CORPORATE INFORMATION
Grasim Industries Limited (“the Company”) is a limited company incorporated and domiciled in India. The registered office is at Birlagram, Nagda - 456 331, Dist. Ujjain (M.P), India. The Company is a public limited company and its shares are listed on the Bombay Stock Exchange (BSE), India, and the National Stock Exchange (NSE), India, and the Company’s Global Depository Receipts are listed on the Luxembourg Stock Exchange.
The Company is engaged primarily in Viscose (Pulp, Fibre and Yarn), Chemicals (Caustic Soda, Epoxy and allied Chemicals) and others (Insulators, Textiles, Fertilisers and Solar Power Designing, Engineering Procurement and Commissioning).
1.1.1 Details of Property Plant and Equipment capitalised under Finance Lease:
Leased assets are pledged as security for the related finance lease liabilities {refer Note 2.18.1 (ii)}
Plant and Equipment is Nil (Previous Year Gross Block Rs. 0.74 Crore and Net block Rs. 0.03 Crore) {refer Note4.7.3 (iii)}
1.1.2 Shaktiman Mega Food Park Limited has ceased to a subsidiary w.e.f. 22nd February 2019 as the company’s name struck off under section 248 of the Companies Act, 2013.
1.1.3 Aditya Birla Chemicals (Belgium) BVBA has ceased to be subsidiary w.e.f. 21st January 2019 as the Company has divested its entire holding in Aditya Birla Chemicals (Belgium) BVBA.
1.1.4 During the year ended 31st March 2019, the Company has acquired stakes in Aditya Birla Solar Limited and Aditya Birla Renewables Limited from its Joint Venture partners, hence status of Aditya Birla Solar Limited and Aditya Birla Renewables Limited has changed from Joint Venture to Subsidiary of the Company w.e.f. 15th May 2018.
1.1.5 The Company has acquired 100% equity shareholding of Grasim Premium Fabric Private Limited [formerly known as Soktas India Private Limited (SIPL)] from its promoters SOKTAS Tekstil Sanayi Ve Ticaret A.S., Turkey against cash consideration. Consequent to acquisition, SIPL has become a wholly owned Subsidiary of the Company, w.e.f. 29th March 2019.
1.1.6 The investments in the Company’s Joint Ventures, AV Group NB Inc., AV Terrace Bay Inc., Birla Jingwei Fibres Company Limited and Aditya Group AB are subject to maintenance of specified holding by the Company until the credit facility provided by certain lenders to respective companies are outstanding. Without guaranteeing the repayment to the lenders, the Company has also agreed that the affairs of the Joint Ventures will be managed through its nominee directors on the boards of respective borrowing companies, in such a manner that they are able to meet their respective financial obligations.
1.2.1 The Company follows suitable provisioning norms for writing down the value of Inventories towards slow moving, non-moving and surplus inventory.
Write down of Inventories (Net of reversals) for the year Rs. 3.01 Crore (Previous year Rs. 3.99 Crore). Inventory values shown above are net of the write down.
1.2.2 Working Capital Borrowings are secured by hypothecation of inventories of the Company.
1.3.1 Working Capital Borrowings are secured by hypothecation of Book debts of the Company
1.4.1 Disclosure as per Regulation 34 (3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Section 186 of the Companies Act, 2013
(a) Loans given to Subsidiaries, Joint Ventures and Associates:
The Loans have been utilised for meeting the business requirements by respective companies.
(b) Refer Note 2.3 and Note 2.4 for investments in Subsidiaries, Associates and Joint Ventures.
Shares kept in Abeyance
Pursuant to provisions of Section 126 of the Companies Act, 2013, the issue of 61,985 Equity Shares (previous year 61,985 Equity Shares) are kept in abeyance.
1.5.1 Rights, Preferences and Restrictions attached to Equity Shares
The Company has only one class of Equity Shares having a par value of Rs. 2 per share. Each holder of the Equity Shares is entitled to one vote per share. The Company declares dividend in Indian Rupees. The dividend proposed by the Board of Directors is 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.
