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SENSEX NIFTY India | Notes to Account > Textiles - Manmade > Notes to Account from SRF - BSE: 503806, NSE: SRF


BSE: 503806|NSE: SRF|ISIN: INE647A01010|SECTOR: Textiles - Manmade
Oct 14, 16:00
-81.7 (-3.03%)
VOLUME 9,112
Oct 14, 15:56
-81.3 (-3.02%)
VOLUME 424,743
Mar 18
Notes to Accounts Year End : Mar '19


(i) Borrowing cost capitalised during the year Rs,31.36 Crores (Previous year: Rs,31.25 Crores) with a capitalisation rate ranging from 7.24% to 8.80% (Previous year: 7.24% to 8.59%).

(ii) Conveyancing of buildings and other superstructures located at Company''s plant at Malanpur, in the state of Madhya Pradesh including immovable machinery is linked to Stamp duty litigation against the Company (Refer to note 31(a) below).

(iii) Out of the Industrial Freehold land measuring 32.41 acres at the Company''s plant in Gummidipoondi, the Company does not have clear title to 2.43 acres.

(iv) Capital expenditure incurred during the year includes Rs,4.06 Crores (Previous year: Rs,16.03 Crores) on account of research and development. Depreciation for the year includes depreciation on assets deployed in research and development as per note 40 (a) below.

(v) Refer to note 15.1 for information on PPE pledged as security by the Company.

(vi) Refer to note 40 (c) for additions / adjustments on account of exchange difference during the year.

(vii) The Company has got a possession letter in respect of its registered office building located at Mayur Vihar, New Delhi. However, execution of the conveyance deed in name of the Company is under process.

(vii) The Company accounts for all capitalization of property, plant and equipment through capital work in progress and therefore the movement in capital work-in-progress is the difference between closing and opening balance of capital work-in-progress as adjusted in additions to property, plant and equipment and intangible assets.


(i) The cost of inventories recognised as an expense includes Rs,3.45 Crores (Previous year: Rs,1.64 Crores) in respect of write-downs of inventory to net realisable value.

(ii) Refer Note 15.1 for information on inventories pledged as security by the Company.

(iii) The method of valuation of inventories has been stated in note 1.B.12

(iii) The Company has entered into receivables purchase agreements with banks to unconditionally and irrevocably sell, transfer, assign and convey all the rights, titles and interest of the Company in the receivables as identified. Receivables sold as on March 31, 2019 are of Rs,315.41 Crores (Previous year: Rs,437.72 Crores). The Company has derecognized these receivables as it has transferred its contractual rights to the banks with substantially all the risks and rewards of ownership and retains no control over these receivables as the banks have the right to further sell and transfer these receivables with notice to the Company.

(iv) No customer represents more than 10% (Previous year: one customer represents 11.31%) of the total balances of trade receivables.

(v) Refer Note 15.1 for information on inventories pledged as security by the Company.

The disclosures regarding details of specified bank notes held and transacted during the period November 8, 2016 to December 31, 2016 have not been made since the requirement does not pertain to financial year ended March 31, 2019.

Terms/ rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs,10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The final dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. The Board may from time to time pay to the members such interim dividends as appear to it to be justified by the profits of the Company.

During the year ended March 31, 2019, the amount of interim dividend recognised as distributions to equity shareholders was Rs,12 per share (Previous year: Rs,12 per share).

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

The general reserve is created from time to time on transfer of profits from retained earnings. General reserve is created by transfer from one component of equity to another and is not an item of other comprehensive income. Items included in general reserve will not be reclassified subsequently to profit and loss.

The amount that can be distributed as dividend by the Company to its equity shareholders is determined based on the financial statements of the Company and also considering the requirements of the Companies Act, 2013. The amounts reported above are not distributable in entirety.

The Cash flow hedge reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in the fair value of the designated portion of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or included as a basis adjustment to the non-financial hedged item.

Capital Redemption Reserve is a statutory, non-distributable reserve into which amounts are transferred following the redemption or purchase of a company''s own shares. The reserve is utilised in accordance with the provisions of the Act.

Capital reserve represents amounts received pursuant to Montreal Protocol Phaseout Programme of refrigerant gases.

The Company has issued non-convertible debentures and as per the provisions of the Act, it is required to create debenture redemption reserve out of the profits of the Company available for payment of dividend.

