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Tata Steel

BSE: 500470|NSE: TATASTEEL|ISIN: INE081A01012|SECTOR: Steel - Large
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Mar 16
Notes to Accounts Year End : Mar '17

1. COMPANY INFORMATION

Tata Steel Limited (“the Company”) is a public limited Company incorporated in India with its registered office in Mumbai, Maharashtra, India. The Company is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

The Company has presence across the entire value chain of steel manufacturing, from mining and processing iron ore and coal to producing and distributing finished products. The Company offers a broad range of steel products including a portfolio of high value-added downstream products such as hot rolled, cold rolled and coated steel, rebars, wire rods, tubes and wires.

The financial statements as at March 31, 2017 present the financial position of the Company.

The functional and presentation currency of the Company is Indian Rupee (“‘“) which is the currency of the primary economic environment in which the Company operates.

As on March 31, 2017, Tata Sons Limited (or Tata Sons) owns 29.75% of the Ordinary shares of the Company, and has the ability to influence the Company’s operations

The financial statements for the year ended March 31, 2017 were approved by the Board of Directors and authorised for issue on May 16, 2017.

2. PROPERTY, PLANT AND EQUIPMENT

[Item No. I(a), Page 172]

(i) Buildings include Rs.2.32 crore (March 31, 2016: Rs.2.32 crore; April 1, 2015: Rs.2.32 crore) being cost of shares in co-operative housing societies and limited companies.

(ii) The net carrying value of plant and machinery comprises of:

(iii) The net carrying value of furniture, fixtures and office equipments comprises of:

(iv) Rs.221.25 crore (2015-16: Rs.1,069.58 crore) of borrowing costs has been capitalised during the year on qualifying assets using a capitalisation rate of 9.50% (2015-16: 9.50%).

(v) Rupee liability has increased by Rs.137.11 crore (2015-16: Rs.107.84 crore) arising out of realignment of the value of long-term foreign currency loans and liabilities for procurement of property, plant and equipment. This increase has been adjusted against the carrying cost of assets and has been depreciated over their remaining useful life. The depreciation for the current year is higher by Rs.3.16 crore (2015-16: Rs.6.48 crore) on account of this adjustment.

(vi) With effect from April 1, 2016, the Company has revised the useful life of certain items of property, plant and equipment based on technical evaluation on assessment of the physical condition of the underlying assets and benchmarking with peers across the industry. Had there been no change in the useful life of assets, depreciation for the year would have been higher by Rs.653.44 crore.

(vii) Property, plant and equipment (including capital work-in-progress) were tested for impairment during the year where indicators of impairment existed. Based on an assessment of external market conditions relating to input costs and final product realisation and evaluation of physical working conditions for items of property, plant and equipment, no indicators of impairment were identified during the current year.

During the year ended March 31, 2016, the Company recognised an impairment charge of Rs.10.43 crore which primarily relates to expenses incurred on a project which the Company has decided to discontinue.

(viii) Property, plant and equipment includes capital cost of in-house research facilities as below:

Figures in italics represents comparative figures of previous years.

(ix) The details of property, plant and equipment pledged against borrowings are presented in Note 19, Page 213.

3. LEASES

The Company has taken land, buildings and plant and machinery under operating and finance leases. The following is the summary of future minimum lease rental payments under non-cancellable operating leases and finance leases entered into by the Company:

A. Operating leases:

Significant leasing arrangements include lease of land for periods ranging between 12 to 99 years with renewal option, lease of office spaces and assets dedicated for use under long term arrangements. Payments under long term arrangements involving use of dedicated assets are allocated between those relating to the right to use of assets, executory services and for output based on the underlying contractual terms and conditions. Any change in the allocation assumptions may have an impact on the lease assessment and/or lease classification. Payments linked to changes in inflation index under the lease arrangements have been considered as contingent rent and recognised in the statement of profit and loss as and when incurred.

B. Finance leases:

Significant leasing arrangements include assets dedicated for use under long term arrangements. The arrangements covers a substantial part of the economic life of the underlying asset and contain a renewal option on expiry. Payments under long term arrangements involving use of dedicated assets are allocated between those relating to the right to use of assets, executory services and for output based on the underlying contractual terms and conditions. Any change in the allocation assumptions may have an impact on lease assessment and/or lease classification.

4. INVESTMENT IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

[Item No. I(e), Page 172]

(i) The Company holds 51% of total equity share capital and voting rights in T M International Logistics Limited, Jamshedpur Continuous Annealing and Processing Company Private Limited and T M Mining Company Limited. However, decisions in respect of certain activities which significantly affect the risks and rewards of the respective businesses require unanimous consent of all the shareholders. These entities have therefore been considered as joint ventures.

(ii) The carrying value and market value of quoted and unquoted investments are as below:

(iii) Other unquoted investments in associate companies include:

8. LOANS

[Item No. I(f)(ii) and II(b)(v), Page 172]

(i) Security deposits include deposit with a subsidiary Rs.14.00 crore (March 31, 2016: Rs.14.00 crore; April 1, 2015: Rs.14.00 crore) and Tata Sons Rs.1.25 crore (March 31, 2016: Rs.1.25 crore; April 1, 2015: Rs.1.25 crore).

(ii) Non-current loans to related parties represent loans given to subsidiaries Rs.539.73 crore (March 31, 2016: Rs.540.51 crore; April 1, 2015: Rs.530.57 crore).

(iii) Current loans to related parties represent inter-corporate deposits given to subsidiaries Rs.82.14 crore (March 31, 2016: Rs.71.19 crore; April 1, 2015: Rs.26.50 crore) and joint venture Nil (March 31, 2016: Nil; April 1, 2015: Rs.62.29 crore).

(iv) Current other loans include inter-corporate deposits Rs.2.00 crore (March 31, 2016: Rs.2.00 crore; April 1, 2015: Rs.2.00 crore) and loans given to employees.

(v) Disclosure as per Regulation 34 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015:

Figures in italics represents comparative figures of previous years.

The above loans and inter-corporate deposits have been given for business purpose.

(vi) There are no outstanding debts due from directors or other officers of the Company.

(i) Earmarked bank balances represent deposits not due for realisation within 12 months from the balance sheet date. These are primarily placed as security with government bodies and margin money against issue of bank guarantees.

(ii) Non-current other financial assets include:

(a) advance against equity for purchase of shares in subsidiaries and joint ventures Rs.12.30 crore (March 31, 2016: Nil; April 1, 2015: Rs.21.27 crore)

(b) advance for repurchase of equity shares in Tata Teleservices Limited (TTSL) from NTT Docomo Inc, Rs.144.07 crore (March 31, 2016: Nil; April 1, 2015: Nil).

(iii) Current other financial assets include amount receivable from post-employment benefit fund Rs.247.04 crore (March 31, 2016: Rs.97.61 crore; April 1, 2015: Rs.154.34 crore) on account of retirement benefit obligations paid by the Company directly.

5. INCOME TAX

[Item No. IV(e), Page 172]

A. INCOME TAX EXPENSES/(BENEFITS)

The Company is subject to income tax in India on the basis of standalone financial statements. As per the Income Tax Act, the Company is liable to pay income tax which is the higher of regular income tax payable or the amount payable based on the provisions applicable for Minimum Alternate Tax (MAT).

MAT paid in excess of regular income tax during a year can be carried forward for a period of 15 years and can be offset against future tax liabilities.

Companies can claim for tax exemptions/deductions under specific section subject to fulfilment of prescribed conditions as may be applicable. The effective tax rate of the Company was lower as a result of tax deduction claimed by the Company on account of investment allowance on capital expenditure, expenditure on research and development etc.

Business loss can be carried forward for a maximum period of eight assessment years immediately succeeding the assessment year to which the loss pertains. Unabsorbed depreciation can be carried forward for an indefinite period.

6. OTHER ASSETS

[Item No. I(h) and II(c), Page 172]

(i) Advance with public bodies primarily relate to duty credit entitlements and amounts paid under protest in respect of demands from regulatory authorities.