1.5.2 The Company does not have any Holding Company.
1.5.3 List of Shareholders holding more than 5% Shares in the Equity Share Capital of the Company
The Description of the nature and purpose of each reserve within equity is as follows:
a. Securities Premium: Securities Premium is credited when shares are issued at premium. It can be used to issue bonus shares, to provide for premium on redemption of shares, write-off equity related expenses like underwriting costs, etc.
b. General Reserve: It is a free reserve, which is created by appropriation from undistributed profits of previous years, before declaration of dividend duly complying with any regulations in this regard.
c. Capital Reserve: Capital Reserve is mainly the reserve created during business combination of erstwhile Aditya Birla Chemicals (India) Limited and Aditya Birla Nuvo Limited with the Company.
d. Debenture Redemption Reserve: The Company has issued redeemable non-convertible debentures. Accordingly, the Companies (Share Capital and Debentures) Rules, 2014 (as amended), requires the Company to create DRR out of profits of the company available for payment of dividend. DRR is required to be created for an amount, which is equal to 25% of the value of debentures issued.
e. Debt Instrument through OCI: It represents the cumulative gains/(losses) arising on the fair valuation of debt instruments measured at fair value through OCI, net of amount reclassified to the Statement of Profit and Loss on disposal of such instruments.
f. Equity Instrument through OCI: It represents the cumulative gains/(losses) arising on the fair valuation of Equity Shares (other than investments in Subsidiaries, Joint Ventures and Associates, which are carried at cost) measured at fair value through OCI, net of amounts reclassified to Retained Earnings on disposal of such instruments.
g. Hedging Reserve: It represents the effective portion of the fair value of forward contracts, designated as cash flow hedge.
h. Employee Stock Option Reserve: The Company has stock option schemes under which options to subscribe for the Company’s shares have been granted to certain employees including key management personnel. The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to employees, as part of their remuneration.
i. Treasury Shares: The reserve for shares of the Company held by the Grasim Employees Welfare Trust (ESOP Trust).
The Company has issued employees stock option scheme for its employees. The Equity Shares of the Company have been purchased and held by ESOP Trust.
Trust to issue and allot to employees at the time of exercise of ESOP by Employees.
1.6.1 Working Capital Borrowings are secured by hypothecation of stocks and book debts of the Company.
1.6.2 Loan of Rs. 345.82 Crore has been availed by the Company under the Special Banking Arrangement (SBA) of Department of Fertiliser, Government of India, and has been secured against subsidy recoverable from the Government of India. As per the arrangement, the loan will be repaid directly by the Government of India to the Bank and corresponding adjustment will be made in Subsidies recoverable. Rate of interest is 8.20% per annum, out of which interest @ 7.78% per annum will be borne by the Government of India.
1.6.3 The Company had available Undrawn Facility of Rs. 488.74 Crore as on 31st March 2019 and Rs. 403.93 Crore as on 31st March 2018.
2.1 Exceptional Items are:
(i) an amount of Rs. 2,368.01 Crore was reported as Exceptional Item. Details of the same are as follows:
(a) During the year, the Company’s holding in Idea Cellular Limited (Idea), has reduced from 23.13% to 11.55% consequent to the merger of Vodafone India Limited and Vodafone Mobile Services Limited with Idea Cellular Limited effective from 31st August 2018. The merged entity has been named as Vodafone Idea Limited (VIL). Consequent to reduction of the shareholding of the Company in VIL, it has ceased to be an ‘Associate’ of the Company and is considered as a financial investment under Ind AS 109 w.e.f. 31st August 2018. As a result, the investment in VIL has been fair valued as per Ind AS 28 and the difference in the book value and fair value as on 30th August 2018 of the said investment amounting to Rs. 2,283.35 Crore has been charged to Statement of Profit and Loss and has been disclosed as an exceptional item. Subsequent change in fair value of investment in VIL has been accounted in Other Comprehensive Income, as per Ind AS 109 ‘Financial Instruments’.
(b) t he implementation of Modified NPS-III for payment on account of additional fixed cost to Urea Units by Ministry of Chemicals and Fertilisers, Government of India, has been delayed inordinately, leading to uncertainty in some of aspects of this policy. Accordingly, the Company has provided for Rs. 135.00 Crore.
(c) an amount of Rs. 50.34 Crore towards write-back of provision of Stamp Duty related to merger of Aditya Birla Nuvo Limited and Aditya Birla Chemicals with the Company in earlier years.