The Company has allotted equity shares to certain employees under an employee share purchase scheme. The employee share based payment reserve is used to recognise the value of equity settled share based payments provided to such employees as part of their remuneration. Refer note 34 for further details of the scheme.

This reserves represents the cumulative gains and losses arising on the revaluation of equity instruments measured at fair value through other comprehensive income, net of amount reclassified to retained earnings when those assets have been disposed of.

# Includes Rs,400.00 Crores (Previous year: Rs,100.00 Crores) for Commercial Paper issued by the Company. The maximum amount due during the year is Rs,400.00 Crores (Previous year: Rs,300.00 Crores).

There have been no breach of covenants mentioned in the loan agreements during the reporting periods.

Current Borrowings

Short term borrowings are payable in one installment within one year. For short term borrowings in foreign currency, interest rates range from Euribor 15 bps to Euribor 18 bps and from Libor to Libor 50 bps . For rupee denominated short term loans taken during the year interest rate is at 6.28% to 8.25%.

Terms of repayment

1) Reedemable non convertible debenture of Rs, 300 Crores (Previous year: Rs, 300 Crores) are repayable in one bullet instalment in June 2020.

2) Rupee term loans of Rs, 1.97 Crores (Previous year: Rs, 6.02 Crores repayable in 3 half yearly instalments from September 2018) are repayable in 1 half yearly instalment in September 2019.

3) Rupee term loans of Rs, 46.50 Crores (Previous year: Rs, 48.50 Crores repayable in 9 half yearly instalments from August 2018) are repayable in 7 half yearly instalment from August 2019.

4) Rupee term loans of 3.74 Crores were repaid in current year (Previous year: Rs, 3.74 Crores repayable in 1 half yearly instalments in September 2018).

5) Rupee term loans ofRs, 149.55 Crores (Previous year: Rs, 149.85 Crores repayable in 18 instalments from June 2018) are repayable in 14 quarterly instalment from June 2019.

6) Rupee term loans of Rs, 200.00 Crores (Previous year: Nil) are repayable in 2 annual instalments from August 2020.

7) Rupee term loans of Rs, 20.00 Crores (Previous year: Nil) are repayable in 5 annual instalments from December 2019.

8) Foreign currency term loan of Rs, 172.74 Crores (Previous year: Nil) are repayable in 8 quarterly instalments from September 2020.

9) Foreign currency term loan of Rs,387.90 Crores (Previous year: Rs,403.57 Crores repayable in 19 quarterly instalments from August 2020) are repayable in 19 quarterly instalments from August 2020.

10) Foreign currency term loan of Rs,172.74 Crores (Previous year: Nil) are repayable in 14 quarterly instalments from July 2020.

11) Foreign currency term loan of Rs,34.55 Crores (Previous year: Rs,58.63 Crores repayable in 4 half yearly instalments from September 2018) are repayable in 2 half yearly instalments from September 2019.

12) Foreign currency term loan of Rs,30.72 Crores (Previous year: Rs,57.93 Crores repayable in 4 half yearly instalments from July 2018) are repayable in 2 half yearly instalments from July 2019.

13) Foreign currency term loan of Rs,138.18 Crores (Previous year: Rs,162.88 Crores repayable in 5 half yearly instalments from March 2019) are repayable in 4 half yearly instalments from September 2019.

14) Foreign currency term loan of Rs,239.54 Crores (Previous year: Rs,260.62 Crores repayable in 15 half yearly instalments from April 2018) are repayable in 13 half yearly instalments from April 2019.

15) Foreign currency term loan of Rs,6.52 Crores were repaid in the current year (Previous year: Rs,6.52 Crores is repayable in one yearly instalment in October 2018).

16) Foreign currency term loan of Rs,26.06 Crores were repaid in current year (Previous year: Rs,26.06 Crores is repayable in one yearly instalment in December 2018).

17) Foreign currency term loan of Rs,158.91 Crores (Previous year: Rs,149.86 Crores is repayable in one bullet instalment in April 2019) are repayable in one bullet instalment in April 2019.

18) Foreign currency term loan of Rs,15.00 Crores (Previous year: Rs,15.00 Crores is repayable in one bullet instalment in June 2022) are repayable in one bullet instalment in June 2022.

19) Foreign currency term loan of Rs,162.89 Crores were repaid in current year (Previous year: Rs,162.89 Crores are repayable in one bullet instalment in March 2020).

