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Hindalco Industries

BSE: 500440|NSE: HINDALCO|ISIN: INE038A01020|SECTOR: Aluminium
Mar 27, 12:30
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VOLUME 384,868
Mar 27, 12:31
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VOLUME 7,302,305
Mar 15
Notes to Accounts Year End : Mar '16
1.  For the year ended 31st March, 2016, the Board of Directors of the
 Company have recommended dividend of Rs. 1.00 per share (Previous year
 Rs. 1.00 per share) to equity shareholders aggregating to Rs. 248.54
 crore (Previous year Rs. 246.09 crore) including Dividend Distribution
 2.  The Company has furnished bank guarantees to Nominated Authority
 of Ministry of Coal towards fulfilment of certain conditions of the
 agreements signed by it in respect of the four coal blocks awarded to
 it through auction. Some of the conditions could not be fulfilled
 despite best efforts for reasons beyond its control as certain
 approvals/clearances that are under the purview of the concerned State
 Governments have been delayed. The Company has made representation with
 the Nominated Authority in this regard and is confident that its
 request will be considered favourably. Accordingly, no provision has
 been made for this.
 3.  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.
 4. 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 and Alumina, Aluminium and Aluminium Product
 (ii) Copper : Continuous Cast Copper Rods, Copper Cathode, Sulphuric
 Acid, DAP and 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 as
 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:
 5. Employee Share Based Payment
 Employee Stock Option Scheme-2006 (ESOS-2006)
 On 7th December, 2006, the Board of Directors approved the Employee
 Stock Option Scheme-2006 (ESOS-2006) for issue of 3,475,000 stock
 options to its permanent employees in the management cadre, in one or
 more tranches, whether working in India or out of India, including the
 Managing/Whole-time Directors of the Company. 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 from the date of grant.  The maximum period
 of exercise is 5 years from the date of vesting, and 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 and by which the Company may issue 6,475,000 options
 to its eligible employees.
 According to ESOS-2006, so far the Company has granted 4,328,159
 options (Previous year 4,328,159 options) to its eligible employees out
 of which 1,774,296 options (Previous year 1,386,213 options) has been
 cancelled/lapsed, and are available for grant as per the term of the
 Scheme. A summary of the activity in the stock options granted under
 ESOS 2006 for the year ended 31st March, 2016 is as follows:
 During the year ended 31st March, 2016, the Company has allotted 3,185
 fully paid-up equity shares of Rs. 1/- each of the Company (Previous
 year 373,666) on exercise of options under ESOE-2006, for which the
 Company has realised Rs. 0.03 crore (Previous year Rs. 3.83 crore) as
 exercise money. The weighted average share price at the exercise date
 was Rs. 134.70 per share (Previous year Rs. 168.73 per share).
 Employee Stock Option Scheme 2013 (ESOS-2013)
 During FY 2013-14, the Company has instituted Employee Stock Option
 Scheme-2013 (ESOS-2013), under which the Company may grant 5,462,000
 stock options and restricted stock units (RSU) to the permanent
 employees in the management cadre and Managing/Whole-time Directors of
 the Company and its subsidiary companies in India and abroad, in one or
 more tranches. The ESOS-2013 is administered by the Compensation
 Committee of the Board of Directors of the Company (the Committee).
 The option exercise price would be determined by the Committee whereas
 the RSU exercise price shall be the face value of the equity shares of
 the Company as on the date of grant of RSUs. Each option and each RSU
 entitles the holders to apply for and be allotted one fully paid-up
 equity share of Rs. 1/- each of the Company upon payment of exercise
 price during the exercise period. The options will vest in 4 equal
 annual instalments after one year of the date of grant, whereas RSU
 will vest at the end of three years from the date of grant. The maximum
 period of exercise is 5 years from the date of vesting and these
 options/RSUs do not carry rights to dividends or voting rights till the
 date of exercise. Further, cancelled/lapsed options and RSUs are also
 available for grant.
 In terms of ESOS-2013, so far, the Company has granted 2,173,824 stock
 options and 2,175,272 RSUs (Previous year 2,062,564 stock options and
 2,063,938 RSUs) to the eligible employees of the Company and some of
 its subsidiary companies. Further, 204,161 stock options and 215,772
 RSUs (Previous year 100,421 stock options and 111,960 RSUs) have been
 cancelled/lapsed and are available for grant as per term of the Scheme.
