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Hindalco Industries
BSE: 500440|NSE: HINDALCO|ISIN: INE038A01020|SECTOR: Aluminium
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« Mar 12
Notes to Accounts Year End : Mar '13
1. Impairment Loss/(Reversal) (Net):
 
 Certain assets of copper business have been impaired as a result of
 uneconomical operation. Accordingly, an amount of Rs. 17.25 crore
 (Previous year Rs. Nil) has been recorded as impairment loss during the
 year.
 
 2.  Segment Reporting
 
 A.  Primary Segment Reporting (by Business Segment):
 
 (a) The Company has two reportable segments viz. Aluminium and Copper
 which have been identified in line with the Accounting Standard 17 on
 Segment Reporting, taking into account the organizational structure as
 well as differential risk and return of these segments. Details of
 products included in each segments are as under:
 
 (i) Aluminium : Hydrate & Alumina, Aluminium and Aluminium Product
 
 (ii) Copper : Continuous Cast Copper Rods, Copper Cathode, Sulphuric
 Acid, DAP & Complexes, Gold and Silver
 
 (b) Inter-segment transfers are based on market rates.
 
 (c) The details of the revenue, results, assets, liabilities and other
 information from operations by reportable business segments are under:
 
 B.  Secondary Segment Reporting (by Geographical demarcation):
 
 (a) The secondary segment is based on geographical demarcation i.e.
 India and Rest of the World.
 
 (b) The Company''s revenue from external customers and information about
 its assets and others by geographical location are as under:
 
 3.  The Company had formulated a scheme of financial restructuring
 under Sections 391 to 394 of the Companies Act 1956 (the Scheme)
 between the Company and its equity shareholders approved by the High
 Court of judicature of Bombay to deal with various costs associated
 with its organic and inorganic growth plan. Pursuant to this, a
 separate reserve account titled as Business Reconstruction Reserve
 (BRR) was created during the year 2008-09 by transferring balance
 standing to the credit of Securities Premium Account of the Company for
 adjustment of certain expenses as prescribed in the Scheme.
 Accordingly, the Company has transferred Rs. 8,647.37 crore from
 Securities Premium Account to BRR and so far Rs. 66.98 crore adjusted
 against BRR.
 
 4.  For the year ended 31st March, 2013, the Board of Directors of the
 Company have recommended dividend of Rs. 1.40 per share (Previous year
 Rs. 1.55 per share) to equity shareholders aggregating to Rs. 313.60
 crore (Previous year Rs. 344.89 crore) including Dividend Distribution
 Tax.
 
 5.  Share Based Payment Employee stock option scheme
 
 The shareholders of the Company has approved on 23rd January, 2007 an
 Employee Stock Option Scheme (ESOS 2006), formulated by the Company,
 under which the Company may issue 3,475,000 options to its permanent
 employees in the management cadre, in one or more tranches, whether
 working in India or out of India, including the Whole lime Directors of
 the Company. The shareholders have also approved giving discount up to
 30% of the average price of the equity shares of the Company in the
 immediate preceding seven day period on the stock exchange. The ESOS
 2006 is administered by the Compensation Committee of the Board of
 Directors of the Company (the Committee). Each option when exercised
 would be converted into one fully paid-up equity share of Rs. 1/- each
 of the Company. The options will vest in 4 equal annual instalments
 after one year of the grant. The maximum period of exercise is 5 years
 from the date of vesting. Further, forfeited/expired options are
 available to the Committee for grant. These options do not carry rights
 to dividends or voting rights till the date of exercise. Further, on
 23rd September, 2011 the ESOS 2006 has been partially modified by which
 the Company may now issue 6,475,000 options.
 
 However, under the ESOS 2006, so far the Committee has granted
 3,545,550 options (Previous year 3,545,550 options) to its eligible
 employees in three tranches out of which 880,145 options (Previous year
 706,901 options) have been forfeited/expired and are available to the
 Committee for grant as per term of the Scheme.
 
 The compensation cost of stock options granted to employees have been
 accounted by the Company using the intrinsic value method. Accordingly,
 Employee benefits expenses includes Rs. 0.27 crore (Previous year Rs.
 1.29 crore) being the amortization of intrinsic value for the year
 ending 31st March, 2013.
 
 6. Operating Lease
 
 The total of future minimum lease payment commitments under
 non-cancellable operating lease agreement for a period of twenty years
 expiring in 2022 to use railway tracks along with locomotives for
 transportation of materials are as under:
 
 7 Derivative Financial Instruments
 
 (a) The Company has adopted Accounting Standard 30, Financial
 Instruments: Recognition and Measurement issued by The Institute of
 Chartered Accountants of India so far as it relates to derivative
 accounting.
 