(ii) Prepaid lease payment relate to land leases classified as operating in nature as the title is not expected to transfer at the end of the lease term and considering that land has an indefinite economic life.

(iii) Other assets include advances against supply of goods and services and advances paid to employees.

7. INVENTORIES

[Item No. II(a), Page 172]

(i) The value of inventories above is stated after impairment of Rs.60.81 crore (March 31, 2016: Rs.68.99 crore; April 1, 2015: Rs.48.08 crore) for write-downs to net realisable value and provision for slow moving and obsolete item.

(ii) Cost of inventory recognised as expense during the year amounted to Rs.38,704.78 crore (2015-16: Rs.32,796.55 crore).

8. TRADE RECEIVABLES

[Item No. II(b)(ii), Page 172]

In determining the allowances for credit losses of trade receivables, the Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and is adjusted for forward looking information. The expected credit loss allowance is based on the ageing of the receivables that are due and rates used in the provision matrix.

(i) Movements in allowance for credit losses of receivables is as below:

(ii) Ageing of trade receivables and credit risk arising there from is as below:

(iii) The Company considers its maximum exposure to credit risk with respect to customers as at March 31, 2017 to be Rs.2,006.52 crore (March 31, 2016: Rs.1,133.17 crore; April 1, 2015: Rs.1,057.02 crore), which is the fair value of trade receivables (after allowance for credit losses).

The Company’s exposure to customers is diversified and no single customer contributes more than 10% of the outstanding receivables as at March 31, 2017, March 31, 2016 and April 1, 2015.

(iv) There are no outstanding debts due from directors or other officers of the Company.

(v) 1,55,10,420 shares (March 31, 2016: 2,25,14,584 shares; April 1, 2015: 1,79,07,847 shares) of face value of Rs.10 per share represent the shares underlying GDRs which were issued during 1994 and 2009. Each GDR represents one underlying Ordinary share.

(vi) The rights, powers and preferences relating to each class of share capital and the qualifications, limitations and restrictions thereof are contained in the Memorandum and Articles of Association of the Company. The principal rights are as below:

A. Ordinary Shares of Rs.10 each

(a) I n respect of every Ordinary Share (whether fully paid or partly paid), voting right shall be in the same proportion as the capital paid up on such Ordinary Share bears to the total paid up Ordinary Capital of the Company.

(b) The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend.

(c) In the event of liquidation, the shareholders of Ordinary Shares are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.

B. ’A’ Ordinary Shares of Rs.10 each

(a) (i) The holders of ‘A’ Ordinary Shares shall be entitled to such rights of voting and/or dividend and such other rights as per the terms of the issue of such shares, provided always that:

- in the case where a resolution is put to vote on a poll, such differential voting entitlement (excluding fractions, if any) will be applicable to holders of ‘A’ Ordinary Shares.

- In the case where a resolution is put to vote in the meeting and is to be decided on a show of hands, the holders of ‘A’ Ordinary Shares shall be entitled to the same number of votes as available to holders of Ordinary Shares.

(ii) The holders of Ordinary Shares and the holders of ‘A’ Ordinary Shares shall vote as a single class with respect to all matters submitted for voting by shareholders of the Company and shall exercise such votes in proportion to the voting rights attached to such shares including in relation to any scheme under Sections 391 to 394 of the Companies Act, 1956.

(b) The holders of’A’ Ordinary Shares shall be entitled to dividend on each ‘A’ Ordinary Share which may be equal to or higher than the amount per Ordinary Share declared by the Board for each Ordinary Share, and as may be specified at the time of the issue. Different series of ‘A’ Ordinary Shares may carry different entitlements to dividend to the extent permitted under applicable law and as prescribed under the terms applicable to such issue.

C. Preference Shares

The Company has two classes of preference shares i.e. Cumulative Redeemable Preference Shares (CRPS) of Rs.100 per share and Cumulative Convertible Preference Shares (CCPS) of Rs.100 per share.

(a) Such shares shall confer on the holders thereof, the right to a fixed preferential dividend from the date of allotment, at a rate as may be determined by the Board at the time of the issue, on the capital for the time being paid up or credited as paid up thereon.

(b) Such shares shall rank for capital and dividend (including all dividend undeclared upto the commencement of winding up) and for repayment of capital in a winding up, pari passu inter se and in priority to the Ordinary Shares of the Company, but shall not confer any further or other right to participate either in profits or assets. However, in case of CCPS, such preferential rights shall automatically cease on conversion of these shares into Ordinary Shares.

(c) The holders of such shares shall have the right to receive all notices of general meetings of the Company but shall not confer on the holders thereof the right to vote at any meetings of the Company save to the extent and in the manner provided in the Companies Act, 1956, or any re-enactment thereof.

(d) CCPS shall be converted into Ordinary Shares as per the terms, determined by the Board at the time of issue; as and when converted, such Ordinary Shares shall rank pari passu with the then existing Ordinary Shares of the Company in all respects.

The Company had issued Hybrid Perpetual Securities of Rs.775.00 crore and Rs.1,500.00 crore in May 2011 and March 2011 respectively. These securities are perpetual in nature with no maturity or redemption and are callable only at the option of the Company. The distribution on these securities are 11.50% p.a. and 11.80% p.a. respectively, with a step up provision if the securities are not called after 10 years. The distribution on the securities may be deferred at the option of the Company if in the six months preceding the relevant distribution payment date, the Company has not made payment on, or repurchased or redeemed, any securities ranking pari passu with, or junior to the instrument. As these securities are perpetual in nature and the Company does not have any redemption obligation, these have been classified as equity.

9. OTHER EQUITY

[Item No. III(c), Page 172]

A. OTHER COMPREHENSIVE INCOME RESERVES

(a) Cash flow hedge reserve

The cumulative effective portion of gain or losses arising on changes in the fair value of hedging instruments designated as cash flow hedges are recognised in cash flow hedge reserve. Such changes recognised are reclassified to the consolidated statement of profit and loss when the hedged item affects the profit or loss or are included as an adjustment to the cost of the related non-financial hedged item.

The Company has designated certain foreign currency contracts and interest rate collars as cash flow hedges in respect of foreign exchange and interest rate risks.

During the year, ineffective portion of cash flow hedges recognised in the statement of profit and loss amounted to Nil (2015-16: Rs.0.05 crore)

The amount recognised in the cash flow hedge reserve is expected to impact the statement of profit and loss within the next one year.

(b) Investment revaluation reserve

The cumulative gains and losses arising on fair value changes of equity investments measured at fair value through other comprehensive income are recognised in investment revaluation reserve. The balance of the reserve represents such changes recognised net of amounts reclassified to retained earnings on disposal of such investments.

B. OTHER RESERVES

(a) Securities premium

Securities premium is used to record premium received on issue of shares. The reserve is utilised in accordance with the provisions of the Indian Companies Act, 2013 (the “Companies Act”).

(b) Debenture redemption reserve

The Companies Act requires that where a Company issues debentures, it shall create a debenture redemption reserve out of profits of the Company available for payment of dividend. The Company is required to maintain a Debenture Redemption Reserve of 25% of the value of debentures issued, either by a public issue or on a private placement basis. The amounts credited to the debenture redemption reserve cannot be utilised by the Company except to redeem debentures.

(c) General reserve

Under the erstwhile Companies Act 1956, a general reserve was created through an annual transfer of net profit at a specified percentage in accordance with applicable regulations. Consequent to the introduction of the Companies Act, the requirement to mandatory transfer a specified percentage of net profit to general reserve has been withdrawn.

(d) Capital redemption reserve

The Companies Act requires that where a Company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to a capital redemption reserve account and details of such transfer shall be disclosed in the balance sheet. The capital redemption reserve account may be applied by the Company, in paying up unissued shares of the Company to be issued to shareholders of the Company as fully paid bonus shares. The Company established this reserve pursuant to the redemption of preference shares issued in earlier years.

There is no movement in capital redemption reserve during the current and previous year.