(ii) in previous financial year, an amount of Rs. 272.61 Crore was reported as exceptional item. Details of the same are as follows:
(a) an amounts of Rs. 213 Crore for provision made towards acquisition related cost (including Stamp Duty on asset transferred from erstwhile ABNL to the Company).
(b) an amount of Rs. 53.96 Crore towards loss on sale of 100% equity held by the Company in Grasim Bhiwani Textiles Limited, a wholly owned subsidiary of the Company.
(c) an amount of Rs. 24.78 Crore towards write-back of provision of Stamp Duty related to merger of Aditya Birla Chemicals with the Company in earlier years.
(d) an amount of Rs. 30.43 Crore towards Impairment in value of Property, Plant and Equipment.
3.1 OTHER MONEY FOR WHICH THE COMPANY IS CONTINGENTLY LIABLE:
(b) The Hon’ble Supreme Court of India (“SC”) by their order dated February 28, 2019, in the case of Surya Roshani Limited v/s EPFO, set out the principles based on which allowances paid to the employees should be identified for inclusion in basic wages for the purposes of computation of Provident Fund contribution. Subsequently, a review petition against this decision has been filed and is pending before the SC for disposal
The Company is awaiting the outcome of the review petition, and also directions from EPFO, if any, to assess any potential impact on the Company and consequently no adjustments have been made in the books of account
3.2 OPERATING SEGMENTS
The Company has presented segment information in its Consolidated Financial Statements, which are part of the same annual report. Accordingly, in terms of provisions of Accounting Standard on Segment Reporting (Ind AS 108), no disclosure related to the segment are presented in the Standalone Financial Statements.
3.2.1 Disclosure of Related Party Transactions:
Terms and Conditions of Transaction with Related Parties
The transaction with related parties are made in the normal course of business and on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and interest-free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. The above transactions are as per approval of Audit Committee.
The Company has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
3.3. RETIREMENT BENEFITS:
3.3.1 Defined Benefit Plans as per Actuarial Valuation:
Gratuity (funded by the Company):
The Company operates a Gratuity Plan through a Trust for its all employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of service, whichever is earlier, of an amount equivalent to 15 to 30 days’ salary for each completed year of service as per rules framed in this regard. Vesting occurs upon completion of five continuous years of service in accordance with Indian law. In case of majority of employees, the Company’s scheme is more favourable as compared to the obligation under payment of Gratuity Act, 1972.
The present value of obligation is determined based on actuarial valuation using the Projected Unit Credit Method as prescribed by the Ind AS-19 - ‘Employee Benefits’, which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measure each unit separately to build up final obligation.
Inherent Risk:
The plan is defined benefit in nature which is sponsored by the Company and hence it underwrites all the risks pertaining to the plan. In particular, this exposes the Company to actuarial risk such as adverse salary growth, changes in demographic experience, inadequate return on underlying plan assets. This may result in an increase in cost of providing these benefits to employees in future. Since the benefits are lump sum in nature, the plan is not subject to any longevity risk.
Pension:
The Company provides pension to few retired employees as approved by the Board of Directors of the Company.
Inherent Risk:
The Company provides pension to few retired employees as approved by the Board of Directors of the Company.
(i) There are no amounts included in the Fair Value of Plan Assets for:
a) The Company’s own financial instrument
b) Property occupied by or other assets used by the Company
(ii) Basis used to determine Discount Rate:
Discount rate is based on the prevailing market yields of Indian Government securities as at the Balance Sheet date, applicable to the period over which the obligation is to be settled.
(iii) Asset Liability matching Strategy:
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 are required to invest the funds as per the prescribed pattern of investments laid out in the Income Tax Rules for such approved schemes. Due to the restrictions in the type of investments that can be held by the fund, it is not possible to explicitly follow an asset-liability matching strategy to manage risk actively.
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 under funding of the plan.
(iv) Salary Escalation Rate:
The estimates of future salary increases are considered taking into account inflation, seniority, promotion, increments and other relevant factors.
(v) Sensitivity Analysis:
Sensitivity Analysis have been calculated to show the movement in Defined Benefit Obligations in isolation and assuming there are no other changes in market condition at the accounting date. There have been no changes from the previous periods in the methods and assumptions used in preparing the sensitivity analysis.
