1. Background and operations
Tata Motors Limited referred to as (“the Company” or “Tata Motors”), designs, manufactures and sells a wide range of automotive vehicles. The Company also manufactures engines for industrial and marine applications.
The Company is a public limited Company incorporated and domiciled in India and has its registered office at Mumbai, India. As at March 31, 2017, Tata Sons Limited, together with its subsidiaries owns 31.69 % of the Ordinary shares and 0.09 % of’A’ Ordinary shares of the Company, and has the ability to significantly influence the Company’s operation.
The standalone financial statements were approved by the Board of Directors and authorized for issue on May 23, 2017.
2. Equity Share Capital
(a) The entitlements to 4,94,618 Ordinary shares of RS.2 each (as at March 31, 2016 : 6,39,444 Ordinary shares of RS.2 each and as at April 1, 2015 : 4,85,165 Ordinary shares of RS.2 each) and 2,33,819 ‘A’ Ordinary shares of RS.2 each (as at March 31, 2016: 2,59,406 ‘A’ Ordinary shares of RS.2 each and as at April 1, 2015: 2,38,875 ‘A’ Ordinary shares of RS.2 each; are subject matter of various suits filed in the courts/forums by third parties for which final order is awaited and hence kept in abeyance.
(b) During the year ended, the Company has allotted 68,180 Ordinary Shares each of RS.2 each, previously unissued on account of unpaid calls.
* amounts less than RS.50,000/-
(c) Rights, preferences and restrictions attached to shares :
(i) Ordinary shares and ‘A’ Ordinary shares, both of RS.2 each :
- The Company has two classes of shares - the Ordinary shares and the ‘A’ Ordinary shares both of RS.2 each (together referred to as shares). In respect of every Ordinary share (whether fully or partly paid), voting rights shall be in the same proportion as the capital paid up on such Ordinary share bears to the total paid up Ordinary share capital of the Company. In case of every ‘A’ Ordinary share, if any resolution is put to vote on a poll or by postal ballot at any general meeting of shareholders, the holder shall be entitled to one vote for every ten ‘A’ Ordinary shares held as per the terms of its issue and if a resolution is put to vote on a show of hands, the holder of ‘A’ Ordinary shares shall be entitled to the same number of votes as available to holders of Ordinary shares.
- The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. Further, the Board of Directors may also declare an interim dividend. The holders of ‘A’ Ordinary shares shall be entitled to receive dividend for each financial year at five percentage point more than the aggregate rate of dividend declared on Ordinary shares for that financial year.
- In the event of liquidation, the shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholdings.
(ii) American Depository Shares (ADSs) and Global Depository Shares (GDSs) :
- Each ADS and GDS underlying the ADR and GDR respectively represents five Ordinary shares of RS.2 each. A holder of ADS and GDS is not entitled to attend or vote at shareholders meetings. An ADS holder is entitled to issue voting instructions to the depository with respect to the Ordinary shares represented by ADSs only ir accordance with the provisions of the Company’s ADSs deposit agreement and Indian Law. The depository for the ADSs and GDSs shall exercise voting rights in respect of the deposited shares by issue of an appropriate proxy or power of attorney in terms of the respective deposit agreements.
- Shares issued upon conversion of ADSs and GDSs will rank pari passu with the existing Ordinary shares of RS.2 each in all respects including entitlement of the dividend declared.
(d) Information regarding issue of shares in the last five years
(a) The Company has not issued any shares without payment being received in cash.
(b) The Company has not issued any bonus shares.
(c) The Company has not undertaken any buy-back of shares.
(e) During the year ended March 31, 2016, the Company alloted 15,04,90,480 Ordinary Shares (including 3,20,49,820 shares underlying the ADRs) of RS.2 each at a premium of RS.448 per share, aggregating RS.6,772.07 crores and 2,65,09,759 ‘A’ Ordinary Shares of RS.2 each at a premium of RS.269 per share, aggregating RS.718.42 crores pursuant to the Rights issue. 1,54,279 Ordinary Shares and 20,531 ‘A’ Ordinary Shares were kept in abeyance.