(e) Others

Others primarily include:

(i) t he balance of foreign currency monetary item translation difference account (“FCMITDA”) created for recognising exchange differences on revaluation of long term foreign currency monetary items as per the Previous GAAP. Such exchange differences recognised are transferred to the statement of profit and loss on a systematic basis.

(ii) amounts appropriated out of profit or loss for unforeseen contingencies. Such appropriations are free in nature.

10. BORROWINGS

[Item No. IV(a)(i) and V(a)(i), Page 172]

A. NON-CURRENT

B. CURRENT

(i) As at March 31, 2017, Rs.2,551.77 crore (March 31, 2016: Rs.2,360.37 crore, April 1, 2015: Rs.2,305.87 crore) of the total outstanding borrowings were secured by a charge on property, plant and equipment, inventories and receivables. The security details of major borrowings of the Company are as below:

(a) Loan from Joint Plant Committee-Steel Development Fund

It is secured by mortgages on, all present and future immovable properties wherever situated and hypothecation of movable assets, excluding land and building mortgaged in favour of Government of India under the deed of mortgage dated April 13, 1967 and in favour of Government of Bihar under two deeds of mortgage dated May 11, 1963, immovable properties and movable assets of the Tube Division, Bearing Division, Ferro Alloys Division and Cold Rolling Complex (West) at Tarapur and all investments and book debts of the Company subject to the prior charges created and/or to be created in favour of the bankers for securing borrowing for the working capital requirement and charges created and/or to be created on specific items of machinery and equipment procured/to be procured under deferred payment schemes/ bill re-discounting schemes/asset credit schemes.

The loan is repayable in 16 equal semi-annual installments after completion of four years from the date of the tranche.

The Company has filed a writ petition before the High Court at Kolkata in February 2006 claiming waiver of the outstanding loan and interest and refund of the balance lying with Steel Development Fund and the matter is subjudice.

The loan includes funded interest Rs.781.32 crore (March 31, 2016: Rs.699.58 crore and April 1, 2015: Rs.593.03 crore).

It includes Rs.1,639.33 crore (March 31, 2016: Rs.1,639.33 crore; April 1, 2015: Rs.1,639.33 crore) representing repayments and interest on earlier loans for which applications of funding are awaiting sanction is not secured by charge on movable assets of the Company.

(ii) The details of major unsecured borrowings taken by the Company are given below:

(a) Non-Convertible Debentures

(i) 10.25% p.a. interest bearing 25,000 debentures of face value Rs.10,00,000 each are redeemable at par in 3 equal annual installments commencing from January 6, 2029.

(ii) 10.25% p.a. interest bearing 5,000 debentures of face value Rs.10,00,000 each are redeemable at par in 3 equal annual installments commencing from December 22, 2028.

(iii) 8.15% p.a. interest bearing 10,000 debentures of face value Rs.10,00,000 each are redeemable at par on October 1, 2026.

(iv) 2.00% p.a. interest bearing 15,000 debentures of face value Rs.10,00,000 each are redeemable at a premium of 85.03% of the face value on April 23, 2022.

(v) 9.15% p.a. interest bearing 5,000 debentures of face value Rs.10,00,000 each are redeemable at par on January 24, 2021.

(vi) 11.00% p.a. interest bearing 15,000 debentures of face value Rs.10,00,000 each are redeemable at par on May 19, 2019.

(vii) 10.40% p.a. interest bearing 6,509 debentures of face value Rs.10,00,000 each are redeemable at par on May 15, 2019.

(viii) 9.15% p.a. interest bearing 5,000 debentures of face value Rs.10,00,000 each are redeemable at par on January 24, 2019.

(b) Term loans from banks and financial institutions

(i) Indian rupee loan amounting Rs.4,450.00 crore (March 31, 2016: Rs.7,000.00 crore; April 1, 2015: Rs.7,000.00 crore) is repayable in 17 quarterly installments. The next instalment is due on March 31, 2021.

(ii) USD 7.86 million equivalent to Rs.50.98 crore (March 31, 2016: 7.86 million equivalent to Rs.52.08 crore) (April 1, 2015: Nil) is repayable on March1, 2021.

(iii) USD 200.00 million equivalent to Rs.1,297.10 crore (March 31, 2016: USD 200.00 million equivalent to Rs.1,325.05 crore; April 1, 2015: USD 200.00 million equivalent to Rs.1,250.00 crore) loan is repayable in 3 equal annual installments commencing from February 18, 2020.

(iv) Indian rupee loan amounting Rs.2,000.00 crore (March 31, 2016: Rs.2,000 crore; April 1, 2015: Nil) is repayable in 10 semi-annual installments commencing from 30th April, 2019.

(v) Indian rupee loan amounting Rs.650.00 crore (March 31, 2016: Nil; April 1, 2015: Nil) is repayable in 20 semi-annual installments commencing from August 15, 2017.

(vi) Euro 27.02 million equivalent to Rs.187.18 crore (March 31, 2016: Euro 32.42 million equivalent to Rs.244.69 crore; April 1, 2015: Euro 37.83 million equivalent to Rs.254.17 crore) loan is repayable in 10 equal semi-annual installments; the next instalment is due on July 6, 2017.

(vii) Euro 9.39 million equivalent to Rs.65.02 crore (March 31, 2016: Euro 14.08 million equivalent to Rs.106.25 crore; April 1, 2015: Euro 18.77 million equivalent to Rs.126.13 crore) loan is repayable in 4 equal semi-annual installments; the next instalment is due on July 3, 2017.

(viii) Indian rupee loan amounting Rs.850.00 crore (March 31, 2016: Nil; April 1, 2015: Nil) is repayable in 16 semi-annual installments commencing from June 15, 2017.

(ix) Euro 0.97 million equivalent to Rs.6.72 crore (March 31, 2016: Euro 1.94 million equivalent to Rs.14.64 crore; April 1, 2015: Euro 2.91 million equivalent to Rs.19.55 crore) loan is repayable in 2 equal semi-annual installments; the next instalment is due on May 2, 2017.

(x) Euro 105.08 million equivalent to Rs.727.98 crore (March 31, 2016:Euro 124.19 million equivalent toRs.937.22 crore; April 1, 2015: Euro 143.29 million equivalent to Rs.962.84 crore) loan is repayable in 11 equal semi-annual installments; the next instalment is due on April 28, 2017.

(c) Commercial papers

Commercial papers raised by the Company are short-term in nature ranging between one to three months.

11. EXCEPTIONAL ITEMS

[Item No. VI, Page 173]

(a) Loss (net) on sale of investment in a subsidiary and an associate Nil (2015-16: Rs.0.85 crore).

(b) Provision for dimunition in value of investments held in subsidiaries Rs.45.42 crore (2015-16: Rs.87.63 crore), in respect of advances paid for repurchase of equity shares in Tata Teleservices Limited from NTT Docomo Inc Rs.125.45 crore (2015-16: Nil). During 2015-16, the Company has recognised provision of Rs.72.99 crore relating to advances paid for a project which the Company has decided to discontinue.

(c) Impairment loss recognised in respect of property, plant and equipment (including capital work in progress) and intangible assets of Nil (2015-16: Rs.51.51 crore).

(d) Provision of Rs.218.25 crore (2015-16: Rs.880.05 crore) in respect of certain statutory demands and claims.

(e) Provision of Rs.178.68 crore (2015-16: Rs.556.25 crore) on account of employee seperation scheme.

(f) Provision towards legal and constructive commitments provided by the Company in respect of a loss making subsidiary Rs.135.58 crore (2015-16: Nil).

12. EARNINGS PER SHARE

[Item No. XII, Page 173]

The following table reflects the profit and shares data used in the computation of basic and diluted earnings per share.

13. EMPLOYEE BENEFITS

A. Defined contribution plans

The Company participates in a number of defined contribution plans on behalf of relevant personnel. Any expense recognised in relation to these schemes represents the value of contributions payable during the period by the Company at rates specified by the rules of those plans. The only amounts included in the balance sheet are those relating to the prior months contributions that were not due to be paid until after the end of the reporting period.