17 Deferred Tax (Net)

The following is the analysis of deferred tax assets / (liabilities) presented in balance sheet

The tax rate used for the current year reconciliation above is the corporate tax rate of 34.944% (Previous year: 34.608%) payable by corporate entities in India on taxable profits under the Indian tax law.

*This amount includes tax credit of Rs,24.76 Crores (Previous year: Rs,33.97 Crores) which is related to finalization and determination of deduction/allowance claimed for earlier years under Chapter-VIA of the Income-tax Act, 1961, for generation of power from captive power plants which is based on opinion from external tax experts and consultants and finalization of transfer pricing study /tax audit reports of the earlier years.

*Amount deposited Rs,6.16 Crores (Previous year: Rs,7.49 Crores)

**Amount deposited Rs,2.57 Crores (Previous year: Rs,21.76 Crores)

***Amount deposited Rs,0.09 Crores (Previous year: Rs,0.08 Crores)

****Amount deposited Rs,7.14 Crores (Previous year: Rs,6.07 Crores)

*****In the matter of acquisition of the Tyrecord Division at Malanpur from CEAT Limited the Collector of Stamps, Bhind (Madhya Pradesh) has by his order dated November 7, 2001 assessed the value of the subject matter of the Deed of Conveyance dated June 13, 1996 at Rs,303.00 Crores and levied a stamp duty of Rs,23.73 Crores and imposed a penalty of Rs,5.09 Crores. The said demand was challenged before the Hon''ble High Court of Madhya Pradesh Bench at Gwalior. The Hon''ble High Court of Madhya Pradesh accepted the case of the Company that the subject matter of the Deed of Conveyance dated June 13, 1996 is only the superstructures valued at Rs,27.76 Crores and not the entire undertaking valued at Rs,303.00 Crores as claimed by the State. Consequently, the Hon''ble High Court of Madhya Pradesh quashed the order and demands issued by the Collector of Stamps, Bhind (Madhya Pradesh) and allowed the writ petition by an order dated November 29, 2004. Against the said order, the State of Madhya Pradesh preferred a Special Leave Petition before the Hon''ble Supreme Court which the State of Madhya Pradesh has withdrawn to enable it to approach the Hon''ble High Court of Madhya Pradesh at Gwalior in view of the change in law in the State of Madhya Pradesh relating to Letters Patent Appeal. Since then, the Department has filed appeal which has been admitted. Matter will be listed in due course.

@As per Business Transfer Agreement with KAMA Holdings Limited, the liabilities of '' Nil Crores (Previous year: Rs,20.64 Crores) and '' Nil Crores (Previous year: Rs,0.38 Crores) respectively towards Excise Duty and Sales tax are covered under Representations and Warranties.

All the above matters are subject to legal proceedings in the ordinary course of business. In the opinion of the management, the legal proceedings, when ultimately concluded, will not have a material effect on the results of the operations or financial position of the Company.

b The Company has been served with show cause notices regarding certain transactions as to why additional customs / excise duty / service tax amounting to Rs,20.10 Crores (Previous year: Rs,23.51 Crores) should not be levied. The Company has been advised that the contention of the department is not tenable and hence the show cause notice may not be sustainable.

c On February 28, 2019, a judgment of the Supreme Court of India interpreting certain statutory defined contribution obligations of employees and employers (the India Defined Contribution Obligation) altered historical understandings of such obligations, extending them to cover additional portions of the employee''s income to measure obligations under Employees Provident Fund Act, 1952. There is significant uncertainty as to how the liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. owing to the aforesaid uncertainty, the Company has not considered any probable obligations for periods prior to date of aforesaid judgment. The Company is further evaluating its next course of action in this matter.

^Converted using closing exchange rate - USD 69.0950, Euro 77.580 and ZAR 4.761 AAConverted using closing exchange rate - USD 65.1550 and ZAR 5.5546

*However liability of SRF Limited was restricted up to Guarantee amount which is USD 22 Million (Rs,143.34 Crores) **The loan under the said guarantee has been repaid in March 2019 and the Company is in the process of withdrawing this guarantee

***Represents the guarantee under working capital line, however, this has not been utilised by the subsidiary.

e The amounts shown above represents the best possible estimates arrived at on the basis of available information. The uncertainties and possible reimbursements are dependent on the outcome of the different legal processes which have been invoked by the Company or the claimants as the case may be and therefore cannot be predicted accurately or relate to a present obligations that arise from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate cannot be made. The Company engages reputed professional advisors to protect its interests and has been advised that it has strong legal positions against such disputes.