(A) Notes to reserves
(a) Capital redemption reserve
The Companies Act, 2013 (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. Tata Motors Limited established this reserve pursuant to the redemption of preference shares issued in earlier years.
(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 may not be utilized by the company except to redeem debentures.
The final dividend is recommended by the Board of Directors and is recorded in the books of account upon its approval by the shareholders. For the year ended March 31, 2016, dividend per share of R0.20 per Ordinary share of RS.2 each and R0.30 per ‘A’ Ordinary share of RS.2 each was declared.
For the year ended March 31, 2017, considering the losses in the Tata Motors Limited (Standalone), no dividend is permitted to be paid to the Members, as per the Companies Act, 2013 and the Rules framed thereunder.
I. Information regarding long-term borrowings
(i) Nature of security (on loans including interest accrued thereon) :
(a) Rated, Listed, Secured, 9.95% Coupon, Non-Convertible Debentures amounting to RS.200 crores and 10.25% Coupon, Non-Convertible Debentures amounting to RS.500 crores are secured by a pari passu charge by way of an English mortgage of the Company’s freehold land together with immovable properties, plant and machinery and other movable assets (excluding stock and book debts) situated at Sanand in the State of Gujarat.
(b) Buyers line of credit from banks are secured by hypothecation of existing current assets of the Company viz. stock of raw materials, stock in process, semi-finished goods, stores and spares not relating to plant and machinery (consumable stores and spares), bills receivable and book debts including receivable from hire purchase / leasing and all other movable current assets except cash and bank balances, loans and advances of the Company both present and future. Classified under other current liabilities being maturity before March 31, 2018.
Buyers credit facility taken by joint operation Tata Cummins Private Ltd are obtained in multiple tranches and are repayable at the end of three years from the individual drawdown dates commencing from 2016-2017. Interest @ LIBOR Spread is payable. The loan is secured by pari passu charge on plant and machinery and other movable assets of its Phaltan plant.
(c) The term loan of RS.581.00 crores (recorded in books at RS.120.82 crores) is due for repayment from the quarter ending March 31, 2033 to quarter ending March 31, 2037, along with simple interest at the rate of 0.10% p.a. The loan is secured by a second and subservient charge (creation of charge is under process) over Company’s freehold land together with immovable properties, plant and machinery and other movable assets (excluding stock and book debts) situated at Sanand plant in the State of Gujarat.
The term loan of RS.31.69 crores (recorded in books at RS.9.34 crores) is due for repayment from the quarter ending June 30, 2030 to March 31, 2032, along with a simple interest of 0.10% p.a. The loan is secured by bank guarantee for the due performance of the conditions as per the terms of the agreement.
(d) Term loan is taken by joint operation Fiat India Automobiles Private Ltd which is due for repayment from December.2017 to May 2023. The loan is secured by first charge over fixed assets procured from its loan/jeep project.
Term loan taken by joint operation Tata Cummins Private Ltd is repayable in four equal quarterly instalments starting from December.2016. Interest rate is basec on prevailing Base rate fixed spread. The loan is secured by exclusive charge on factory land and building of its Phaltan plant and hypothecation charge on other movable assets on pari passu basis.
II. Information regarding short-term borrowings
Loans, cash credits, overdrafts and buyers line of credit from banks are secured by hypothecation of existing current assets of the Company viz. stock of raw materials, stock in process, semi-finished goods, stores and spares not relating to plant and machinery (consumable stores and spares), bills receivable and book debts including receivable from hire purchase / leasing and all other moveable current assets except cash and bank balances, loans and advances of the Company both present and future.
Inventory, trade receivables, other financial assets, property, plant and equipment with a carrying amount of RS.4,460.45 crores, RS.5,921.33 crores and RS.7,328.17 crores are pledged as collateral/ security against the borrowings as at March 31, 2017, 2016 and April 1, 2015, respectively.