The major defined contribution plans operated by the Company are as below:

(a) Provident fund and pension

In accordance with the Employee’s Provident Fund and Miscellaneous Provisions Act, 1952 and The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948, eligible employees of the Company are entitled to receive benefits in respect of provident fund, a defined contribution plan, in which both employees and the Company make monthly contributions at a specified percentage of the covered employees’ salary.

The contributions, as specified under the law, are made to the provident fund set up as an irrevocable trust by the Company, post contribution of amount specified under the law to Employee Provident Fund Organisation on account of employee pension scheme.

(b) Superannuation fund

The Company has a superannuation plan for the benefit of its employees. Employees who are members of the defined benefit superannuation plan are entitled to benefits depending on the years of service and salary drawn.

Separate irrevocable trusts are maintained for employees covered and entitled to benefits. The Company contributes up to 15% of the eligible employees’ salary or Rs.1,00,000, whichever is lower, to the trust every year. Such contributions are recognised as an expense as and when incurred. The Company does not have any further obligation beyond this contribution.

The total expenses recognised in the statement of profit and loss during the year on account of defined contribution plans amounted to Rs.310.09 crore (2016: Rs.303.65 crore).

B. Defined benefit plans

The defined benefit plans operated by the Company are as below:

(a) Retiring gratuity

The Company has an obligation towards gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for a lump-sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The Company makes annual contributions to gratuity funds established as trusts or insurance companies. The Company accounts for the liability for gratuity benefits payable in the future based on an actuarial valuation.

(b) Post retirement medical benefits

Under this unfunded scheme, employees of the Company receive medical benefits subject to certain limits on amounts of benefits, periods after retirement and types of benefits, depending on their grade and location at the time of retirement. Employees separated from the Company under an early separation scheme, on medical grounds or due to permanent disablement are also covered under the scheme. The Company accounts for the liability for post-retirement medical scheme based on an actuarial valuation.

(c) Other defined benefits

Other benefits provided under unfunded schemes include pension payable to directors of the Company on their retirement, farewell gifts and reimbursement of packing and transportation charges to the employees based on their last drawn salary.

The defined benefit plans expose the Company to a number of actuarial risks as below:

(a) Investment risk: The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to government/high quality bond yields; if the return on plan asset is below this rate, it will create a plan deficit.

(b) Interest risk: A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan’s debt investments.

(c) Salary risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.

(d) Longevity risk: The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.

14. CONTINGENCIES AND COMMITMENTS

A. CONTINGENCIES

In the ordinary course of business, the Company faces claims and assertions by various parties. The Company assesses such claims and assertions and monitors the legal environment on an ongoing basis with the assistance of external legal counsel, wherever necessary. The Company records a liability for any claims where a potential loss is probable and capable of being estimated and discloses such matters in its financial statements, if material. For potential losses that are considered possible, but not probable, the Company provides disclosure in the financial statements but does not record a liability in its accounts unless the loss becomes probable.

The following is a description of claims and assertions where a potential loss is possible, but not probable. The Company believes that none of the contingencies described below would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Litigations

The Company is involved in legal proceedings, both as plaintiff and as defendant. There are claims which the Company does not believe to be of material nature, other than those described below.

Income Tax

The Company has ongoing disputes with income tax authorities relating to tax treatment of certain items. These mainly include disallowance of expenses, tax treatment of certain expenses claimed by the Company as deductions and the computation of, or eligibility of the Company’s use of certain tax incentives or allowances.

Most of these disputes and/or dis-allowances, being repetitive in nature, have been raised by the income tax authorities consistently in most of the years.

As at March 31, 2017, there are matters and/or disputes pending in appeal amounting to Rs.1,417.54 crore (March 31, 2016: Rs.1,312.63 crore; April 1, 2015: Rs.1,016.12 crore).

The details of demands for more than Rs.100 crore is as below:

Interest expenditure on loans taken by the Company for acquisition of a subsidiary has been disallowed in assessments with tax demand raised for Rs.1,217.79 crore (inclusive of interest) (March 31, 2016: Rs.1,124.48 crore; April 1, 2015: Rs.870.36 crore). The Company has deposited Rs.515.00 crore (March 31, 2016: Rs.415 crore; April 1, 2015: Rs.340.00 crore) as part payment as a precondition to obtain stay of demand. The Company expects to sustain its position on ultimate resolution of the appeals.

Customs, Excise Duty and Service Tax

As at March 31, 2017, there were pending litigations for various matters relating to customs, excise duty and service taxes involving demands of Rs.482.72 crore (March 31, 2016: Rs.483.86 crore; April 1, 2015: Rs.465.04 crore).

Sales Tax /VAT

The total sales tax demands that are being contested by the Company amounted to Rs.349.58 crore (March 31, 2016: Rs.567.88 crore; April 1, 2015: Rs.432.33 crore).

Other Taxes, Dues and Claims

Other amounts for which the Company may contingently be liable aggregate to Rs.8,571.00 crore (March 31, 2016: Rs.6,979.48 crore; April 1, 2015: Rs.6,143.31 crore).

The details of demands for more than Rs.100 crore are as below:

(a) Claim by a party arising out of conversion arrangement-Rs.195.82 crore (March 31, 2016: Rs.195.82 crore; April 1, 2015: Rs.195.82 crore). The Company has not acknowledged this claim and has instead filed a claim of Rs.139.65 crore (March 31, 2016: Rs.139.65 crore; April 1, 2015: Rs.139.65 crore) on the party. The matter is pending before the Calcutta High Court.

(b) The State Government of Odisha introduced “Orissa Rural Infrastructure and Socio Economic Development Act, 2004” with effect from February 2005 levying tax on mineral bearing land computed on the basis of value of minerals produced from the mineral bearing land. The Company had filed a Writ Petition in the High Court of Orissa challenging the validity of the Act. Orissa High Court held in November 2005 that State does not have authority to levy tax on minerals. The State Government of Odisha moved to the Supreme Court against the order of Orissa High Court and the case is pending with Supreme Court. The potential liability, as at March 31, 2017 would be approximately Rs.5,880.83 crore (March 31, 2016: Rs.5,501.98 crore; April 1, 2015: Rs.4,805.18 crore).

(c) For the purpose of payment of royalty, there are two salient provisions viz; Section 9 in Mines and Minerals (Development and Regulation) Act (MMDR) 1957, related to the incidence of royalty and Rules 64B and 64C of Mineral Concession Rules (MC Rules), 1960. The Company has been paying royalty on coal extracted from its coal mines pursuant to the judgement and order dated July 23, 2002 passed by the Jharkhand High Court. However, the State Government demanded royalty at rates applicable to processed coal. Though the Company contested the above demand, it started paying, under protest, royalty on processed coal from November 2008. The demand of the state mining authority was confirmed by the High Court vide its judgement dated March 12, 2014. The Court concluded that the State cannot claim interest till the Hon’ble Supreme Court decides the pending Special Leave Petitions (SLP) filed by State and Company in the year 2004.

In the appeals filed by the Company in respect of the issues related to coal royalty, the Hon’ble Supreme Court has pronounced the judgement on March 17, 2015 in which it has interpreted Section 9 and approved the law that removal of coal from the seam in the mine and extracting it through the pithead to the surface satisfies the requirement of Section 9 (charging section) of the MMDR Act in order to give rise to a liability for royalty. In regard to the interpretation of Rules 64B and 64C of MC Rules, the Supreme Court has clarified that the constitutional validity or the vires of the Rules has not been adjudicated upon. Therefore it is open to the Company either to revive the appeals limited to this question or to separately challenge the constitutionality and vires of these Rules. Accordingly, the Company has filed writ petitions challenging the constitutionality and vires of Rules 64B and 64C of MC Rules on May 19, 2015 at Hon’ble High Court of Jharkhand. Vide it’s judgement dated June 26, 2015, High Court has held that, the writ petitions are maintainable. It is also pertinent to mention that the Union of India in its counter affidavit has stated that the provisions of Rules 64B and 64C may not be applicable to the mineral coal.

