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Bajaj Auto
BSE: 532977|NSE: BAJAJ-AUTO|ISIN: INE917I01010|SECTOR: Auto - 2 & 3 Wheelers
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Mar 12
Notes to Accounts Year End : Mar '13
Basis of preparation
 
 These financial statements have been prepared in accordance with the
 generally accepted accounting principles in India under the historical
 cost convention on accrual basis. These financial statements have been
 prepared to comply in all material aspects with the accounting
 standards notified under section 211(3C) [Companies (Accounting
 Standards) Rules, 2006, as amended] and the other relevant provisions
 of the Companies Act, 1956.
 
 All assets and liabilities have been classified as current or
 non-current as per the Company''s normal operating cycle and other .
 criteria set out in the Revised Schedule VI to the Companies Act, 1956.
 Based on the nature of products and the time between the acquisition of
 assets for processing and their realisation in cash and cash
 equivalents, the Company has ascertained its operating cycle as 12
 months for the purpose of current - non current classification of
 assets and liabilities.
 
 1 Derivative hedging instruments
 
 The Company has adopted the accounting treatment and disclosures in
 accordance with the principles laid down in AS 30 and AS 32 on foreign
 currency derivative contracts.
 
 The Company holds foreign currency derivative to hedge its foreign
 currency exposure. Derivatives are initially recognised at fair value
 on the date a derivative contract is entered into and are subsequently
 re-measured at their fair value. The Company designates foreign
 currency derivatives as hedges of foreign currency risk associated with
 a highly probable forecast transaction (cash flow hedge).
 
 The Company has entered into simple forward contracts and par forward
 contracts to hedge highly probable forecast export transactions. These
 instruments meet the management''s Foreign exchange risk management
 objectives and also qualify for hedge accounting as per the principles
 of hedge accounting. The market value of instruments outstanding at the
 close of the year is Rs. Nil as against a loss in the previous year
 aggregating Rs. 212.87 crore.
 
 The Company has also entered into range forward contracts to hedge
 highly probable forecast transactions, where the export realisations of
 the Company are protected below a minimum pre-determined foreign
 exchange rate whereas the realisation advantages are available to the
 Company there from up to a higher pre-determined foreign exchange rate.
 The Company does not benefit by rupee depreciating beyond the
 pre-determined foreign exchange rate. These instruments meet the
 management''s Foreign exchange risk management objectives and also
 qualify for hedge accounting as per the principles of hedge accounting.
 MTM losses in respect of effective hedges is carried to the Hedge
 reserve and ineffectiveness, if any, including the time value of option
 contracts is recognised in the results, as per the principles of AS-30.
 The market value of instruments outstanding at the close of the year
 indicate a gain aggregating Rs. 15.96 crore as against a loss in the
 previous year aggregating Rs. 256.11 crore.
 
 The time value of option contracts from the current year aggregating a
 net gain of Rs. 131.92 crore after reversals, has been recognised as
 other income being recurring in nature, against a loss in the
 previous year recognised for the first time aggregating Rs. 134 crore
 as an exceptional item.
 
 Risk management policy and other disclosures
 
 The exports of the Company, presently constituting substantial portion
 of the turnover, are at prices predetermined for each product in each
 region. These prices are fixed in USD based on an assumed USD/INR rate.
 (Budgeted rate of realisation).
 
 Exports are then effected at such price and hence it is desirable for
 the Company to shield itself from adverse movements in forex rates at a
 future date.
 
 The Company also imports raw materials and components for its
 Motorcycles etc. However, the value of such imports is not material as
 compared to the value of exports. Nevertheless, the Company may wish to
 secure its procurement prices in terms of INR to be able to forecast
 its pricing and profitability. Consequently the Company may wish to
 hedge such exposures, future and current, to achieve the aforesaid
 objective.
 
 The exchange rate between the Indian rupee and foreign currencies has
 changed substantially in recent periods and may continue to fluctuate
 substantially in the future. Consequently, the Company uses derivative
 financial instruments, such as foreign exchange forward and option
 contracts, to mitigate the risk of changes in foreign currency exchange
 rates in respect of its forecasted cash flows and trade receivables.
 
 The details in respect of the outstanding foreign exchange forward
 contracts including range forward and par forward contracts are given
 below. The forward exchange contracts mature between one to twelve
 months. The table below summarises the notional amounts (amounts of
 contracts booked and outstanding) of foreign currency forward contracts
 into relevant maturity groupings based on the remaining period as at
 the 31 March 2013:
 
 Amount that was removed from appropriate equity account (Hedge reserve
 account) during the year ended 2013 and 2012 in respect of forecast
 transaction for which hedge accounting had previously been used, but
 which is no longer expected to occur is Rs. 69.22 crore and t Nil
 respectively.
 
 Amount that was removed from appropriate equity account (Hedge reserve
 account) during the period and included in the initial cost or other
 carrying amount of a non-financial asset or non-financial liability
 whose acquisition or incurrence was a hedged highly probable forecast
 transaction is Rs. Nil.
 
 Amount in respect of the ineffectiveness which relates to time value of
 option contracts recognised in the Statement of Profit and Loss that
 arises from cash flow hedges is Rs. 2.08 crore as on 31 March 2013.
 
 In respect of the Company''s foreign currency derivative contracts
 outstanding as on 31 March 2013, a 10% increase in the exchange rates
 of the currency underlying such contracts as given by the banks would
 have resulted in an approximately Rs. 185.07 crore decrease in the fair
 value of outstanding contracts.
 
 In respect of the Company''s foreign currency derivative contracts
 outstanding as on 31 March 2013, a 10% decrease in the exchange rates
 of the currency underlying such contracts as given by the banks would
 have resulted in an approximately Rs. 320.86 crore increase in the fair
 value of outstanding contracts.
 
 Counter-party Risk
 
 Counter-party risk encompasses settlement risk on foreign currency
 derivative contracts. Exposure to these risks is closely monitored and
 kept within predetermined parameters. The Company does not expect any
 losses from non-performance by these counter-parties.
 
 The Company''s policy is to transact with credit worthy banks, which
 are reviewed on an on-going basis. The following table depicts that the
 majority of the foreign currency derivatives are placed in highly rated
 banks:
 
 2 Earnings Per Share (EPS)
 
 Earnings per share is calculated by dividing the profit attributable to
 the equity shareholders by the weighted average number of equity shares
 outstanding during the year. The numbers used in calculating basic and
 diluted earnings are stated below:
 
 3 Employee benefits
 
 Liability for employee benefits has been determined by an actuary,
 appointed for the purpose, in conformity with the principles set out in
 the accounting standard 15 (Revised) the details of which are as
 hereunder.
 
 4 Lease
 
 Future minimum lease rental in respect of assets given on operating
 lease in the form of office premises after 1 April 2001 Minimum future
 lease payments as on 31 March 2013:
 
 5 Previous year figures
 
 Previous year figures have been reclassified to conform to this
 year''s classification.
 
 6 Miscellaneous
 
 Rs. 1 crore is equal to Rs. 10 million.
 
 Amounts less than Rs. 50,000 have been shown at actual against
 respective line items statutorily required to be disclosed.
Source : Dion Global Solutions Limited
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