 (b) In the ordinary course of business, the Company is exposed to risks
 resulting from changes in prices of commodity, exchange rate
 fluctuation and interest rate movements. It manages its exposure to
 these risks through derivative financial instruments. It uses
 derivative instruments such as forwards, futures, swaps and options to
 manage these risks. These derivative financial instruments reduce the
 impact of both favourable and unfavourable fluctuations. Except where
 noted, the derivative contracts are marked- to-market (MTM) and the
 related gains and losses are included in the Statement of Profit and
 Loss in the current accounting period.
 
 The Company''s risk management activities are subject to the management,
 direction and control of Risk Management Board (RMB). The RMB is
 composed of two directors including Managing Director, Chief Financial
 Officer and other officers and employees selected by the Managing
 Director. The RMB reports to the Board of Directors on the scope of its
 activities.
 
 The decision of whether and when to execute derivative financial
 instruments along with its tenure can vary from period to period
 depending on market conditions and the relative costs of the
 instruments. The tenure is always linked to the timing of the
 underlying exposure, with the connection between the two being
 regularly monitored. The Company is exposed to losses in the event of
 non-performance by the counterparties to the derivative contracts. All
 derivative contracts are executed with counterparties that, in our
 judgment, are creditworthy. The credit levels are reviewed to ensure
 that there is not an inappropriate concentration of outstanding to any
 particular counterparty.
 
 Commodity Price Risk Copper and Precious Metals
 
 This business is conducted under a conversion model. The prices of
 input and output are derived from the same benchmark and/or are linked
 to each other through a defined formula. The objective of risk
 management is to attempt to use derivatives to match the price
 fluctuations arising out of the timing mismatch in pricing the input
 and output so as to ''pass through'' the change in input cost to
 customers to make the margins immune to the fluctuations in prices of
 the input and output.
 
 Aluminium
 
 This business is vertically integrated. The main raw material viz.
 bauxite (mostly mined from own mines) and other purchased raw materials
 do not have any linkage with the output price which is Aluminium LME
 prices. When the prices of input(s) and output(s) do not follow the
 above condition, then risk management attempts to use derivatives so as
 to protect the margins from adverse movements in prices on either side,
 i.e. from a rise in input cost or from a fall in output price.
 
 As a condition of sale, customers often require the Company to enter
 into fixed price commitments.  These commitments expose the Company to
 the risk of fluctuating aluminum prices between the time the order is
 committed and the time that the material is shipped. The Company may
 enter into derivative financial instruments to mitigate the risk
 arising out of the fixed price commitments. Consequently, the gain or
 loss resulting from movements in the price of aluminum on these
 contracts would generally be offset by an equal and opposite impact on
 the net sales and purchases being hedged.
 
 Foreign Currency Exchange Risk
 
 Exchange rate movements, particularly the United States Dollar (USD)
 and Euro (EUR) against Indian Rupee (INR), have an impact on our
 operating results. In addition to the foreign exchange flow from
 exports, the commodity prices in the domestic market are derived based
 on the landed cost of imports in India where LME prices and USD/INR
 exchange rate are the main factors. In case of conversion business, the
 objective is to match the exchange rate of outflows and related inflows
 through derivative financial instruments. With respect to Aluminium
 business where costs are predominantly in INR, the strengthening of INR
 against USD adversely affects the profitability of the business and
 benefits when INR depreciates against USD. The company enters into
 various foreign exchange contracts to protect profitability. The
 Company also enters into various foreign exchange contracts to mitigate
 the risk arising out of foreign currency exchange rate movement in
 foreign currency contracts executed with foreign suppliers to procure
 capital items for its project activities.
 
 Embedded derivatives
 
 Copper concentrate is purchased on future pricing model based on
 month''s average LME (in case of copper) / LBMA (in case of gold and
 silver). Since the value of the concentrate changes with response to
 change in commodity pricing indices, embedded derivatives (ED) is
 identified and segregated in the contract.  The ED so segregated, is
 treated like commodity derivative and qualify for hedge accounting.
 These derivatives are put into a Fair Value hedge relationship with
 inventory.
 
 The objective of hedge designation of the embedded commodity derivative
 is to offset the volatility in the Statement of Profit and Loss due to
 change in value of un-priced inventory with response to LME / LBMA.
 
 8. Information related to Micro, Small and Medium Enterprises, as
 defined in the Micro, Small and Medium Enterprises Development Act,
 2006 (MSME Development Act), are given below. The information given
 below have been determined to the extent such enterprises have been
 identified on the basis of information available with the Company:
 
 9. The Company is one of the promoter members of Aditya Birla
 Management Corporation Private Limited (ABMCPL), a Company limited by
 guarantee which has been formed to provide common facilities and
 resources to its members, with a view to optimize the benefits of
 specialization and minimize cost for each member. The Company is one of
 the participants in the common pool and shares the expenses incurred by
 ABMCPL and accounted for under appropriate heads.
 