All demands are solely based on application of Rules 64B and 64C. In view of (i) the clear interpretation of charging Section 9 by Supreme Court by three judges Bench following two earlier three Judge Bench orders (ii) the affidavit of Union of India and (iii) the liberty given by Supreme Court, the Company is of the opinion that any related present/ probable demands are not payable. Out of the principal demand of Rs.190.25 crore, an amount of Rs.163.80 crore has been paid till FY’ 2015 and balance has been provided for. As the Hon’ble High Court of Jharkhand refused to grant stay on demand raised in case of West Bokaro division, the Company started providing for differential royalty in the books. Interest amount of Rs.1,043.79 crore (March 31, 2016: Rs.324.06 crore; April 1, 2015: Rs.318.45 crore) being interest raised on all the demands, which are disputed in several cases has been considered as a contingent liability. The interest demand has been raised after several years for the entire past period and is being contested. Rs.12.92 crore, being interest on District Mineral Fund (DMF) and National Mineral Foundation Trust contribution on differential royalty is also considered as a contingent liability.

(d) The Company pays royalty on ore on the basis of quantity removed from the leased area at the rates based on notification by the Ministry of Mines, Government of India and the price published by India Bureau of Mines (IBM) on a monthly basis.

A demand of Rs.411.08 crore has been raised by Deputy Director of Mines, Joda, claiming royalty at sized ore rates on despatches of ore fines. The Company has filed a revision petition on November 14, 2013 before the Mines Tribunal, Government of India, Ministry of Mines, New Delhi, challenging the legality and validity of the demand raised and also to grant refund of royalty excess paid by the Company. Mines tribunal vide its order dated November 13, 2014 has stayed the demand of royalty on iron ore for Joda east of Rs.314.28 crore upto the period ending March 31, 2014. For the demand of Rs.96.80 crore for April, 2014 to September, 2014, a separate revision application was filed before Mines Tribunal. The matter was heard by Mines Tribunal on July 14, 2015 and stay was granted on the total demand with directive to Government of Odisha not to take any coercive action for realisation of this demanded amount. Likely demand of royalty on fines at sized ore rates as on March 31, 2017: Rs.847.96 crore (March 31, 2016: Rs.411.08 crore: April 1, 2015: Rs.411.08 crore.

B. COMMITMENTS

(a) The Company has entered into various contracts with suppliers and contractors for the acquisition of plant and machinery, equipment and various civil contracts of a capital nature amounting to Rs.3,825.85 crore, (2016: Rs.5416.16 crore, 2015: Rs.6,466.63 crore).

Other commitments as at March 31, 2017 amounts to Rs.0.01 crore (March 31, 2016: Rs.0.01 crore, March 15: Rs.0.01 crore).

(b) The Company has given undertakings to: (a) IDBI not to dispose of its investment in Wellman Incandescent India Ltd.,

(b) IDBI and ICICI Bank Ltd. (formerly ICICI) not to dispose of its investment in Standard Chrome Ltd., (c) Mizuho Corporate Bank Limited and Japan Bank for International Co-operation, not to dispose of its investments in Tata NYK Shipping Pte Limited, (to retain minimal stake required to be able to provide a corporate guarantee towards long-term debt),

(d) ICICI Bank Limited to directly or indirectly continue to hold atleast 51 % shareholding in Jamshedpur Continuous Annealing & Processing Company Private Limited.

(c) The Company has furnished a security bond in respect of its immovable property to the extent of Rs.20 crore in favour of the Registrar of the Delhi High Court and has given an undertaking not to sell or otherwise dispose of the said property.

(d) The Promoters of Tata BlueScope Steel Limited (TBSL) (i.e. BlueScope Steel Asia Holdings Pty Limited, Australia and Tata Steel Limited) have given an undertaking to IDBI Trusteeship Services Ltd., Debenture Trustees, and State Bank of India not to reduce collective shareholding in TBSL, below 51% without prior consent of the Lender. Further, The Company has given an undertaking to State Bank of India to intimate them before diluting its shareholding in TBSL below 50%.

(e) The Company, as a promoter, has pledged 4,41,55,800 equity shares of Industrial Energy Limited with Infrastructure Development Finance Corporation Limited.

(f) The Company along with TS Alloys Limited (Promoters) has given an undertaking to Power Finance Corporation Limited (PFC) and Rural Electrification Corporation Limited (REC) (Lenders) not to dispose off/transfer their equity holding of 26% of total equity in Bhubaneshwar Power Private Limited (BPPL) till the repayment of entire loan by BPPL to the lenders without prior written approval of lenders. Such shareholding of promoters may be transferred to the Company or its affiliates subject to compliance of applicable laws. The Company along with TS Alloys Limited has pledged 60% of their equity contribution in BPPL to PFC, PFC being the security agent.

(g) The Company has agreed, if requested by Tata Steel UK Holdings Limited (TSUKH) (an indirect wholly owned subsidiary), to procure an injection of funds to reduce the outstanding net debt in TSUKH and its subsidiaries, to a mutually accepted level.

(h) The Company has given guarantees aggregating Rs.11,344.47 crore (2016: Rs.11,741.71 crore, 2015: Rs.13,761.45 crore) details of which are as below:

(i) in favour of Timken India Limited for Nil, (March 31, 2016: Rs.80.00 crore; April 1, 2015: Rs.80.00 crore) against renewal of lease of land pending with State Government and Rs.1.07 crore (March 31, 2016: Rs.1.07 crore; April 1, 2015: Rs.1.07 crore) on behalf of Timken India Limited to Commissioner of Customs in respect of goods imported.

(ii) in favour of Mizuho Corporate Bank Ltd., Japan for Rs.45.38 crore (March 31, 2016: Rs.65.04 crore; April 1, 2015: Rs.78.89 crore) against the loan granted to a joint venture Tata NYK Shipping Pte. Limited.

(iii) I n favour of The President of India for Rs.177.18 crore (March 31, 2016: Rs.177.18 crore; April 1, 2015: Rs.177.18 crore) against performance of export obligation under the various bonds executed by a joint venture Jamshedpur Continuous Annealing & Processing Company Private Limited.

(iv) in favour of the note holders against due and punctual repayment of the 100% amounts outstanding as on March 31, 2017 towards issued Guaranteed Notes by a subsidiary, ABJA Investment Co. Pte. Limited for Rs.9,728.25 crore (March 31, 2016: Rs.9,937.88 crore; April 1, 2015: Rs.11,718.75 crore) and Rs.1,392.44 crore (March 31, 2016: Rs.1,480.39 crore; April 1, 2015: Rs.1,705.41 crore). The guarantee is capped at an amount equal to 125% of the outstanding principal amount of the Notes as detailed in “Terms and Conditions” of the Offering Memorandum.

(v) I n favour of President of India for (Rs.0.15 crore March 31, 2016: Rs.0.15 crore; April 1, 2015: Rs.0.15 crore) against advance license.

15. OTHER SIGNIFICANT LITIGATIONS

(a) Odisha legislative assembly issued an amendment to Indian Stamp Act on May 9, 2013 and inserted a new provision (Section 3a) in respect of stamp duty payable on grant/ renewal of mining leases. As per the amended provision, stamp duty is levied equal to 15% of the average royalty that would accrue out of the highest annual extraction of minerals under the approved mining plan multiplied by the period of such mining lease. The Company had filed a writ petition challenging the constitutionality of the Act on July 5, 2013. The Hon’ble High Court, Cuttack passed an order on July 9, 2013 granting interim stay on the operation of the Amendment Act, 2013. As a result of the stay, as on date, the Act is not enforceable and any demand received by the Company is not liable to be proceeded with. Meanwhile, the Company received demand notices for the various mines at Odisha totalling to Rs.5,579 crore. On the basis of external legal opinion, the Company has concluded that it is remote that the claim will sustain on ultimate resolution of the legal case by the courts.