(iii) The Company has other commitments, for purchases / sales orders which are issued after considering requirements per operating cycle for purchase / sale of goods and services, employee benefits including union agreements in normal course of business. The Company does not have any long term contracts including derivative contracts for which there will be any material foreseeable losses.

(iv) The Company has recognized grant in respect of duty paid on procurement of capital goods under post EPCG scheme of Central Government which allows refund of such duty in the form of freely transferable duty credit scrips upon meeting of requisite export obligation. The Company expects to meet its export obligations in future years. Export obligation as on March 31, 2019 is Rs,25.18 Crores (Previous year: Rs,145.68 Crores).

32 Related Party Transactions 32.1 Description of related parties

Holding Company Key management personnel (KMP)

KAMA Holdings Limited Mr. Arun Bharat Ram

Mr. Ashish Bharat Ram

Subsidiaries Mr. Kartik Bharat Ram

SRF Holiday Home Limited Mr. Vinayak Chatterjee *

SRF Global BV Mr. Tejpreet S Chopra

SRF Industries (Thailand) Limited Mr. Lakshman Lakshminarayan

SRF Industex Belting (Pty) Limited Mr. Vellayan Subbiah

SRF Flexipak (South Africa) (Pty) Limited Mr. Pramod Bhasin **

SRF Europe Kft A Dr. Meenakshi Gopinath

SRF Employees Welfare Trust Mr. Pramod Gopaldas Gujarathi

Ms. Bharti Gupta Ramola ***

Fellow subsidiaries #

KAMA Realty (Delhi) Limited Enterprises over which KMP have significant

Shri Educare Limited influence #

SRF Foundation

Post Employment Benefit Plans Trust Karm Farms LLP

SRF Limited Officers Provident Fund Trust Srishti Westend Greens Farms LLP

SRF Employees Gratuity Trust SRF Welfare Trust

SRF Officers Gratuity Trust Statkraft BLP Solar Solutions Private Limited

* up to March 31, 2019 ** up to February 4, 2019 *** from February 4, 2019 A from April 25, 2018

from June 27, 2018 up to April 16, 2018

# Only with whom the Company had transactions during the year

The expenses incurred on account of the above defined contribution plans have been included in Note 25 Employee Benefits Expenses under the head Contribution to provident and other funds.

(i) Superannuation fund

The Company makes contributions to a Trust which in turn contributes to ICICI Prudential Life Insurance Company Limited. Apart from being covered under the Gratuity Plan described below, the employees of the Company also participate in a defined contribution superannuation plan maintained by the Company. The Company has no further obligations under the plan except making annual contributions based on a specified percentage of each covered employee''s salary. From November 1, 2006, the Company provided an option to the employees to receive the said benefit as cash compensation along with salary in lieu of the superannuation benefit. Thus, no contribution is required to be made for the category of employees who opted to receive the benefit in cash.

(ii) Provident fund administered through Regional Provident Fund Commissioner

All employees are entitled to Provident Fund benefits as per the law. For certain category of employees the Company administers the benefits through a recognised Provident Fund Trust. The Company has an obligation to fund any shortfall on the yield of the trust''s investments over the administered interest rates on an annual basis. For other employees contributions are made to the Regional Provident Fund Commissioners. The Government mandates the annual yield to be provided to the employees on their corpus. This plan is considered as a Defined Contribution Plan. For the first category of employees (covered by the Trust), the Company has an obligation to make good the shortfall, if any, between the yield on the investments of the trust and the yield mandated by the Government and these are considered as Defined Benefit Plans accounted for on the basis of an actuarial valuation.

33.2 Defined benefit plans

The Company sponsors funded defined benefit plans for qualifying employees. The defined benefit plans

are administered by separate funds which are legally separate from the Company. These plans are:

(a) Gratuity

(b) Provident fund for certain category of employees administered through a recognised provident fund trust

(i) These plans typically expose the company to actuarial risks such as investment risk, interest rate risk, longevity risk and salary risk.

Investment Risk

The probability or likelihood of occurrence of losses relative to the expected return on any particular investment.

