Segment Reporting (Detailed)
Segment reporting under Ind AS 108 requires companies to disclose financial information about their operating segments — the components for which the chief operating decision-maker regularly reviews discrete financial information — enabling investors to understand the diverse sources of revenue, profit, and capital employed within a diversified business.
Ind AS 108 adopted the 'management approach' to segment identification, aligning with IFRS 8. An operating segment was defined as a component of an entity that engaged in business activities from which it could earn revenues and incur expenses, whose operating results were regularly reviewed by the CODM (chief operating decision-maker) to make resource allocation decisions, and for which discrete financial information was available.
The CODM was typically the CEO, the Board, or the management committee that made strategic resource decisions. The standard required companies to report segments consistent with how they were internally managed, rather than imposing an external, sector-based taxonomy. This led to significant variation across companies in how segments were drawn.
Quantitative thresholds in Ind AS 108 determined which segments needed to be disclosed separately. A segment was reportable if its revenue exceeded 10 percent of combined segment revenue, its profit or loss exceeded 10 percent of the larger of combined profit of profitable segments or combined loss of loss-making segments, or its assets exceeded 10 percent of total assets. The standard also required that disclosed segments together account for at least 75 percent of external revenue.
Reliance Industries provided a prominent example of segment reporting richness. Its segments over the years included Petrochemicals, Refining, Oil and Gas Exploration, Retail, Digital Services (Jio), and Media. Each segment's EBITDA, capital employed, and depreciation were disclosed, allowing analysts to compute segment ROCE and attribute the group's overall valuation to its constituent parts. The significant upward re-rating of Reliance in the late 2010s was partly driven by the market recognising the Jio digital services and retail segments as standalone businesses of substantial value.
ITC's segment structure — Cigarettes, FMCG (Other), Hotels, Agri-Business, and Paperboards — illustrated how segment margins could differ dramatically within a conglomerate. The cigarettes segment consistently generated margins exceeding 65 percent EBITDA, cross-subsidising the investments in nascent FMCG categories. Segment reporting allowed analysts to isolate the cigarette profitability and assess whether the capital deployed in hotels and FMCG was generating adequate returns.
Geographic segment reporting also fell under Ind AS 108, requiring disclosure of revenue by geography (domestic versus international), and non-current assets by geography. For IT services companies like Infosys and TCS, geography was a primary dimension of analysis — revenues from North America, Europe, and India were tracked, as were attrition rates and pricing trends by geography.
Analysts used segment data to build SOTP models, applying different multiples to each segment based on its growth profile, margin structure, and capital intensity, then aggregating to derive group value.