3. Exceptional item VI (e) of RS.147.93 crores for the year ended March 31, 2017, relates to provision for inventory of BSIII vehicles as at March 31, 2017. This does not include higher level of customer discounts and variable marketing expenses in March 2017, to support higher level of retail sales, which have been netted off against ‘Income from operations’.
4. Commitments and 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.
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.
The Company has ongoing disputes with Income Tax Authorities relating to tax treatment of certain items. These mainly include disallowed expenses, the 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 disallowances, being repetitive in nature, have been raised by the income tax authorities consistently in most of the years.
The Company has a right of appeal to the Commissioner of Income Tax (Appeals), or CIT (A), the Dispute Resolution Panel, or DRP, and to the Income Tax Appellate Tribunal, or ITAT, against adverse decisions by the assessing officer, DRP or CIT (A), as applicable. The income tax authorities have similar rights of appeal to the ITAT against adverse decisions by the CIT (A) or DRP. The Company has a further right of appeal to the High Court of Bombay or Supreme Court against adverse decisions by the appellate authorities for matters involving substantial question of law. The income tax authorities have similar rights of appeal.
As at March 31, 2017, there are matters and/or disputes pending in appeal amounting to RS.145.43 crores (RS.108.15 crores as at March 31, 2016 and RS.100.56 crores as at April 1, 2015).
Customs, Excise Duty and Service Tax
As at March 31, 2017, there are pending litigation for various matters relating to customs, excise duty and service taxes involving demands, including interest and penalties, of RS.1,324.19 crores (RS.1,284.60 crores as at March 31, 2016 and RS.1,334.21 crores as at April 1, 2015). These demands challenged the basis of valuation of the Company’s products and denied the Company’s claims of Central Value Added Tax, or CENVAT, credit on inputs. The details of the demands for more than RS.20 crores are as follows:
As at March 31, 2017, the Excise Authorities had denied a CENVAT credit of RS.29.43 crores and imposed a penalty of Rs.Nil for the period between April 2011 to September2012 (RS.52.41 crores and a RS.23.00 crores CENVAT credit and penalty, respectively, as at March 31, 2016 and RS.52.41 crores and a RS.23.00 crores CENVAT credit and penalty, respectively, as at April 1, 2015) in respect of consulting engineering services alleged to have been used exclusively for producing prototypes at the Engineering Research Centre, in Pune. The contention of the Excise Authorities is that since the Company claims exemptions from CENVAT under Notification No.167/71-CE, dated September11, 1971, the Company is not entitled to avail service tax credits on consulting engineering services used in the Engineering Research Centre. The matter is being contested by the Company before the appellate authorities. The Company believes it has a merit in its case, since the consulting engineering services are not exclusively used in the manufacture of prototypes and they form part of the assessable value of final products manufactured by the Company on which CENVAT is paid.
The Excise Authorities have raised a demand for RS.90.72 crores as at March 31, 2017 (RS.90.72 crores as at March 31, 2016 and RS.90.72 crores as at April 1, 2015), on account of alleged undervaluation’s of ex-factory discounts given by Company on passenger vehicles through invoices. The matter is being contested by the Company before the High Court of Bombay.
As at March 31, 2017, the Excise Authorities have raised a demand and penalty of RS.218.23 crores, (RS.198.56 crores as at March 31, 2016 and RS.187.60 crores as at April 1, 2015), due to the classification of certain chassis (as dumpers instead of goods transport vehicles) which were sent to automotive body builders by the Company, which the Excise Authorities claim requires the payment of the National Calamity Contingent Duty, or NCCD. The Company has obtained a technical expert certificate on the classification. The appeal is pending before the Custom Excise & Service Tax Appellate Tribunal.
The Excise Authorities had denied the Company’s claim of a CENVAT credit of RS.24.96 crores (RS.22.74 crores as at March 31, 2016 and RS.83.67 crores as at April 1, 2015) claimed by the Company from Fiscal 1992 to Fiscal 2013, on technical grounds. The matter is being contested by the Company before the appellate authorities.