(vi) The best estimate of the expected contribution for the next year amounts to Rs. 20 Crore (Previous Year Rs. 20 Crore).
3.3.1.1 Compensated Absences:
The obligation for compensated absences is recognised in the same manner as gratuity, amounting to charge of Rs. 33.61 Crore (Previous Year Rs. 11.40 Crore).
3.3.1.2 The details of the Company’s Defined Benefit Plans in respect of the Company managed Provident Fund Trust:
Contribution to the recognised provident fund are substantially defined contribution plan.The Company is liable for any shortfall in the fund assets based on the Government specified rate of return. Such shortfall, if any, is recognised in the Statement of Profit and Loss as an expense in the year of incurring the same.
Amount recognised as expense and included in the Note 3.6 as “Contribution- Company owned Provident Fund” is Rs. 24.77 Crore (Previous Year Rs. 17.03 Crore) and Amount recognized as preoperative expense and included in Note 2.1.7 as “Contribution-Company owned Provident Fund” is Rs. 0.76 Crore.
The actuary has provided for a valuation and based on the below provided assumption there is no interest shortfall as at 31st March 2019 and 31st March 2018.
3.4.1 Government Grants (Ind AS 20)
The Company has received interest-free loans of Rs. 18.03 Crore (Previous Year Rs. 8.13 Crore) from a State Government, repayable in full after seven years. Using prevailing market interest rate in range of 7.66%-8.70% p.a. (Previous Year 7.66% p.a.) for an equivalent loan, the fair value of loan at initial recognition is estimated at Rs. 9.95 Crore (Previous Year Rs. 4.76 Crore).The difference of Rs. 8.08 Crore (PreviousYear Rs. 3.37 Crore) between gross proceeds and fair value of loan is the government grant which will be recognised in the Statement of Profit and Loss over the period of loan.
The Company has also received a subsidised loan of Rs. 100 Crore (Previous Year Rs. 62.50 Crore) @ 5% p.a. and 0.50% royalty on net sale from a Central Government, repayable in nine equal half yearly installments starting from 01.04.2020. Using prevailing market interest rate of 7.94% p.a. for an equivalent loan, the fair value of loan at initial recognition is estimated at Rs. 92.99 Crore (Previous Year Rs. 56.19 Crore). The difference of Rs. 7.01 Crore (Previous Year Rs. 6.31 Crore) between gross proceeds and fair value of loan is the government grant which will be recognised in the Statement of Profit and Loss over the period of loan.
Cumulative loan interest-free and interest at subsidised rate received from the government is Rs. 118.03 Crore (Previous Year Rs. 86.28 Crore). Accordingly, an amount of Rs. 1.46 Crore (Previous Year Rs. 0.88 Crore) has been recognised as income in the current year and correspondingly equivalent amount has been accounted as an interest expense.
Further, it also includes savings in Import Duty on procurement of capital goods and export incentives under MEIS scheme.
III) General Description of Leasing Agreements:
(i) Lease Assets: Godowns, Offices, Residential Flats, Showroom and Others.
(ii) Future Lease Rentals are determined on the basis of agreed terms.
(iii) At the expiry of lease terms, the Company has an option to return the assets or extend the term by giving notice in writing.
The Company had entered into finance lease arrangements for computer servers from a vendor. The finance obligation is secured by a charge against the said assets.
B. Company as a Lessee
The Company has given certain assets on lease for which rental income earned during the current year is Rs. 3.12 Crore (Previous year Rs. 3.33 Crore). These lease arrangement are normally renewed on expiry, wherever required.
3.4.2 Corporate Social Responsibility:
The Company has spent Rs. 47.14 Crore on Corporate Social Responsibility Projects/Initiatives during the year (Previous Year Rs. 29.84 Crore).
The amount required to be spent under Section 135 of the Companies Act, 2013, for the year ended 31st March 2019 is Rs. 33.97 Crore (Previous Year Rs. 29.01 Crore) i.e. 2% of average net profits for last three financial years, calculated as per Section 198 of the Companies Act, 2013.