 A summary of the activity in the stock options and RSUs granted under
 ESOS-2013 for the year ended 31st March, 2016, is as follows:
 During the year ended 31st March, 2016, the Company has allotted 2,193
 fully paid-up equity share of Rs. 1/- each of the Company (Previous
 year 18,848) on exercise of options under ESOS-2013 for which the
 Company has realised Rs. 0.03 crore (Previous year Rs. 0.22 crore) as
 exercise money. The weighted-average share price at the exercise date
 was Rs. 114.30 per share (Previous year Rs. 154.54 per share).
 Fair Valuation
 The Fair Value of the options used to compute net Profit and earnings
 per share have been done by an independent valuer using Black and
 Scholes Model. The details of options granted during the year ended
 31st March, 2016, the key assumptions and the Fair Value on the date of
 grant are as under:
 The expected volatility was determined based on the historical share
 price volatility over the past period depending on life of the options
 For the year ended 31st March, 2016, the Company determined Rs. 7.05
 crore (Previous year Rs. 7.28 crore) as amortized compensation cost for
 stock options granted including Rs. 0.14 crore (Previous year Rs. 0.06
 crore) expenses relating to options granted to employees of a
 subsidiary of the Company which has been realised from that company.
 The Company measures compensation cost for the stock options granted
 using intrinsic value method. Had the compensation cost been determined
 in a manner consistent with fair value approach, the Company''s net
 Profit and earnings per share as reported would have been as under:
 6. 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 had transferred Rs. 8,647.37 crore from
 Securities Premium Account to BRR, and till 31st March, 2015, Rs.
 250.33 crore have been adjusted against BRR. During the year, following
 expenses has been adjusted with BRR:
 (a) Rs. 279.46 crore towards expenses on exited Projects
 (b) Impairment loss of Rs. 367.31 crore (Net of deferred tax Rs. 194.39
 (c) Provision of Rs. 35.50 crore towards diminution in value of
 Had the Scheme not prescribed aforesaid treatment, the impact on
 results and Earnings Per Share (EPS) would have been as under:
 Profit for the year lower by Rs. 682.27 crore
 Basic EPS lower by Rs. 3.30
 Diluted EPS lower by Rs. 3.30
 7. Gain or (Loss) on foreign currency transaction and translation has
 been accounted for under respective head of accounts depending upon the
 nature of transaction. The details of net gain or (loss) included in
 various head of accounts are as under:
 8. 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
 (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 instruments reduce the impact of
 both favourable and unfavourable fluctuations.
 The Company''s risk management activities are subject to the management,
 direction and control of Risk Management Board (RMB). The RMB is
 composed of three directors including Managing Director, Deputy
 Managing Director and at least two officers, one being the Chief
 Financial Officer. 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 no 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 defi ned 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 to make the margins immune to the fluctuations in prices of
 the input and output.
 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.
 Coal and Furnace Oil
 Smelting and other associated operations of aluminium require
 significantamount of power. Such power is mostly supplied through
 captive power generation units which are coal based. In order to meet
 the gap between requirement of coal and its availability domestically,
 sometimes coal is also imported.  The domestic prices of coal are not
 linked to any internationally traded price whereas the imported coal is
 linked to internationally traded prices. Hence the imported coal price
 fluctuates in line with the international prices. To mitigate this
 risk, coal commodity derivatives are taken. Similarly, Furnace Oil is
 also an important input for manufacturing alumina which is the input
 for aluminium production. Furnace oil is sourced mainly from domestic
 market but the price is linked to international crude price movement.
 Hence, to mitigate this risk, furnace oil commodity derivatives are
 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. Also, certain foreign
 exchange future derivatives are taken for arbitrage between exchange
 and OTC.
 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
 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.
