financial statements should be studied and understood in assessing our
current and expected financial condition and results, we believe that the following critical accounting policies
warrant additional attention:
Revenue recognition
Coal beneficiation:
Revenue from coal beneficiation is recognized as beneficiation activity is performed. Such performance is
regarded as being achieved when no significant uncertainty exists regarding the amount of consideration that
will be derived from the performance of such activity and the activity is completed or substantially completed.
Revenue represents the invoiced value of beneficiation receipts, net of trade and cash discounts.
Sale of coal:
Revenue from sale of coal is recognized when coal is dispatched to the customer and the transfer of significant
risks and rewards occurs. Sales represent the invoiced value of coal (net of sales tax).
Power generation business:
Revenue from the sale of power is recognized based on tariffs established under the PPAs that we enter into
with the respective state electricity boards.
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