As at March 31, 2017, the Excise Authorities had levied penalties and interest amounting to RS.679.88 crores (RS.679.88 crores as at March 31, 2016 and RS.679.88 crores as at April 1, 2015) with respect to CENVAT credit claimed by the Company from March 2010 to November2012, on inputs, stating that vehicles manufactured at Uttarakhand plant are “Exempted Products” and the Company may not claim a CENVAT credit on these vehicles. The Company has challenged this demand as NCCD and the automobile cess is assessed on those vehicles, which are “duties of excise”. Therefore, the Company asserts that these vehicles are not “Exempted Products”. The matter is being contested by the Company before the appellate authorities.
As at March 31, 2017, the Excise Authorities have raised a demand amounting to RS.29.54 crores (RS.29.54 crores as at March 31, 2016 and RS.29.54 crores as at April 1, 2015) on pre-delivery inspection charges and free after-sales service charges incurred by dealers on certain of the Company’s products on the alleged grounds that the pre-delivery inspection charges and free after-sales services are provided by the dealer on behalf of the Company and should be included in excisable value of the vehicle. The case is pending before Tribunal.
As at March 31, 2017, the Excise Authorities have raised a demand amounting to Rs.Nil (RS.21.89 crores as at March 31, 2016 and RS.21.89 crores as at April 1, 2015) with respect to customs duties on dies and fixtures imported under the EPCG Scheme and, in the case of the fixtures, are installed at premises of a vendor. The Tribunal has rejected the stay application filed by the department. The department has further filed an appeal with CESTAT.
As at March 31, 2017, the Excise Authorities have raised demand amounting to RS.34.68 crores (RS.14.73 crores as at March 31, 2016 and RS.12.70 crores as at April 1, 2015) with respect to denial of CENVAT credit on service tax availed on freight outward and courier services. The Company asserts that since freight forms part of the services on which the taxes have been paid, CENVAT credit can be availed. The Company is contesting the show cause notice.
The total sales tax demands (including interest and penalty), that are being contested by the Company amount to RS.949.69 crores (RS.1134.14 crores as at March 31, 2016 and RS.907.84 crores as at April 1, 2015). The details of the demands for more than RS.20 crores are as follows:
The Sales Tax Authorities have raised demand of RS.208.59 crores (RS.403.38 crores as at March 31, 2016 and RS.120.12 crores as at April 1, 2015) towards rejection of certain statutory forms for concessional lower/nil tax rate (Form F and Form C) on technical grounds such as late submission, single form issued against different months / quarters dispatches / sales, etc. and denial of exemption from tax in absence of proof of export for certain years. The Company has contended that the benefit cannot be denied on technicalities, which are being complied with. The matter is pending at various levels.
In some of the states in India, the Sales Tax Authorities have raised disputes totaling up to RS.40.80 crores as at March 31, 2017 (RS.41.10 crores as at March 31, 2016 and RS.41.10 crores as at April 1, 2015), treating the stock transfers of vehicles from the Company’s manufacturing plants to regional sales offices and the transfers between two regional sales offices as sales liable for levy of sales tax. The Company is contesting this issue.
The Sales Tax authorities have denied input tax credit and levied interest and penalty thereon due to varied reasons aggregating to RS.305.46 crores as at March 31, 2017 (RS.330.17 crores as at March 31, 2016 and RS.366.45 crores as at April 1, 2015). The reasons for disallowing credit was mainly due to Taxes not paid by Vendors, incorrect method of calculation of set off as per the department, alleging suppression of sales as per the department etc. The matter is contested in appeal.
Sales tax demand aggregating RS.258.35 crores as at March 31, 2017 (RS.252.66 crores as at March 31, 2016 and RS.258.40 crores as at April 1, 2015) has been raised by Sales Tax Authorities disallowing the concessional rate of 2% on certain purchases of raw materials in case the final product is stock transferred for sale outside the state. The matter is pending with various authorities.