3.4.3 Assets Held for Disposal (Ind AS 105):
The Company has identified certain assets amounting to Rs. 1.23 Crore (Previous Year Rs. 2.54 Crore) to be disposed off likeTurbo Generator, Field Breaker, Wound Stator, Mould Holding System, Fork Lift, Hydraulic Pallet Truck, Water Cooler, Electric Motor, Cement Mixer, Heat exchanger, etc. which are not in use by the Company. The Company is in the process of discussion with various potential buyers and expects the same to be disposed off within next twelve months.
3.4.4 Revenue (Ind AS 115)
I) The Company has adopted Ind AS 115 “Revenue from Contracts with Customers” effective from 1st April 2018, adhering to the full retrospective approach. The application of Ind AS 115 did not have any significant impact in these financial statements. All sales are made at a point in time and revenue recognised upon satisfaction of the performance obligations which is typically upon dispatch/delivery. The Company has a credit evaluation policy based on which the credit limits for the trade receivables are established, the Company does not give significant credit period, resulting in no significant financing component.
II) Revenue recognised from Contract Liabilities (Advances from Customers):
The contract liabilities outstanding at the beginning of the year have been recognised as revenue during the year ended March 31, 2019.
3.5 SHARE BASED PAYMENTS (Ind AS 102)
3.5.1 21,72,121 Equity Shares of Face Value of Rs. 2 each (Previous Year 10,39,210 Equity Shares of Face Value of Rs. 2 each) are reserved for issue under Employee Stock Option Scheme-2006 (ESOS-2006), Employee Stock Option Scheme, 2013 (ESOS-2013) and Employee Stock Option Scheme, 2018 (ESOS-2018)
a. Under the ESOS-2006, the Company has granted 4,42,675 Options to its eligible employees, the details of which are given hereunder:
c. During the year, the Committee of the Board of Directors of the Company granted 1,398,864 Options and Restricted Stock Units (RSUs) to the eligible employees of the Company, under the Grasim Employee Stock Options Scheme 2018 (“the Scheme”).
The Scheme is being implemented through a trust, viz. Grasim Employee’s Welfare Trust (“the Trust”). The Trust has purchased 1,357,375 equity shares of the Company from market as per the Scheme. The details of the Scheme are given hereunder:
3.5.2 Movement of Options and RSUs Granted along with Weighted-Average Exercise Price (WAEP)
3.5.3.1 For Options referred to in 4.8.1(a), (b) and (c)
The weighted-average share price at the date of exercise for options was Rs. 602.09 per share (31st March 2018 Rs. 1,086 per share) and weighted-average remaining contractual life for the share options outstanding as at 31st March 2019, was 2.35 years (31st March 2018: 2.97 years).
The weighted-average share price at the date of exercise for options was Rs. 1,035.75 per share and weighted average remaining contractual life for the share options outstanding as at 31st March 2019 was 2.76 years (31st March 2018: 3.41 years).
The weighted average share price at the date of exercise for SARs was Rs. 354.64 per share (31st March 2018 Rs. 1083.5 per share) and weighted-average remaining contractual life for the SAR’s outstanding as at 31st March 2019, was 2.2 years (31st March 2018: 3.4 years).
3.6 FINANCIAL INSTRUMENTS - DISCLOSURE, ACCOUNTING CLASSIFICATIONS AND FAIR VALUE MEASUREMENTS (Ind AS 107)
A. Disclosure of Financial Instruments:
i. Investments in Equity Instruments (other than Subsidiaries, Joint Ventures and Associates) designated at FVTOCI
These investments have been designated on initial recognition to be measured at FVTOCI as these are strategic investment and are not intended for sale.
ii. Investment in Debentures and Bonds measured at FVTOCI
Investments in Debentures or Bonds meet the contractual cash flow test as required by Ind AS 109-Financial Instruments. However, the business Model of the Company is such that it does not hold these investments till maturity as the Company intends to sell these investments as an when need arises. Hence, the same have been measured at FVTOCI.
iii. Investment in Mutual Fund Units and Preference Shares measured at FVTPL
Preference Shares and Mutual Funds have been measured on initial recognition at FVTPL as these financial assets do not pass the contractual cash flow test as required by Ind AS 109- Financial Instruments, for being measured at amortised cost or FVTOCI, hence, classified at FVTPL.