In April, 2015 the Company has received an intimation from Government of Odisha, granting extension of validity period for leases under the MMDR Amendment Act, 2015 up to March 31, 2030 in respect of eight mines and up to March 31, 2020 for two mines subject to execution of supplementary lease deed within 3 months from the date of the intimation. Liability has been provided in the books of accounts as on March 31, 2017 as per the existing provisions of the Stamp Act 1899 and the Company has since paid the stamp duty and registration charges totalling Rs.413.72 crore for supplementary deed execution in respect of eight mines out of the above mines.

(b) Demand notices have been raised by Deputy Director of Mines, Odisha amounting to Rs.3,828 crore for the excess production over the quantity permitted under the mining plan scheme, environment clearance or consent to operate, during the period 2000-01 to 2009-10. The demand notices have been raised under Section 21(5) of the Mines & Minerals (Development and Regulations) Act (MMDR). However, the Act specifies that demand can be raised only when the land is occupied without lawful authority. The Company is of the view that Section 21(5) of the MMDR Act is not applicable as the mining is done within the sanctioned mining lease area and accordingly the Company has filed revision petitions before the Mines Tribunal against all such demand notices. Consequent to it stay has been granted by the Mines Tribunal against the entire demand of Rs.3,828 crore and directed the State that no coercive action should be taken for recovery of demand.

Based on the judgement of Hon’ble High court of Jharkhand on December 11, 2014 in the matter of the writ petition filed by the Company for renewal of lease and continuation of operation at Noamundi iron mine, the Government of Jharkhand approved the renewal of lease of Noamundi Mines by an express order on December 31, 2014. Express Order also held mining operation carried out between January 1, 2012 to August 31, 2014 to be unlawful and computed an amount of Rs.3,568 crore on account of such alleged unlawful mining.

The Mines and Minerals Development and Regulation (MMDR) Amendment Ordinance 2015 promulgated on January 12, 2015 provides for renewal of the above mines. Based on the new Ordinance, Jharkhand Government revised the Express Order on February 12, 2015 for lease renewal up to March 31, 2030 with following terms and conditions:

- value of iron ore produced by alleged unlawful mining during the period January 1, 2012 to April 20, 2014 for Rs.2,994.49 crore to be decided on the basis of disposal of writ petition filed before Hon’ble High Court of Jharkhand.

- value of iron ore produced from April 21, 2014 to July 17, 2014 amounting to Rs.421.83 crore to be paid in maximum 3 installments.

- value of iron ore produced from July 18, 2014 to August 31, 2014 i.e. Rs.152 crore to be paid immediately.

The Company paid Rs.152 crore under protest. District Mining Officer Chaibasa on March 16, 2015 has issued demand notice for payment of Rs.421.83 crore, payable in three monthly installments. The Company replied on March 20, 2015, since the lease has been extended till March 31, 2030, the above demand is not tenable. The Company paid Rs.50 crore under protest on July 27, 2015.

A writ petition was filed before Hon’ble High Court of Jharkhand and heard on September 9, 2015. An interim order has been given by Hon’ble High Court of Jharkhand on September 18, 2015 wherein court has directed the Company to pay outstanding amount of Rs.371.83 crore in 3 equal installments, first instalment by October 15, 2015, second instalment by November 15, 2015 and third instalment by December 15, 2015.

In view of the order of Hon’ble High Court of Jharkhand Rs.124 crore was paid on September 28, 2015, Rs.124 crore was paid on November 12, 2015 and Rs.123.83 crore on December 14, 2015 under protest.

(c) During Financial Year 2014-15, the Income Tax department had reopened assessments of earlier years on account of excess mining and raised cumulative demand for Rs.1,086 crore. During 2015-16, the Commissioner of Income Tax (Appeals) has adjudicated the matter in favour of the Company and quashed the entire demand on account of reopened assessments. The demand outstanding as on March 31, 2017 is Nil (March 31, 2016: Nil; April 1, 2015: Rs.1,086 crore).

(d) During the current year, NTT Docomo Inc. had filed a petition with the Delhi High Court for implementation of the arbitration award (damages along with cost and interest) by the London Court of International Arbitration. The Delhi High Court directed Tata Sons to deposit the damages including costs and interest in an escrow account. During the year, the Company has accordingly remitted its share of Rs. 152 crore to Tata Sons and recognised a provision of Rs.125.44 crore being the difference between the fair value of equity shares to be repurchased and the consideration payable to NTT Docomo Inc.

16. CAPITAL MANAGEMENT

The Company’s capital management is intended to create value for shareholders by facilitating the meeting of long term and short term goals of the Company.

The Company determines the amount of capital required on the basis of annual business plan coupled with long term and short term strategic investment and expansion plans. The funding needs are met through equity, cash generated from operations, long term and short term bank borrowings and issue of non-convertible debt securities.

The Company monitors the capital structure on the basis of net debt to equity ratio and maturity profile of the overall debt portfolio of the Company.

Net debt includes interest bearing borrowings less cash and cash equivalents, other bank balances (including non-current earmarked balances) and current investments.

17. DISCLOSURES ON FINANCIAL INSTRUMENTS

This section gives an overview of the significance of financial instruments for the Company and provides additional information on balance sheet items that contain financial instruments.

The details of significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 2(m), Page 182 to the financial statements.

(a) Financial assets and liabilities

The following tables presents the carrying value and fair value of each category of financial assets and liabilities as at March 31, 2017, March 31, 2016 and April 1, 2015.

(i) Investments in mutual funds and derivative instruments are mandatorily classified as fair value through statement of profit and loss.

(b) Fair value hierarchy

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to Level 3, as described below:

Quoted prices in an active market (Level 1): This level of hierarchy includes financial assets that are measured by reference to quoted prices (unadjusted) in active markets for identical assets or liabilities. This category consists of investment in quoted equity shares, and mutual fund investments.

Valuation techniques with observable inputs (Level 2): This level of hierarchy includes financial assets and liabilities, measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This level of hierarchy includes Company’s over-the-counter (OTC) derivative contracts.

Valuation techniques with significant unobservable inputs (Level 3): This level of hierarchy includes financial assets and liabilities measured using inputs that are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part, using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.

(i) Short-term financial assets and liabilities are stated at carrying value which is approximately equal to their fair value.

(ii) Derivatives are fair valued using market observable rates and published prices together with forecasted cash flow information where applicable.

(iii) Investments carried at fair value are generally based on market price quotations. Costs of unquoted equity instruments has been considered as an appropriate estimate of fair value because of a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range.

(iv) Fair value of borrowings which have a quoted market price in an active market is based on its market price which is categorised as level 1. Fair value of borrowings which do not have an active market or are unquoted is estimated by discounting expected future cash flows using a discount rate equivalent to the risk-free rate of return adjusted for credit spread considered by lenders for instruments of similar maturities which is categorised as level 2 in the fair value hierarchy.

(v) Management uses its best judgement in estimating the fair value of its financial instruments. However, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented above are not necessarily indicative of the amounts that the Company could have realised or paid in sale transactions as of respective dates. As such, fair value of financial instruments subsequent to the reporting dates may be different from the amounts reported at each reporting date.

(vi) There have been no transfers between Level 1 and Level 2 for the years ended March 31, 2017, March 31, 2016 and April 1, 2015.

(c) Derivative financial instruments

Derivative instruments used by the Company include forward exchange contracts, interest rate swaps, currency swaps, options and interest rate caps and collars. These financial instruments are utilised to hedge future transactions and cash flows and are subject to hedge accounting under Ind AS 109 “ Financial Instruments” to the extent possible. The Company does not hold or issue derivative financial instruments for trading purpose. All transactions in derivative financial instruments are undertaken to manage risks arising from underlying business activities.

(d) Transfer of financial assets

The Company transfers certain trade receivables under discounting arrangements with banks and financial institutions. Some of such arrangements do not qualify for de-recognition due to recourse arrangement being in place. Consequently, the proceeds received from transfer are recorded as short-term borrowings from banks and financial institutions.

(e) Financial risk management

In the course of its business, the Company is exposed primarily to fluctuations in foreign currency exchange rates, interest rates, equity prices, liquidity and credit risk, which may adversely impact the fair value of its financial instruments.