Other Taxes and Dues
Other amounts for which the Company may contingently be liable aggregate to RS.221.14 crores (RS.229.42 crores as at March 31, 2016 and RS.258.09 crores as at April 1, 2015). Following are the cases involving more than RS.20 crores:
The municipal authorities in certain states levy octroi duty (a local indirect tax) on goods brought inside the municipal limits at rates based on the classification of goods. Demands aggregating RS.61.65 crores as at March 31, 2017 (RS.61.65 crores as at March 31, 2016 and RS.61.65 crores as at April 1, 2015) had been raised demanding higher octroi duties on account of classification disputes relating to components purchased for the manufacture of vehicles and retrospective increase in octroi rates relating to past periods. The dispute relating to classification is presently pending before the Supreme Court and the other dispute is pending before the Bombay High Court on remand by the Supreme Court.
As at March 31, 2017, property tax amounting to RS.53.70 crores (RS.50.56 crores as at March 31, 2016 and RS.49.10 crores as at April 1, 2015) has been demanded by the local municipal authorities in respect of vacant land of the Company in the plant in Pimpri, Pune. The Company has filed Special Leave Petition (SLP) before the Supreme Court against an unfavourable decision of the Bombay High Court. The Supreme Court has disposed of the SLP and remanded the matter back to the local municipal corporation for fresh adjudication.
As at March 31, 2017, a penalty of RS.20.31 crores (RS.20.31 crores as at March 31, 2016 and RS.56.21 crores as at April 1, 2015) is likely to be imposed relating to a matter of regularization of construction of certain buildings in respect of which approvals from appropriate authorities are awaited. However, as the buildings were constructed as per the applicable development rules, the Company believes it will be possible to get the waiver of the same.
As at March 31, 2017, Sales tax / VAT amounting to RS.29.95 crores (RS.24.10 crores as at March 31, 2016 and RS.15.10 crores as at April 1, 2015) has been demanded by local authorities on dealers in respect of spare parts used for carrying out warranty repairs. The dispute is pending before the Supreme Court.
The Company has entered into various contracts with vendors and contractors for the acquisition of plant and machinery, equipment and various civil contracts of a capital nature amounting to RS.1,493.73 crores at March 31, 2017 (RS.1,953.50 crores as at March 31, 2016 and RS.1,074.51 crores as at April 1, 2015), which are yet to be executed.
The Company has entered into various contracts with vendors and contractors for the acquisition of intangible assets of a capital nature amounting to RS.420.06 crores as at March 31, 2017 (RS.398.25 crores as at March 31, 2016 and RS.382.02 crores as at April 1, 2015), which are yet to be executed.
The Company has contractual obligation towards Purchase Commitment for Rs.Nil (RS.1,603.90 crores as at March 31, 2016 and RS.3,206.79 crores as at April 1, 2015).
5. 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 operating plans and long-term product and other strategic investment plans. The funding requirements are met through equity, non-convertible debentures, senior notes and other long-term/short-term borrowings. The Company’s policy is aimed at combination of short-term and long term borrowings.
The Company monitors the capital structure on the basis of total debt to equity ratio and maturity profile of the overall debt portfolio of the Company.
Total borrowings includes all long and short-term borrowings as disclosed in notes 23,24 and 26 (a) to the financial statements. Equity comprises all components excluding (profit)/loss on cash flow hedges.
6. 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 recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
(a) Financial assets and liabilities
The following table presents the carrying amounts and fair value of each category of financial assets and liabilities as at March 31, 2017.
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 quoted equity shares, quoted corporate debt instruments 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 include 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 or 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.
There has been no transfers between level 1, level 2 and level 3 for the years ended March 31, 2017 and 2016.
Costs of certain 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. These investments in equity instruments are not held for trading. Instead, they are held for medium or long term strategic purpose. Upon the application of Ind AS 109, the group has chosen to designate these investments in equity instruments as at FVTOCI as the directors believes this provides a more meaningful presentation for medium or long term strategic investments, than reflecting changes in fair value immediately in profit or loss.
Derivatives are fair valued using market observable rates and published prices together with forecast cash flow information where applicable.
The short-term financial assets and liabilities are stated at amortized cost which is approximately equal to their fair value.