Salary Risk

The present value of defined benefit plan is calculated with the assumption of salary increase rate of plan participants in future. Deviation in rate of increase in salary in future for plan participants from the rate of increase in salary used to determine the present value of obligation will have a bearing on the plan''s liability.

Interest Risk

The plan exposes the Company to the risk of fall in interest rates. A fall in interest rates will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in value of the liability.

Longevity Risk

The present value of defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after employment. An increase in the life expectancy of the plan participants will increase the plans liability.

The cost of the defined benefit plans and other long term benefits are determined using actuarial valuations. Actuarial valuations involve making various assumptions that may differ from actual developments in the future. These includes the determination of the discount rate, future salary increases and mortality rate. Due to these complexity involved in the valuation it is highly sensitive to the changes in these assumptions. All assumptions are reviewed at each reporting date. The present value of the defined benefit obligation and the related current service cost and planned service cost were measured using the projected unit cost method.

The current service cost and the net interest expenses for the year are included in Note 25 Employee Benefits Expenses under the head Contribution to provident and other funds.


Plan assets comprises primarily of investment in HDFC Group Unit Linked Plan fund. The average duration of the defined benefit obligation is 23 years (Previous year: 23 years). The Company expects to make a contribution of Rs,7.01 Crores (Previous year: Rs,6.54 Crores) to the defined benefit plans during the next financial year.

Provident fund:

The plan assets have been primarily invested in government securities and corporate bonds.

(viii) Sensitivity Analysis

Significant actuarial assumptions for the determination of the defined obligation are discount rate and expected salary increase. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of reporting period, while holding all other assumptions constant.

(i) Long Term Retention Pay

The Company has a Long Term Retention Pay Plan which covers employees selected on the basis of their current band and their long term value to the Company. The incentive is payable in three year blocks subject to achievement of certain performance ratings. The Company also has a scheme for talent retention of certain identified employees under which an incentive is payable over a period of three years. Based on actuarial valuation, the Company has accrued the above mentioned amounts.

34 Employee Share Based Payments

The Company has an Employee Share Purchase Scheme (SRF Long Term Share Based Incentive Plan) to provide equity settled share based payments to certain employees. The expenses related to the grant of shares under the Scheme are accounted for on the basis of fair value of the share on the grant date (which is the market price of the Company''s share on the date of grant less exercise price). The fair value so determined is expensed on a straight line basis over the remaining tenure over which the employees renders their services.

35 Segment Reporting

Based on the guiding principles laid down in Indian Accounting Standard (Ind AS) - 108 Segment Reporting, the Managing Director of the Company is the Chief Operating Decision Maker (CODM) and for the purposes of resource allocation and assessment of segment performance the business of the Company is segregated in the segments below:

- Technical Textiles business: includes nylon tyre cord fabric, belting fabric, polyester tyre cord fabric and industrial yarns and its research and development

- Chemicals business: includes refrigerant gases, chloromethane, pharmaceuticals, fluorochemicals & allied products and its research and development.

- Packaging Film business: includes polyester films.

- Others: includes coated fabric, laminated fabric and engineering plastics.

Effective April 1, 2018, the Company realigned its operating segments based on requirements under Ind AS 108 - Operating Segments. Accordingly, Laminated Fabrics business and Coated Fabrics business from Technical Textiles Business segment and Engineering Plastics business from Chemicals and Polymers Business segment have been regrouped to Others segment. Also Chemicals and Polymers Business segment has been renamed to Chemicals Business segment. Relevant comparative information has been restated to give effect to the above changes.

Segment revenue, results and capital employed include the respective amounts identifiable to each of the segments. Other unallocable expenditure includes expenses incurred on common services provided to the segments, which are not directly identifiable.

In addition to the significant accounting policies applicable to the business segments as set out in note 1 above, the accounting policies in relation to segment accounting are as under:

a) Segment revenue and expenses

Joint revenue and expenses of segments are allocated amongst them on a reasonable basis. All other segment revenue and expenses are directly attributable to the segments.

b) Segment assets and liabilities

Segment assets include all operating assets used by a segment and consist principally of operating cash, trade receivables, inventories and property plant and equipment and intangible assets, net of allowances and provisions, which are reported as direct offsets in the balance sheet. Segment liabilities include all operating liabilities and consist principally of creditors and accrued liabilities and do not include deferred income taxes. While most of the assets / liabilities can be directly attributed to individual segments, the carrying amount of certain assets / liabilities pertaining to two or more segments are allocated to the segments on a reasonable basis.

