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Company Information

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ITC LTD.

28 September 2021 | 02:49

Industry >> Cigarettes & Tobacco Products

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ISIN No INE154A01025 52Week High 246 Book Value (Rs.) 47.60 Face Value 1.00
Bookclosure 11/06/2021 52Week Low 163 EPS 10.68 P/E 22.27
Market Cap. 293162.16 Cr. P/BV 5.00 Div Yield (%) 4.52 Market Lot 1.00
Security Type Other

DIRECTOR'S REPORT

You can view full text of the latest Director's Report for the company.
Year End :2021-03 

2 Effective 1st April, 2019, the company has adopted Ind AS 116 “Leases' and applied the standard to all lease contracts existing on the date of initial application i.e. 1st April, 2019. The company has used the modified retrospective approach for transitioning to Ind AS 116 with right-of-use asset recognized at an amount equal to the lease liability adjusted for any prepayments/accruals recognized in the balance sheet immediately before the date of initial application.

At the commencement date of a lease,the Company has recognised a liability to make lease payments (i.e., the lease liability) and an asset representing the right-of-use the underlying asset during the lease term (i.e., the right-of-use asset). The Company has separately recognised the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

The company shall remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The company will generally recognise the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset.

The operating leases recorded on the balance sheet following implementation of Ind AS 116 are principally in respect of leasehold land and other identified assets representing right-of-use as per contracts excluding low value assets and short term leases of 12 months or less.

Leases previously accounted for as operating leases

The company recognised right of use assets and lease liabilities for those leases previously classified as operating leases, using term of non-cancellable and management intention to extend except for short-term leases and leases of low-value assets.

The right-of-use assets for most leases were recognised based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. In some leases, the right of use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.

The company has also applied the available practical expedients wherein it:

• Used a single discount rate to a portfolio of leases with reasonably similar characteristics

• Relied on its assessment of whether leases are onerous immediately before the date of initial application

• Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application

• Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application

• Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease

• Used practical expedients which permits lesses not to account for COVID-19 realted rent concessions as a lease modifications.

The company has no restrictions on the readability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.

Estimation of fair value

The fair valuation is based on current prices in the active market for similar properties. The main inputs used are quantum, area, location, demand, restrictive entry to the complex, age of building and trend of fair market rent.

This valuation is based on valuations performed by an accredited independent valuer. Fair valuation is based on replacement cost method. The fair value measurement is categorized in level 2 fair value hierarchy.

The Company through Qualified Institutional Placement (QIP) allotted 20,000,000 equity shares to the eligible Qualified Institutional Buyers (QIB) at a issue price of ' 2,049 per equity share (including a premium of ' 2,039 per equity share) aggregating to ' 4,098 crore on 11th February, 2020. The issue was made in accordance with the SEBl (Issue of Capital and Disclosure Requirements) Regulations, 2018 as amended (the “SEBI ICDR Regulations”), and Sections 42 and 62 of the Companies Act, 2013, as amended, including the rules made thereunder (the “Issue”). Funds received pursuant to QIP are being utilised towards the object stated in the placement document and the balance unutilised as on 31st March,2021 remain invested in deposits with scheduled commercial banks.

Expenses incurred by the company aggregating to ' 21.49 Crores, in connection with QIP have been adjusted towards securities premium in March 2020.

b) Terms and rights attached to equity shares

The company has only one class of equity shares having par value of ' 10 per share. Each holder of equity shares is entitled to one vote per share. The company if declares dividend would pay dividend in Indian rupees. The dividend if proposed by the Board of Directors would be subject to the approval of the shareholders in the ensuing Annual General Meeting.

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.

c) Shares reserved for issue under option

I nformation relating to Avenue Supermarts limited Employee Stock Option Scheme, 2016, including details of option granted, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 44.

42 (a) Capital risk management

For the purpose of the company's capital management, capital includes issued equity capital, securities premium and all other equity reserves attributable to the equity shareholders. The primary objective is to maximize the shareholders value.

The company manages its capital structure and makes adjustments in light of changes in economic condition and the requirements of the financial covenants. The company has raised capital by issue of equity shares through an Initial Public Offer (IPO) in the year ended 31st March, 2017 and Qualified Institutional Placement (QIP) in the year ended 31st March, 2020. Certain proceeds from the IPO and QIP have been used for repayment of borrowings which have significantly reduced the company's borrowings and is NIL in the current year.

The capital structure is governed by policies approved by the Board of Directors and is monitored by various matrices funding requirements are reviewed periodically.

(b) Dividends

The company has not paid any dividend since its incorporation.

43 Fair values and fair value hierarchy

The carrying amounts of trade receivables, cash and cash equivalents, bank balance other than cash and cash equivalents, other financial assets, trade payables, capital creditors are considered to be same as their fair values, due to their short term nature.

The carrying value of borrowings, lease liabilities, deposits given and taken and other financial assets and liabilities are considered to be reasonably same as their fair values. These are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counter party credit risk.