The fair value of borrowings which have a quoted market price in an active market is based on its market price and for other borrowings the fair value is estimatec by discounting expected future cash flows, using a discount rate equivalent to the risk-free rate of return, adjusted for the credit spread considered by the lenders for instruments of similar maturity.
Management uses its best judgment 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 all the amounts that the Company could have realized or paid in sale transactions as of respective dates. As such, the fair value of the financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each year end.
Certain financial assets and financial liabilities are subject to offsetting where there is currently a legally enforceable right to set off recognized amounts and the Company intends to either settle on a net basis, or to realise the asset and settle the liability, simultaneously.
Certain derivative financial assets and financial liabilities are subject to master netting arrangements, whereby in the case of insolvency, derivative financial assets and financial liabilities will be settled on a net basis.
The following table discloses the amounts that have been offset, in arriving at the balance sheet presentation and the amounts that are available for offset only under certain conditions as at March 31, 2017:
(b) 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:
- Create a stable business planning environment by reducing the impact of currency and interest rate fluctuations on the Company’s business plan.
- Achieve greater predictability to earnings by determining the financial value of the expected earnings in advance.
(c) Market risk
Market risk is the risk of any loss in future earnings, in realizable 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 the 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) Foreign currency exchange rate risk:
The fluctuation in foreign currency exchange rates may have 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. Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates. The risks primarily relate to fluctuations in U.S. dollar, Euro, GBP and Thai Baht against the functional currencies 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 exports and cost of borrowings and consequently may increase the cost of financing the Company’s capital expenditures.
The Company evaluates the impact of foreign exchange rate fluctuations by assessing its exposure to exchange rate risks. It hedges a part of these risks by using derivative financial instruments in accordance with its risk management policies.
The foreign exchange rate sensitivity is calculated for each currency by aggregation of the net foreign exchange rate exposure of a currency and a simultaneous parallel foreign exchange rates shift in the foreign exchange rates of each currency by 10%.
(b) 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. The Company also uses a mix of interest rate sensitive financial instruments to manage the liquidity and fund requirements for its day to day operations like short-term loans.
As at March 31, 2017 and 2016, financial liability of RS.3,418.97 crores and RS.4,848.39 crores, respectively, was subject to variable interest rates. Increase/decrease of 100 basis points in interest rates at the balance sheet date would result in decrease/increase in profit/(loss) before tax of RS.34.19 crores and RS.48.48 crores for the year ended March 31, 2017 and 2016, respectively.
The model assumes that interest rate changes are instantaneous parallel shifts in the yield curve. Although some assets and liabilities may have similar maturities or periods to re-pricing, these may not react correspondingly to changes in market interest rates. Also, the interest rates on some types of assets and liabilities may fluctuate with changes in market interest rates, while interest rates on other types of assets may change with a lag.
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.
This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
(Note: The impact is indicated on the profit/(loss) before tax basis).
(c) Equity Price risk
Equity Price Risk is related to the change in market reference price of the investments in equity securities.
The fair value of some of the Company’s investments measured at fair value through other comprehensive income exposes the Company to equity price risks. These investments are subject to changes in the market price of securities. The fair value of Company’s investment in quoted equity securities as at March 31, 2017, 2016 and April 1, 2015 was RS.218.18 crores, RS.143.34 crores and RS.143.53 crores, respectively. A 10% change in equity price as at March 31, 2017, 2016 and April 1, 2015 would result in an impact of RS.21.82 crores, RS.14.43 crores and RS.14.35 crores, respectively (Note: The impact is indicated on equity before consequential tax impact, if any).
(ii) Credit risk
Credit risk is the risk of financial loss arising from counterparty 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.
Financial instruments that are subject to concentrations of credit risk, principally consist of investments classified as fair value through profit or loss, trade receivables, loans and advances and derivative financial instruments. None of the financial instruments of the Company result in material concentrations of exposure to credit risks.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk was Rs.5,732.64 crores as at March 31, 2017, RS.5,717.59 crores as at March 31,2016, being the total of the carrying amount of balances with banks, short term deposits with banks, trade receivables, finance receivables, margin money and other financial assets excluding equity investments.