The Company has a risk management policy which not only covers the foreign exchange risks but also other risks associated with the financial assets and liabilities such as interest rate risks and credit risks. The risk management policy is approved by the Board of Directors. The risk management framework aims to:

(i) create a stable business planning environment by reducing the impact of currency and interest rate fluctuations on the Company’s business plan.

(ii) achieve greater predictability to earnings by determining the financial value of the expected earnings in advance.

(i) Market risk:

Market risk is the risk of any loss in future earnings, in realisable fair values or in future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, foreign currency exchange rates, equity price fluctuations, liquidity and other market changes. Future specific market movements cannot be normally predicted with reasonable accuracy.

(a) Market risk - Foreign currency exchange rate risk:

The fluctuation in foreign currency exchange rates may have a potential impact on the statement of profit and loss and equity, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the Company.

The Company, as per its risk management policy, uses foreign exchange and other derivative instruments primarily to hedge foreign exchange and interest rate exposure. Any weakening of the functional currency may impact the Company’s cost of imports and cost ofborrowings and consequently may increase the cost of financing the Company’s capital expenditures.

A 10% appreciation/depreciation of the foreign currencies with respect to functional currency of the Company would result in an increase/decrease in the Company’s net profit before tax by approximately Rs.9.46 crore for the year ended March 31, 2017 (March 31, 2016: Rs.24.45 crore) and increase/ decrease in carrying value of property, plant and equipment (before considering depreciation) by approximately Rs.185.49 crore as at March 31, 2017 (March 31, 2016: Rs.215.55 crore; April 1, 2015: Rs.255.82 crore).

The foreign exchange rate sensitivity is calculated by assuming a simultaneous parallel foreign exchange rates shift of all the currencies by 10% against the functional currency of the Company.

The sensitivity analysis has been based on the composition of the Company’s financial assets and liabilities at March 31, 2017, March 31, 2016 and April 1, 2015 excluding trade payables, trade receivables, other non-derivative and derivative financial instruments not forming part of debt and which do not present a material exposure. The period end balances are not necessarily representative of the average debt outstanding during the period.

(b) Market risk - Interest rate risk:

Interest rate risk is measured by using the cash flow sensitivity for changes in variable interest rates. Any movement in the reference rates could have an impact on the Company’s cash flows as well as costs.

The Company is subject to variable interest rates on some of its interest bearing liabilities. The Company’s interest rate exposure is mainly related to debt obligations.

Based on the composition of debt as at March 31, 2017 and March 31, 2016 a 100 basis points increase in interest rates would increase the Company’s finance costs (before interest capitalised) and thereby consequently reduce net profit before tax by approximately Rs.122.34 crore for the year ended March 31, 2017 (2015-16: Rs.152.64 crore).

The risk estimates provided assume a parallel shift of 100 basis points interest rate across all yield curves. This calculation also assumes that the change occurs at the balance sheet date and has been calculated based on risk exposures outstanding as at that date. The period end balances are not necessarily representative of the average debt outstanding during the period.

(c) Market risk - Equity price risk:

Equity price risk is related to change in market reference price of investments in equity securities held by the Company.

The fair value of quoted investments held by the Company exposes the Company to equity price risks. In general, these investments are not held for trading purposes.

The fair value of quoted investments in equity, classified as fair value through other comprehensive income as at March 31, 2017, March 31, 2016 and April 1, 2015, was Rs.4,422.17 crore and Rs.3,577.43 crore and Rs.10,274.87 crore respectively.

A 10% change in equity prices of such securities held as at March 31, 2017, March 31, 2016 and April 1, 2015, would result in an impact of Rs.442.22 crore, Rs.357.74 crore and Rs.1,027.49 crore respectively on equity before considering tax impact.

(ii) Credit risk:

Credit risk is the risk of financial loss arising from counter-party failure to repay or service debt according to the contractual terms or obligations. Credit risk encompasses both the direct risk of default and the risk of deterioration of creditworthiness as well as concentration risks.

The Company has a policy of dealing only with credit worthy counter parties and obtaining sufficient collateral, where appropriate as a means of mitigating the risk of financial loss from defaults.

Financial instruments that are subject to credit risk and concentration thereof principally consist of trade receivables, loans receivables, investments, cash and cash equivalents, derivatives and financial guarantees provided by the Company. None of the financial instruments of the Company result in material concentration of credit risk.

The carrying value of financial assets represents the maximum credit risk. The maximum exposure to credit risk was ^8,913.94 crore, ^6,970.27 crore, ^3,761.85 crore, as at March 31, 2017, March 31, 2016 and April 1, 2015 respectively, being the total carrying value of trade receivables, balances with bank, bank deposits, investments in debt securities and other financial assets.

The risk relating to trade receivables is presented in Note 13, Page 205.

The Company’s exposure to customers is diversified and no single customer contributes to more than 10 % of outstanding trade receivables as at March 31, 2017, March 31, 2016 and April 1, 2015.

In respect of financial guarantees provided by the Company to banks and financial institutions, the maximum exposure which the Company is exposed to is the maximum amount which the Company would have to pay if the guarantee is called upon. Based on the expectation at the end of the reporting period, the Company considers that it is more likely than not that such an amount will not be payable under the guarantees provided.

(iii) Liquidity risk:

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements.

The Company has obtained fund and non-fund based working capital lines from various banks. Furthermore, the Company has access to funds from debt markets through commercial paper programs, non-convertible debentures and other debt instruments. The Company invests its surplus funds in bank fixed deposit and in mutual funds, which carry no or low market risk.

18. SEGMENT REPORTING

The Company is engaged in the business of manufacturing steel products and is primarily operated out of India. In accordance with Ind AS 108 “Operating Segments’; the Company has presented segment information on the basis of consolidated financial statements which form part of this report.

19. RELATED PARTY TRANSACTIONS

The Company’s related parties principally consist of its subsidiaries, associates and joint ventures, Tata Sons Limited including its subsidiaries and joint ventures. The Company routinely enters into transactions with these related parties in the ordinary course of business at market rates and terms.

The following table summarises related party transactions and balances included in the financial statements of the Company for the year ended as at March 31, 2017, March 31, 2016 and April 1, 2015:

(i) The details of remuneration paid to key managerial personnel is provided in Note 29, Page 220.

In addition, during the year the Company has paid dividend of Rs.21,936.00 (2015-16: Rs.21,936.00) to key managerial personnel and Rs.2,648.00 (2015-16: Rs.2,648.00) to relatives of key managerial personnel.

(ii) During the year, the Company has contributed Rs.471.09 crore (2015-16: Rs.865.30 crore) to post employment benefit plans.

(iii) Transaction with joint ventures have been disclosed at full value and not at their proportionate share.

20. ADOPTION OF INDIAN ACCOUNTING STANDARDS (IND AS)

A. Mandatory exceptions to retrospective application

The Company has applied the following exceptions to the retrospective application of Ind AS as mandatorily required under Ind AS 101 “First Time Adoption of Indian Accounting Standards”

(i) Estimates

On assessment of estimates made under the Previous GAAP financial statements, the Company has concluded that there is no necessity to revise such estimates under Ind AS, as there is no objective evidence of an error in those estimates.

(ii) Classification and measurement of financial assets

The classification of financial assets to be measured at amortised cost or fair value through other comprehensive income is made on the basis of facts and circumstances that existed on the date of transition to Ind AS.

B. Optional exemptions from retrospective application

Ind AS 101 “First time Adoption of Indian Accounting Standards” permits Companies adopting Ind AS for the first time to take certain exemptions from the full retrospective application of Ind AS during the transition. The Company has accordingly on transition to Ind AS availed the following key exemptions:

i. Fair value as deemed cost for items of property, plant and equipment

The Company has elected to treat fair value as deemed cost for certain items of its property, plant and equipment.