37 Operating Lease

The Company has entered into operating lease agreements for various premises taken for accommodation of Company''s officers/ directors, various offices of the Company, lands and certain equipments. These arrangements are both cancellable and non-cancellable in nature and range between two to ninety nine years. The future minimum lease payments under non-cancellable operating leases are as under: -

38 Financial Instruments and Risk Management

38.1 Capital Management

The Company manages its capital to ensure that it will be able to continue as a going concern and provide reasonable return to the shareholders by maintaining a reasonable balance between debt and equity. The capital structure of the Company consists of net debt (borrowings net of cash and cash equivalents) and total equity of the Company. The Company is not subject to any externally imposed capital requirements. The Company''s management reviews the capital structure of the Company on periodic basis. As part of its review, the management considers the cost of capital and risk associated with each class of capital. The Company also evaluates its gearing measures using Debt Equity Ratio to arrive at an appropriate level of debt and accordingly evolves its capital structure.

The following table provides the details of the debt and equity at the end of the reporting periods

(b) Fair valuation of non-current financial assets has been disclosed to be same as carrying value as there is no significant difference between carrying value and fair value.

(c) Fair value of quoted financial instruments (listed debentures) is based on quoted market price at the reporting date. The fair value of other long-term borrowings is estimated by discounting future cash flows using current rates (applicable to instruments with similar terms, currency, credit risk and remaining maturities) to discount the future payouts.

(d) The fair value is determined by using the valuation model/ technique with observable/ non-observable inputs and assumptions. Based on computation, the management has assessed that the carrying values approximates their fair values.

(e) Investment value excludes investment in subsidiaries which are shown at cost in balance sheet as per Ind AS 27 Separate financial statements.

There are no transfers between Level 1, Level 2 and Level 3 during the year ended March 31, 2019 and March 31, 2018.

Level 1:

Quoted prices in the active market: This level of hierarchy includes financial assets that are measured by reference to quoted prices in the active market. This category consists of non convertible debentures.

Level 2:

Valuation techniques with significant observable inputs: This level of hierarchy includes items measured using inputs other than quoted prices included within Level 1 that are observable for such items, either directly or indirectly. This level of hierarchy consists of over the counter (OTC) derivative contracts and open ended mutual funds.

Level 3:

Valuation techniques with significant unobservable inputs: This level of hierarchy includes items measured using inputs that are not based on observable market data (unobservable inputs). Fair value is 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 instruments nor based on available market data. The main item in this category are unquoted equity instruments and financial guarantees contracts.

The fair value of the financial instruments are determined at the amount that would be received to sell an asset in an orderly transaction between market participants. The following methods and assumptions were used to estimate the fair values:

(i) Investments in mutual funds and non-convertible debentures: Fair value is determined by reference to quotes from the financial institutions.

(ii) Derivative contracts: The Company has entered into various foreign currency contracts and interest rate swaps contracts to manage its exposure to fluctuations in foreign exchange rates and interest rate respectively. These financial exposures are managed in accordance with the Company''s risk management policies and procedures. Fair value of derivative financial instruments are determined using valuation techniques based on information derived from observable market data, i.e., mark to market values determined by the authorized dealers banks and forward exchange rates at the balance sheet date.

(iii) Unquoted equity investments: Fair value is determined based on the recoverable value as per agreement with the investee.

(iv) Financial guarantee contracts: Financial guarantee contracts are recognised initially as a liability at fair value determined based on comparative quotations from banks for provision of similar guarantees.

Sensitivity of the fair value measurement to changes in unobservable inputs for financial instruments in Level 3 level of hierarchy is insignificant.

38.3 Financial Risk Management

The Company is exposed to various financial risks arising from its underlying operations and finance EC activities. The Company is primarily exposed to market risk (i.e. interest rate and foreign currency risk) and H > to credit risk and liquidity risk. The Company''s Corporate Treasury function plays the role of monitoring IT financial risk arising from business operations and financing activities

Financial risk management within the Company is governed by policies and guidelines approved by the H m senior management and the Board of Directors. These policies and guidelines cover interest rate risk, IS foreign currency risk, credit risk and liquidity risk. Company policies and guidelines also cover areas such as cash management, investment of excess funds and the raising of short and long-term debt. Compliance with the policies and guidelines is managed by the Corporate Treasury function within the Company. Review of the financial risk is done on a monthly basis by the Managing Director and on a quarterly basis by the Board of Directors. The objective of financial risk management is to contain, where deemed appropriate, exposures on net basis to the various types of financial risks mentioned above in order to limit any negative impact on the Company''s results and financial position.