Financial assets that are neither past due nor impaired
None of the Company’s cash equivalents, including time deposits with banks, are past due or impaired. Regarding trade receivables and other receivables, and other loans or receivables that are neither impaired nor past due, there were no indications as at March 31,2017, that defaults in payment obligations will occur.
In addition, exposure to credit risk is also in relation to financial guarantee contracts for which the Company has created a liability for potentional exposures.
(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. Further, the Company has access to funds from debt markets through commercial paper programs, non-convertible debentures, senior notes and other debt instruments. The Company invests its surplus funds in bank fixed deposit and liquid and liquid plus schemes of mutual funds, which carry no/low mark to market risks. The Company has also invested 15% of the non-convertible debentures (taken/issued by the Company) falling due for repayment in the next 12 months in bank deposits, to meet the regulatory norms of liquidity requirements.
The Company also constantly monitors funding options available in the debt and capital markets with a view to maintaining financial flexibility.
The table below provides details regarding the contractual maturities of financial liabilities, including estimated interest payments as at March 31,2017:
(iv) Derivative financial instruments and risk management
The Company has entered into variety of foreign currency, interest rates and commodity forward contracts and options to manage its exposure to fluctuations in foreign exchange rates, interest rates and commodity price risk. These financial exposures are managed in accordance with the Company’s risk management policies and procedures. The Company also enters into interest rate swaps and interest rate currency swap agreements, mainly to manage exposure on its fixed rate or variable rate debt. The Company uses interest rate derivatives or currency swaps to hedge exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies.
Specific transactional risks include risks like liquidity and pricing risks, interest rate and exchange rate fluctuation risks, volatility risks, counterparty risks, settlement risks and gearing risks.
Fair value of derivative financial instruments are determined using valuation techniques based on information derived from observable market data.
The gain/(loss) on due to fluctuation in foreign currency exchange rates on derivative contract, recognized in the statement of profit and loss was RS.85.41 crores and RS.26.51 crores for the years ended March 31, 2017 and 2016, respectively.
The gain/(loss) on commodity derivative contracts, recognized in the statement of profit and loss was RS.9.06 crores and (RS.8.58 crores) for the years ended March 31, 2017 and 2016, respectively.
7. Related-party transactions
The Company’s related parties principally consist of subsidiaries, joint operations, associates and their subsidiaries, Tata Sons Limited., subsidiaries and joint ventures of Tata Sons Limited. The Company routinely enters into transactions with these related parties in the ordinary course of business. The Company enters into transactions for sale and purchase of products and services with its related parties.
The following table summarizes related-party transactions and balances for the year ended/as at March 31, 2017:
8. Employee benefits
Defined Benefit Plan
Pension and post retirement medical plans
The following table sets out the funded and unfunded status and the amounts recognized in the financial statements for the pension and the post retirement medical plans in respect of Tata Motors and joint operations:
9. Additional information
The financial statements include the Company’s proportionate share of assets, liabilities, income and expenditure in its two Joint Operations, namely Tata Cummins Private Limited and Fiat India Automobiles Private Limited. Below are supplementary details of Tata Motors Limited on standalone basis excluding interest in the aforesaid two Joint Operations:
10. Other Notes:
i) Micro, Small and Medium Enterprises Development Act, 2006
The information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company. The amount of principal and interest outstanding during the year is given below :
ii) Disclosure on Specified Bank Notes (SBNs)
As required by MCA notification G.S.R. 308 (E) dated March 30, 2017, details in respect of Specified Bank Notes (SBNs) held and transacted during the period from November8, 2016 to December.30, 2016 are given below:
iii) Expenditure incurred on Research and Development by Tata Motors Ltd on standalone basis excluding interest in the joint operations
iv) The Company has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under any law/ accounting standards for material foreseeable losses on such lone term contracts (including derivative contracts) has been made in the books of account.
v) Current year figures are shown in bold prints.