The aggregate fair value of property, plant and equipment where the exemption was availed amounted to Rs. 47,580.78 crore with an aggregate adjustment of ^24,345.24 crore being recognised to the carrying value reported under the Previous GAAP.

ii. Fair value as deemed cost for investments in subsidiaries, associates and joint ventures

On transition, Ind AS 101 allows an entity to treat fair value as deemed cost for investments held in subsidiaries, associates and joint ventures.

Accordingly, the Company has elected to treat fair value as deemed cost for its investments held in a subsidiary. The fair value of such investments was considered as Nil with an adjustment of ^47,875.33 crore being recognised to the carrying value reported under the Previous GAAP.

iii. Designation of previously recognised financial instruments

Under Ind AS 109”Financial Instruments’, at initial recognition of a financial asset, an entity may make an irrevocable election to present subsequent changes in fair value of an investment in equity instrument in other comprehensive income.

Ind AS 101 “First time Adoption of Indian Accounting Standards’ allows such designation of previously recognised financial assets as “fair value through other comprehensive income’ on the basis of facts and circumstances that existed at the date of transition to Ind AS.

Accordingly, the Company has designated its investments in equity instruments at fair value through other comprehensive income on the basis of facts and circumstances that existed at the date of transition to Ind AS.

iv. Effect of changes in exchange rate

In respect of long term foreign currency monetary items recognised in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period, the Company has elected to recognise exchange differences on translation of such long term foreign currency monetary items in line with its Previous GAAP accounting policy.

In respect of long term foreign currency monetary items recognised in the financial statements beginning with the first Ind AS financial reporting period, exchange differences are recognised in the statement of profit and loss.

C. Transition to Ind AS - Reconciliations

The following reconciliations provide the explanation and qualification of the differences arising from the transition from Previous GAAP to Ind AS in accordance with Ind AS 101 “First Time Adoption of Indian Accounting Standards’

(i) Reconciliation of total equity as at April 1, 2015 and March 31, 2016.

(ii) Reconciliation of total comprehensive income for the year ended March 31, 2016.

(iii) Reconciliation of statement of cash flows for the year ended March 31, 2016.

Previous GAAP figures have been reclassified/regrouped wherever necessary to confirm with the financial statements prepared under Ind AS.

Notes to reconciliation of total equity and total comprehensive

Income

(i) Financial Instruments

(a) In accordance with Ind AS 109 “Financial Instruments” investments in quoted equity instruments (other than in subsidiaries, associates and joint ventures) have been recognised at fair value at each reporting date through other comprehensive income.

Consequently, on eventual sale of such investments, profit or loss recognised in the statement of profit and loss under the Previous GAAP have been reversed as the fair value changes are recognised through other comprehensive income.

(b) In accordance with Ind AS 109 “Financial Instruments” premium payable on redemption, discount on issue, transaction costs on issue of bonds and debentures are required to be considered as effective finance costs and recognised in the statement of profit and loss using the effective interest rate.

Consequently, premium on redemption/discounts on issue and transaction costs recognised directly in equity or amortised using a different approach under the Previous GAAP has been reversed and are now recognised through the statement of profit and loss using the effective interest rate.

(c) In accordance with Ind AS 109 “Financial Instruments” investments in mutual funds are recognised at fair value through the statement of profit and loss at each reporting period.

(d) I n accordance with Ind AS 109 “Financial Instruments’” all derivative financial instruments are recognised at fair value as at each reporting date through the statement of profit and loss except where designated in a hedging relationship.

(ii) Property, plant and equipment

On transition to Ind AS, the Company has treated fair value as deemed cost for certain items of property, plant and equipment resulting in an uplift in carrying value as compared to the Previous GAAP.

The consequential impact of additional depreciation on fair value uplift is recognised in the statement of profit and loss.

(iii) Leases

As per Ind AS 17, “Leases’, the Company has assessed certain long term arrangements, fulfilment of which is dependant on use of specified assets and where the Company has the right to control the use of such assets for being in the nature of a lease.

This resulted in certain arrangements being treated as a lease and classified as finance lease. The impact on total equity and profit and loss is on account of timing difference in recognition of expenses under the lease accounting model as compared to those recognised under the Previous GAAP.

(iv) Fair value as deemed cost for investments in subsidiaries

The Company has treated fair value as deemed cost for its investment held in a subsidiary. The difference between fair value and carrying value as per Previous GAAP has accordingly been adjusted against reserves on transition to Ind AS.

(v) Re-classification of Hybrid perpetual securities

In accordance with Ind AS 109 “Financial Instruments” Hybrid Perpetual Securities have been re-classified as equity based on its substance and the fact that the Company has an unconditional right to avoid making payments on the instrument as per the contractual terms.

(vi) Governments Grants

In accordance with Ind AS 20 “Government Grants”, duty saved on import of capital goods and spares under the EPCG scheme has been treated as a Government grant.

The benefit has been grossed up with the cost of the related asset and has been recognised as a deferred income. Such deferred income is released to the statement of profit and loss based on fulfilment of related export obligations. The duty benefit grossed up to the cost of the asset is depreciated based on its useful economic life or as and when the spares are consumed.

(vii) Reversal of proposed dividend

In accordance with Ind AS 8 “Accounting Policies, Changes in Accounting Estimates and Errors’” dividend recommended by the Board of Directors is recognised only once approved by the shareholders as compared to the Previous GAAP where it was considered as an adjusting event.

(viii) Employee benefits

(a) In accordance with Ind AS 19, “Employee Benefits” re-measurement gains and losses on post employment defined benefit plans are recognised in other comprehensive income as compared to the statement of profit and loss under the Previous GAAP.

(b) Interest expense/income on the net defined benefit liability/ asset is recognised in the statement of profit and loss using the discount rate used for defined benefit obligation as compared to the expected rate used for recognising income from plan assets under the Previous GAAP.

(ix) Deferred Taxes

In accordance with Ind AS 12, “Income Taxes’” the Company on transition to Ind AS has recognised deferred tax on temporary differences, i.e. based on balance sheet approach as compared to the earlier approach of recognising deferred taxes on timing differences , i.e. profit and loss approach.

The tax impacts as above primarily represent deferred tax consequences arising out of Ind AS re-measurement changes.

(x) Other adjustments

Other adjustments primarily relate to consequential impact on inventory valuation due to Ind AS transition.

(xi) Other comprehensive Income

Under Ind AS, all items of income and expense recognised during the year are included in the profit or loss for the year, unless Ind AS requires or permits otherwise. Items that are not recognised in profit or loss but are shown in the statement of profit and loss and other comprehensive income include re-measurement gains or losses on defined benefit plans, effective portion of gains or losses on cash flow hedges and fair value changes of equity investments.

The concept of other comprehensive Income did not exist under the Previous GAAP.

Notes to reconciliation of statement of cash flows

(xii) The Company transfers trade receivables under discounting arrangements with banks and financial institutions. Some of the arrangements do not meet the de-recognition criteria due to re-course arrangements being in place. Consequently, proceeds received from such transactions are recorded as short term borrowings and trade receivables continue to be recognised in the financial statements. Under the Previous GAAP, such transactions were de-recognised and recorded as a sale.

As a result, cash flow from operating activities under Ind AS is lower and cash flow from financing activities is higher.

(xiii) On transition to Ind AS, long term arrangements have been assessed as being in the nature of a lease and classified as finance leases, where applicable. Under the Previous GAAP, such long term contracts were treated as a normal contract for purchase of output. Payments made under such contracts have therefore been re classified as part of financing activities under Ind AS as compared to operating activities under the Previous GAAP.

As a result, cash flow from operating activities under Ind AS is higher and cash flow from financing activities is lower.

21. DIVIDENDS

The dividends declared by the Company are based on the profits available for distribution as reported in the financial statements of the Company. On May 16, 2017, the Board of Directors of the Company have proposed a dividend of Rs.10 per share in respect of the year ended March 31, 2017 subject to the approval of shareholders at the Annual General Meeting. If approved, the dividend would result in a cash outflow of Rs. 1,168.93 crore inclusive of a dividend distribution tax of Rs.197.72 crore.

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