Notes to Investments
1 Investments made by the Company other than those with a maturity of less than one year, are intended to be held for long-term. On an assessment of the expected credit loss due to significant changes in risk profile, no material provisions are required to be made.
2 In absence of an active market and non availability of quotes on recognized stock exchange, investment in fixed maturity plans and fixed term plans though listed on recognized stock exchange are disclosed as unquoted. Other mutual funds, though unlisted, are quoted on recognized stock exchanges at their previous day NAVs which is the quote for the day.
3 Refer note 1C (6) for accounting policy and valuation principles for investments and note 31 for credit risk management related to investments.
Level 4: Level 1 hierarchy includes financial instruments measured using quoted prices in active markets. Quotes would include rates/values/valuation references published periodically by BSE, NSE etc. basis which trades take place in a linked or unlinked active market. This includes traded bonds and mutual funds, as the case may be, that have quoted price/rate/value.
Level 5: The fair value of financial instruments that are not traded in an active market are determined using valuation techniques which maximize the use of observable market data (either directly as prices or indirectly derived from prices) and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 6: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities, contingent consideration and indemnification asset included in level 3.
Valuation Techniques used to determine fair value Valuation Techniques used to determine fair value include
- Open ended mutual funds and certain bonds and debentures at NAV''''s/rates declared and/or quoted
- Close ended mutual funds at NAV''''s declared by AMFI
- For other bonds and debentures values with references to prevailing yields to maturity matching tenures, quoted on sites of credible organization such as FIMMDA (Fixed Income Money Market and Derivative Association of India)
- Derivative Instruments at values determined by counter parties/Banks using market observable data.
- Commercial papers and certificate of deposits, being short term maturity papers, amortized cost is assumed to be the fair value
The Board provides guiding principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of surplus liquidity. The Company''''s risk management is carried out by a treasury department as per the policies approved by the Board of Directors. Accordingly, Company''''s treasury identifies, evaluates and hedges financial risks.
A) Credit risk
Credit risk arises from cash and cash equivalents, derivative financial instruments, financial assets measured at amortized cost and fair value through profit or loss and trade receivables.
Credit Risk Management
For Derivative instruments exposures are extended with multiple banks holding high credit risk ratings.
For other financial assets the Company has an investment policy which allows the Company to invest only with counterparties having credit rating equal to or above AA and P1 . The company reviews the creditworthiness of these counterparties on an ongoing basis. Another source of credit risk at the reporting date is from trade receivables as these are typically unsecured. This credit risk has always been managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to whom credit is extended in the normal course of business. The Company estimates the expected credit loss on the basis of past data and experience. Expected credit losses of financial assets receivable in the next 12 months are estimated on the basis of historical data provided the Company has reasonable and supportable data. On such an assessment the expected losses are nil or negligible, as evidenced in the table below, and hence no further provision than that already made is considered necessary.
Review of outstanding trade receivables and financial assets is carried out by Management at every month end. Company has a practice to provide for doubtful debts on a case to case basis after considering inter-alia customer''''s credibility etc. Provision is made in the books generally, for all outstanding trade receivables which are outstanding for more than 180 days from their due date, if they are considered to be doubtful.
B) Liquidity Risk
The Company''''s principal sources of liquidity are ''''cash and cash equivalents'''' and cash flows that are generated from operations. The Company has no outstanding term borrowings. The Company believes that its working capital is sufficient to meet its current requirements. Additionally, the Company has sizeable surplus funds invested in fixed income securities or instruments of similar profile ensuring safety of capital and availability of liquidity if and when required. Hence the Company does not perceive any liquidity risk.
C) Market risk Foreign currency risk
The Company operates, in addition to domestic markets, significantly in international markets through its exports and is therefore exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the US$. Foreign exchange risk arises from highly probable forecast transactions and recognized assets and liabilities denominated in a currency that is not the Company''''s functional currency (INR). The risk is measured through sensitivity analysis. The primary objective for forex hedging against anticipated foreign currency risks will be to hedge the Company''''s highly probable foreign currency cash flows arising from such transactions (thus reducing cash flow and profit volatility).
In order to minimize any adverse effects on the financial performance of the Company, derivative financial instruments, such as foreign exchange forward contracts, foreign currency option contracts are entered to hedge certain foreign currency risk exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.
The Company''''s Risk Management Policy permits the use of plain foreign exchange forward contracts and foreign currency option contracts including Foreign Currency - INR Option Cost Reduction Structures to hedge forecasted sales.