44 Share-based payments Employee stock option plan

During the year ended 31st March, 2017, the company had instituted an Avenue Supermarts Limited Employee Stock Option Scheme, 2016 (“the Scheme”) as approved by the Board of Directors dated 23rd July, 2016 for issuance of stock option to eligible employee of the company and of its subsidiaries.

45 Post retirement benefit plan

As per Indian Accounting Standard 19 “Employee benefits”, the disclosures as defined are given below :

Defined Benefit Plan

The company operates a gratuity plan wherein every employees entitled to the benefit equivalent to fifteen days salary last drawn for each year of service. The same is payable on termination of sevice or retirement whichever is earlier. The benefit vest after five years of continuous service. The gratuity paid is governed by The Payment of Gratuity Act,1972. The company contributes to the fund based on actuarial report details of which is available in the table of investment pattern of plan asset, based on which the company is not exposed to market risk. The following table summarises the component of net benefit expenses recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for respective period.

The estimates of rate of escalation in salary considered in actuarial valuation, take into account inflation, seniority, promotion and other relevant factors including supply and demand in the employment market. The above information is certified by the actuary.

The expected rate of return on plan assets is determined considering several applicable factors, mainly the composition of plan assets held, assessed risks, historical results of return on plan assets and the Company's policy for plan assets management.

There has been no change from the previous year in the method and assumptions used in perparing the sensitivity analysis.

These plans typically exposed the company to actuarial risks such as Interest risk, salary risk, investment risk, asset liability matching risk and mortality risk.

Gratuity is a defined benefit plan and company is exposed to the following risks:

Interest rate risk: A fall in the discount rate which is linked to the G.Sec. rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.

Salary risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan's liability.

Investment risk: The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.

Asset liability matching risk: The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.

Mortality risk: Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.

Concentration risk: Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very less as insurance companies have to follow regulatory guidelines.

46 Financial risk management

Financial risk management objectives and policies

The company's financial principal liabilities comprises borrowings, lease liabilities, trade payables and other payables. The main purpose of these financial liabilities to finance the company operation. The company's main financial assets includes trade and other receivable, cash and cash equivalent, other bank balances derived from its operations.

I n addition to risks inherent to our operations, we are exposed to certain market risks including change in interest rates and fluctuation in currency exchange rates.

A) Market Rate Risk

i) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flow of a financial instrument will fluctuate because of changes in market interest rate.

The company's exposure to the risk of changes in market interest rates relates to primarily to company's borrowing with floating interest rates. The company's fixed rates of borrowing are carried at amortized cost. They are not subject to interest rate risk as defined in Ind AS 107, since neither carrying amount not the future cash flows will fluctuate because of a change in market interest rate. The company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.

B) Credit risk

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 receivable) and from its financial activities including deposits with banks and financial institution.

Credit risk from balances with banks is managed by the Company's treasury department in accordance with Company's policy. Since company operates on business model of primarily cash and carry, credit risk from receivable perspective is insignificant.

C) Liquidity risk

Liquidity risk is defined as the risk that the company will not be able to settle or meet its obligations on time, or at a reasonable price. Processes and policies related to such risk are overseen by senior management. Management monitors the company's net liquidity position through rolling forecasts on the basis of expected cash flows.

Ind AS 115 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires extensive disclosures.

The Company adopted Ind AS 115 using the modified retrospective method of adoption with the date of initial application of 1 April 2018. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed at this date. The Company elected to apply the standard to all contracts as at 1 April 2018.

The application of Ind AS 115 did not have any significant impact on recognition and measurement of revenue and related items in the financial results.

48 Events after the reporting period

The company has evaluated subsequent events from the balance sheet date through 8th May, 2021, the date at which the financial statements were available to be issued, and determined that there are no material items to disclose other than those disclosed above.

49 The Code on Social Security 2020 has been notified in the Official Gazette on 29th Sep 2020, which could impact the contributions by the company towards certain employment benefits. The effective date from which the changes are applicable is yet to be notified, and the rules are yet to be framed. Impact if any of the change will be assessed and accounted in period of notification of the relevant provisions.

50. We have considered the impact of COVID19 as evident so far in our above published financial results. The Company will also continue to closely monitor any material changes to future economic conditions which necessitate any further modifications.

51. The previous year numbers have been reclassified wherever necessary.

As per our report of even date For and on behalf of Board of Directors of

Avenue Supermarts Limited

For S R B C & CO LLP Ignatius Navil Noronha Ramakant Baheti

Chartered Accountants Managing Director and Whole-time Director and

ICAI firm registration nuw mber 324982E/E300003 Chief Executive Officer Group Chief Financial Officer

DIN: 01787989 DIN: 00246480

per Vijay Maniar

Partner Niladri Deb Ashu Gupta

Membership No.: 36738 Chief Financial Officer Company Secretary

Mumbai, 8th May, 2021 Mumbai, 8th May, 2021