In accordance with its financial risk management policies, the Company manages its market risk exposures by using specific type of financial instruments duly approved by the Board of Directors as and when deemed appropriate. It is the Company''s policy and practice neither to enter into derivative transactions for speculative purpose, nor for any purpose unrelated to the underlying business. The Board of Directors / Managing Director reviews and approves policies for managing each of the above risks.

38.3.1 Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of interest rate risk and foreign currency risk. Financial instruments affected by market risk includes loans and borrowings, deposits, investments and derivative financial instruments. The Company enters into derivative contracts as approved by the Board to manage its exposure to interest rate risk and foreign currency risk.

A. Foreign Currency Risk Management

Foreign currency risk also known as Exchange Currency Risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. Foreign currency risk in the Company is attributable to Company''s operating activities and financing activities.

In the operating activities, the Company''s exchange rate risk primarily arises when revenue / costs are generated in a currency that is different from the reporting currency (transaction risk). The Company manages the Net exposure on a rolling 12 month basis and hedges the exposures based on a duly approved policy by the Board. The information is monitored by the Audit committee and the Board of Directors on a quarterly basis. This foreign currency risk exposure of the Company are mainly in U.S. Dollar (USD), Euro (EUR), Japanese Yen (JPY) and British Pound Sterling (GBP). The Company''s exposure to foreign currency changes for all other currencies is not material.

Foreign currency sensitivity analysis

The Company is mainly exposed to changes in USD, EUR, JPY and GBP exchange rates.

The following table details the Company''s sensitivity to a 1% increase and decrease in the '' against the relevant foreign currency. The sensitivity analysis includes only outstanding foreign currency denominated monetary items as tabulated above and adjusts their translation at the period end for 1% change in foreign currency rates. A positive number below indicates an increase in profit before tax or vice-versa.

^Includes sensitivity on long-term foreign currency monetary items on which Para D13 AA of Ind AS 101 has been applied. Accordingly, the exchange loss/ (gain) arising on long term foreign currency monetary items relating to acquisition of depreciable assets will be added to/ deleted from the cost of such assets/ capital work in progress and will be depreciated over the balance useful life of assets.

Foreign exchange derivative contracts

The Company uses derivative financial instruments exclusively for hedging financial risks that arise from its commercial business or financing activities. The Company''s Corporate Treasury team manages its foreign currency risk by hedging transactions that are expected to occur within of 1 to 15 months for hedges of forecasted sales, purchases and capital expenditures. When a derivative is entered into for the purpose of being a hedge, the Company negotiates the terms of those derivatives to match the terms of the hedged exposure. For hedges of forecast transactions the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in the foreign currency. All identified exposures are managed as per the policy duly approved by the Board of Directors.

The following table details the foreign currency derivative contracts outstanding at the end of the reporting period:

The following table details the Company''s sensitivity to a 1% increase and decrease in the '' against the relevant foreign currency. The sensitivity analysis includes only outstanding forward exchange contracts as tabulated above and adjusts their translation at the period end for 1% change in foreign currency rates. A positive number below indicates an increase in profit before tax or vice-versa.

B. Interest Rate Risk Management

Interest rate risk arises from movements in interest rates which could have effects on the Company''s net income or financial position. Changes in interest rates may cause variations in interest income and expenses resulting from interest-bearing assets and liabilities. The Company''s exposure to the risk of changes in market interest rates relates primarily to the Company''s long-term debt obligations with floating interest rates.

The Company manages its interest rate risk by having a portfolio of fixed and variable rate loans and borrowings. The Company enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts, calculated by reference to an agreed principal amount outstanding at the time of inception of the swap. Out of the total long term borrowings, the amount of fixed interest loan is '' 853 Crores and floating interest loan is Rs,1,215 Crores (Previous year: Fixed interest loan Rs,939 Crores and Floating interest loan '' 873 Crores).

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the Company''s profit before tax is affected through the impact on floating rate long term borrowings, as follows:

In case of increase in interest rate by above mentioned percentage, there would be a comparable impact on the profit before tax as mentioned above would be negative.