The Company also imports certain materials the value of which is not material as compared to value of exports.
Currently, company does not hedge this exposure. Nevertheless, Company may wish to hedge such exposures.
The Company uses a combination of foreign exchange forward contracts and foreign currency option contracts to hedge its exposure in foreign currency risk. The Company designates forward contracts in entirety and intrinsic value of foreign currency option contracts as the hedging instrument. To the extent these hedges are effective; the change in fair value of the hedging instrument is recognized through other comprehensive income in the ''''Cash flow hedging reserve'''' within equity. The change in time value that relate to the hedged item (aligned time value) is recognized through other comprehensive income in ''''Costs of hedging reserve'''' within equity. Amount recognized in equity is reclassified to profit or loss when the hedged item (i.e. forecasted export sales) affects Statement of Profit and Loss. The ineffective portion of change in fair value of the hedging instrument and any residual time value (the non-aligned portion), if any, is recognized in the Statement of Profit and Loss immediately.
The intrinsic value of foreign exchange option contracts is determined with reference to the relevant spot market exchange rate. The differential between the contracted strike rate and the spot market exchange rate is defined as the intrinsic value. Time value of the option is the difference between fair value of the option and the intrinsic value.
The fair values (Marked-to-market) of foreign currency derivative contracts outstanding as on 31 March 2017, 31 March 2016 and 1 April 2015 are as follows:
7. Capital management a) Risk management
The Company is cash surplus and has no capital other than Equity. The Company is not exposed to any regulatory imposed capital requirements.
The cash surpluses are currently invested in income generating debt instruments (including through mutual funds) and money market instruments depending on economic conditions in line with the guidelines set out by the Management. Safety of capital is of prime importance to ensure availability of capital for operations. Investment objective is to provide safety and adequate return on the surplus funds.
The Company does not have any borrowings and does not borrow funds unless circumstances require.
8. Segment information
Segment information based on consolidated financial statements is given in note 36 to consolidated financial statements, which are attached to these financial statements.
The Company''''s Core Management Committee (CMC), examines the group''''s performance both from a product and geographical perspective and has identified two reportable operative business segments. The group''''s significant source of risk and rewards are derived from Automotive business and Investments, the performance of which is reviewed by the committee on a periodic basis and hence considered as individual operative segments.
The business segments comprise the following:
These sensitivities have been calculated to show the movement in defined benefit obligation in isolation and assuming there are no other changes in market conditions at the accounting date. There have been no changes from the previous periods in the methods and assumptions used in preparing the sensitivity analysis.
Funding arrangement and policy
The money contributed by the Company to the fund to finance the liabilities of the plan has to be invested.
The trustees of the plan have outsourced the investment management of the fund to insurance companies. The insurance companies in turn manage these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations.
There is no compulsion on the part of the Company to fully pre fund the liability of the plan. The Company''''s philosophy is to fund the benefits based on its own liquidity and tax position as well as level of underfunding of the plan.
The expected contribution payable to the plan next year is H 65 crore.
Projected plan cash flow
The table below shows the expected cash flow profile of the benefits to be paid to the current membership of the plan:
9. Considering the Company has been extended credit period up to 45 days by its vendors and payments being released on a timely basis, there is no liability towards interest on delayed payments under ''''The Micro, Small and Medium Enterprises Development Act 2006'''' during the year. There is also no amount of outstanding interest in this regard, brought forward from previous years. Information in this regard is on basis of intimation received, on requests made by the Company, with regards to registration of vendors under the said Act.
10. The Company had entered into an arrangement with a consortium of banks on 26 July 2008. Accordingly, first charge was created on all current assets of the Company to the extent of RS, 430 crore. Current assets include stocks of raw materials, semi-finished goods, stores and spares not relating to plant and machinery (consumable stores and spares), book debts not older than 90 days pertaining to Company''''s plants located anywhere in India.
During the year, Company has passed the resolution dated 27 July 2016 for dismantling of consortium. Accordingly, discharge letters for clearance are filed with all banks and clearance is awaited as on date.
11. The consolidated financial statements of the Company along with its subsidiaries are attached to these standalone financial statements. The details of the group regarding the nature of relationship and the basis of consolidation can be referred to in note 1 to the said consolidated financial statements.
a. RS, 1 crore is equal to RS, 10 million.
b. Amounts less than Rs, 50,000 have been shown at actual against respective line items statutorily required to be disclosed.