 9. Related Party Disclosures as per Accounting Standard (AS)-18:
 A.  List of Related Parties:
 (a) Enterprises where control exists: 
 i.  Subsidiaries:
 1 Hindalco Guinea SARL
 2 Minerals & Minerals Limited
 3 Utkal Alumina Technical & General Services Limited
 4 Suvas Holdings Limited
 5 Utkal Alumina International Limited
 6 Aditya Birla Chemicals (India) Limited (Merged with Grasim Industries
 Limited w.e.f.  1st April, 2015)
 7 Aditya Birla Chemicals (Belgium) BVBA (Merged with Grasim Industries
 Limited w.e.f.  1st April, 2015)
 8 Renukeshwar Investments & Finance Limited
 9 Renuka Investments & Finance Limited
 10 Dahej Harbour and Infrastructure Limited
 11 Lucknow Finance Company Limited
 12 Hindalco - Almex Aerospace Limited
 13 Hindalco do Brasil Indstria e Comrcio de Alumina Ltda.
 14 Tubed Coal Mines Limited
 15 East Coast Bauxite Mining Company Private Limited
 16 Mauda Energy Limited
 17 Birla Resources Pty. Limited
 18 Aditya Birla Minerals Limited
 19 Birla Maroochydore Pty. Limited
 20 Birla Nifty Pty. Limited
 21 Birla Mt. Gordon Pty. Limited (Disposed of on 27th October, 2015)
 22 AV Minerals (Netherlands) N.V.
 23 AV Metals Inc.
 24 Novelis Inc.
 25 Novelis (India) Infotech Ltd.
 26 4260848 Canada Inc.
 27 4260856 Canada Inc.
 28 8018227 Canada Inc.
 29 8018243 Canada Limited (Amalgamated with Novelis Inc. w.e.f. 31st
 March, 2016)
 30 Novelis Corporation
 Aluminum Upstream Holdings LLC (Amalgamated with Novelis South America
 Holding LLC 
 31 w.e.f. 2nd December, 2015)
 32 Eurofoil Inc. (USA) (Amalgamated with Novelis PAE Corporation w.e.f.
 1st November, 2015)
 33 Logan Aluminium Inc.
 34 Novelis Acquisitions LLC
 35 Novelis Global Employment Organization Inc. (Formerly known as
 Novelis PAE Corporation change w.e.f. 15th December, 2015)
 36 Novelis Holdings Inc.
 37 Novelis South America Holdings LLC
 38 Novelis Delaware LLC (Amalgamated with Novelis Inc. w.e.f. 31st
 March, 2016)
 39 Albrasilis - Aluminio do Brasil Indstria e Comrcio Ltda.
 (Dissolved 18th November, 2015)
 40 Novelis do Brasil Ltda.
 41 Novelis Lamins France SAS
 42 Novelis PAE SAS
 43 Novelis Aluminium Beteiligungs GmbH
 44 Novelis Deutschland GmbH
 45 Novelis Sheet Ingot GmbH
 46 Novelis Aluminium Holding Company
 47 Novelis Italia SpA
 48 Al Dotcom Sdn. Berhad (Dissolved w.e.f. 21st January, 2016)
 49 Alcom Nikkei Specialty Coatings Sdn. Berhad
 50 Aluminum Company of Malaysia Berhad
 51 Novelis de Mexico SA de CV
 52 Novelis Korea Limited
 53 Novelis AG
 54 Novelis Switzerland SA
 55 Novelis UK Ltd.
 56 Novelis Europe Holdings Limited
 57 Novelis Services Limited
 58 Novelis (Shanghai) Aluminum Trading Company
 59 Novelis (China) Aluminum Products Co., Ltd.
 60 Novelis MEA Ltd.
 61 Novelis Vietnam Company Limited
 62 Novelis Asia Holdings (Singapore) Pte. Ltd. (struck off w.e.f. 17th
 March, 2016)
 63 Brecha Energetica Ltda.
 64 Brito Energetica Ltda.
 65 Novelis Services (North America) Inc.  
 (b) Other Related Parties:
 i.  Associates:
 1 Aditya Birla Science & Technology Company Private Limited
 2 Idea Cellular Limited
 3 Aluminium Norf GmbH
 4 Deutsche Aluminium Verpackung Recycling GmbH
 5 France Aluminium Recyclage SA
 ii. Joint Ventures:
 1 Mahan Coal Limited
 2 Hydromine Global Minerals (GmbH) Limited
 3 MNH Shakti Limited
 iii.  Trust of the Company: 
 1 Trident Trust
 iv.  Key Managerial Personnel:
 Mr. D. Bhattacharya - Managing Director
 Mr. Satish Pai - Deputy Managing Director
 10. Previous year figures have been reclassified/regrouped to conform
 to this year''s classification.
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