Interest Rate Swap Contracts

Under interest rate swap (IRS) contracts, the Company agrees to exchange the difference between fixed and floating rate interest amounts calculated on the agreed notional principal amounts. Such contracts enables the Company to mitigate the risk of changing interest rates.

The following table details the IRS contracts outstanding at the end of the reporting period:

Each of the above trades are in the nature of cash flow hedges and are effective hedges. The mark to market on these trades is therefore routed through Cash flow Hedge Reserve. The interest rate swap and the interest payments on the loan are paid simultaneously and are charged off to the statement of profit and loss.

38.3.2 Credit Risk Management

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables, loans and other financial assets) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

Credit risk from balances with banks and financial institutions is managed by the Company''s treasury department in accordance with the Company''s policy. Investments of surplus funds are made only with counterparties who meet the parameters specified in Investment Policy of the Company . The investment policy is reviewed by the Company''s Board of Directors on an annual basis and if required, the same may be updated during the year. The investment policy specifies the limits of investment in various categories of products so as the minimize the concentration of risks and therefore mitigate financial loss due to counterparty''s potential failure.

Expected credit loss on financial assets:

To manage credit risk for trade receivables, the Company establishes credit approvals and credit limits, periodically assesses the financial reliability of customers, taking into account the financial conditions, economic trends, analysis of historical bad debts and aging of such receivables.

With regards to all financial assets with contractual cash flows other than trade receivable, management believes these to be high quality assets with negligible credit risk. The management believes that the parties, from which these financial assets are recoverable, have strong capacity to meet the obligations and where the risk of default is negligible and accordingly no provision for excepted credit loss has been provided on these financial assets other than as detailed below.

Other than financial assets mentioned above, none of the Company''s financial assets are either impaired or past due, and there are no indications that defaults in payments obligation would occur.

38.3.3 Liquidity Risk Management

Liquidity risk is the risk of non-availability of financial facilities available to the Company to meet its financial obligations. The Company''s objective is to maintain a balance between continuity of funding and flexibility through the use of money market instruments, bank overdrafts, bank loans, debentures and other types of facilities. The liquidity management is governed by the Board approved liquidity management policy. Any deviation from the policy has to be approved by the Treasury Management comprising of Managing Director, Chief Financial Officer and Treasury Head. The Company assesses the concentration of risk with respect to refinancing its debt, guarantee given and funding of its capital expenditure needs of the future. The Company manages its liquidity by holding appropriate volumes of liquid assets which are available for its disposal on T 1 basis and by maintaining open credit lines with banks / financial institutions.

The table below analyze the Company''s financial liabilities into relevant maturity profiles based on their contractual maturities:

(c) The Company has elected to continue the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items as described in Para D13 AA of Ind AS 101. Accordingly, exchange loss/ (gain) arising on all long term monetary items financed or re-financed on or before March 31, 2016 relating to acquisition of following depreciable assets are added to/ adjusted from the cost of such assets/ capital work in progress and will be depreciated over the balance useful life of such assets.

The cumulative exchange loss/ (gain) added/ (adjusted) and remaining unamortised as at March 31, 2019 is Rs,132.49 Crores (Previous year: Rs,79.51 Crores).

(e) The Company has established a comprehensive system of maintenance of information and documents as required by transfer pricing legislation under section 92D for its international transactions as well as specified domestic transactions. Based on the transfer pricing regulations/ policy, the transfer pricing study for the year ended March 31, 2019 is to be conducted on or before due date of the filing of return and the company will further update above information and records based on the same and expects these to be in existence latest by that date. Management believes that all the above transactions are at arm''s length price and the aforesaid legislations will not have impact on the financial statement, particularly on the amount of tax expense and provision for taxation.

(f) The Company was required to spend Rs,10.38 Crores (Previous year: Rs,9.56 Crores) on corporate social responsibility activities under section 135 of the Companies Act, 2013 out of which Rs,10.38 Crores (Previous year: Rs,5.00 Crores) has been spent.

(g) On May 11, 2019, the Company has entered into business transfer agreement for sale of its Engineering Plastics Business for a consideration of Rs,320 Crores (subject to working capital adjustments), upon completion of closing conditions. The statutory and legal formalities are expected to be completed within 6 months from the date of signing. This business was reported under Others segment.

Source : Dion Global Solutions Limited
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