 10. Related Party Disclosures:
 
 A List of Related Parties:
 
 (a) Enterprises where control exists:
 
 i.  Subsidiaries:
 
 1 Hindalco Guinea SARL
 
 2 Minerals & Minerals Limited
 
 3 Aditya Birla Chemicals (India) Limited
 
 4 Utkal Alumina International Limited
 
 5 Suvas Holdings Limited
 
 6 Renukeshwar Investments & Finance Limited
 
 7 Renuka Investments & Finance Limited
 
 8 Dahej Harbour and Infrastructure Limited
 
 9 Lucknow Finance Company Limited
 
 10 Hindalco-Almex Aerospace Limited
 
 11 HAAL USA Inc. (dissovled w.e.f. 23rd April 2012)
 
 12 Tubed Coal Mines Limited
 
 13 East Coast Bauxite Mining Company Private Limited
 
 14 Mauda Energy Limited
 
 15 Birla Resources Pty Limited
 
 16 Aditya Birla Minerals Limited
 
 17 Birla Maroochydore Pty Limited
 
 18 Birla Nifty Pty Limited
 
 19 Birla Mt. Gordon Pty Limited
 
 20 AV Minerals (Netherlands) B.V.
 
 21 AV Metals Inc.
 
 22 Novelis MEA Ltd (Dubai)
 
 23 Novelis Inc.
 
 24 Albrasilis - Aluminio do Brazil Industria e Comercia Ltda
 
 25 Novelis do Brasil Ltda.
 
 26 4260848 Canada Inc.
 
 27 4260856 Canada Inc.
 
 28 Novelis Cast House Technology Ltd.
 
 29 Novelis No. 1 Limited Partnership
 
 30 Novelis Sheet Ingot GmbH
 
 31 Novelis Lamines France SAS
 
 32 Novelis PAE SAS
 
 33 Novelis Aluminum Beteiligungs GmbH
 
 34 Novelis Deutschland GmbH
 
 35 Novelis Aluminum Holding Company
 
 36 Novelis Italia SpA
 
 37 Novelis (Shanghai) Aluminum Trading Company
 
 38 Aluminum Company of Malaysia Berhad
 
 39 Alcom Nikkei Specialty Coatings Sdn Berhad
 
 40 Al Dotcom Sdn Berhad #
 
 41 Novelis (India) Infotech Ltd.
 
 42 Novelis de Mexico SA de CV
 
 43 Novelis Korea Ltd.
 
 44 Novelis AG
 
 45 Novelis Switzerland SA
 
 46 Novelis Europe Holdings Limited
 
 47 Novelis UK Ltd.
 
 48 Aluminum Upstream Holdings LLC (Delaware)
 
 49 Eurofoil, Inc. (USA) (New York)
 
 50 Logan Aluminum Inc. (Delaware)
 
 51 Novelis Corporation (Texas)
 
 52 Novelis Madeira, Unipessoal, Limited
 
 53 Novelis Services Limited
 
 54 Novelis Brand LLC (Delaware)
 
 55 Novelis PAE Corp (Delaware)
 
 56 Novelis South America Holdings LLC
 
 57 Novelis (China) Aluminum Products Company Ltd.
 
 58 8018227 Canada Inc.
 
 59 8018243 Canada Limited
 
 60 Novelis Acquisitions LLC (Delaware)
 
 61 Novelis North America Holdings Inc. (Delaware)
 
 62 Novelis Delaware LLC (Delaware)
 
 63 Novelis Vietnam Company Ltd.
 
 (b) Other Related Parties:
 
 i.  Associates:
 
 1 Aditya Birla Science and Technology Company Limited
 
 2 Idea Cellular Limited
 
 3 Aluminum Norf GmbH
 
 4 Consorcio Candonga
 
 5 MiniMRF LLC (Delaware)
 
 6 Deutsche Aluminum Verpackung Recycling GmbH
 
 7 France Aluminum Recyclage SA
 
 ii.  Joint Ventures:
 
 1 Mahan Coal Limited
 
 2 Hydromine Global Minerals (GMBH) Limited
 
 iii. Trust of the Company:
 
 1 Trident Trust
 
 iv.  Key Managerial Personnel:
 
 Mr.  D. Bhattacharya - Managing Director
 
 11. Previous year figures have been reclassified/regrouped to conform
 to this year''s classification.
Source : Dion Global Solutions Limited
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