C. Fair Value Measurements (Ind AS 113):
The fair values of the Financial Assets and Liabilities are included at the amount, at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments based on the input that is significant to the fair value measurement as a whole:
Level 1 - This hierarchy uses quoted (unadjusted) prices in active markets for identical assets or liabilities.The fair value of all Equity Shares which are traded on the stock exchanges, is valued using the closing price at the reporting date.
Level 2 - The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over the counter derivatives) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on company specific estimates. The mutual fund units are valued using the closing Net Asset Value. Investments in Debentures or Bonds are valued on the basis of dealer’s quotation based on fixed income and money market association (FIMMDA).
If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.
Level 3 - If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.
The management assessed that cash and bank balances, trade receivables, loans, trade payables, borrowings (cash credits, commercial papers, foreign currency loans, working capital loans) and other financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
During the reporting period ending 31st March 2019 and 31st March 2018, there was no transfer between level 1 and level 2 fair value measurement.
3.6.1 Key Inputs for Level 1 and 2 Fair valuation Technique :
1. Mutual Funds : Based on Net Asset Value of the Scheme (Level 2)
2. Debentures or Bonds: Based on market yield for instruments with similar risk profile/maturity etc. (Level 2)
3. Listed Equity Investments (other than Subsidiaries, Joint Ventures and Associates): Quoted Bid Price on Stock Exchange (Level 1)
4. Derivative Liabilities (Level 2)
(a) The fair value of interest rate swaps is calculated as the present value of estimated future cash flows based on observable yield curves and an appropriate discount factor.
(b) The fair value of forward foreign exchange contracts is calculated as the present value determined using forward exchange rates and interest rate curve of respective currencies.
(c) The fair value of currency swap is calculated as the present value determined using forward exchange rates, currency basis spreads between the respective currencies, interest rate curves and an appropriate discount factor.
3.6.4 Relationship of Unobservable Inputs to Level 3 fair values (Recurring):
A. Equity Investments - Unquoted (for Equity Shares where Discounted Cash Flow Method is used):
A 100 bps increase/decrease in the Weighted Average Cost of Capital (WACC) or discount rate used while all other variables were held constant, the carrying value of the shares would decrease by Rs. 16.49 Crore or increase by Rs. 21.75 Crore (as at 31st March 2018: decrease by Rs. 12.35 Crore or increase by Rs. 16.21 Crore).
B. Preference Shares:
A 100 bps increase/decrease in the discount rate used while all the other variables were held constant, the carrying value of the shares would decrease by Rs. 4.25 Crore or increase by Rs. 4.57 Crore (as at 31st March 2018: decrease by Rs. 5.36 Crore or increase by Rs. 5.74 Crore).
3.7 FINANCIAL RISK MANAGEMENT OBJECTIVES (IND AS 107)
The Company’s principal financial liabilities, other than derivatives, comprise of borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets, other than derivatives, include trade and other receivables, investments and cash and cash equivalents that arise directly from its operations.
The Company’s activities expose it to market risk, liquidity risk and credit risk.
Market risk is the risk of loss of future earnings, fair values or 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, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments, including investments and deposits, foreign currency receivables, payables and borrowings.
The Company’s overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Company. The Company uses derivative financial instruments, to hedge foreign currency risk exposure. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.
The Management updates the Audit Committee / Risk Management Committee/ Board of Directors on a quarterly basis about the implementation of the above policies. It also updates on periodical basis about various risk to the business and the status of various activities planned to mitigate such risks.
Details relating to the risks are provided here below:
A. Foreign Exchange Risk:
Foreign exchange risk is the risk of impact related to fair value or future cash flows of an exposure in foreign currency, which fluctuate due to changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates to import of fuels, raw materials and spare parts, plant and equipment, exports and foreign currency borrowings.
The Company regularly evaluates exchange rate exposure arising from foreign currency transactions. The Company follows the established risk management policies and standard operating procedures. It uses derivative instruments like forward covers to hedge exposure to foreign currency risk.
When a derivative is entered into for the purpose of hedge, the Company negotiates the terms of those derivatives to match the terms of the foreign currency exposure.
(i) Foreign Currency Sensitivity:
The sensitivities are based on financial assets and liabilities held at 31st March 2019 are not denominated in Indian Rupees. The sensitivities do not take into account the Company’s sales and costs and the results of the sensitivities could change due to other factors such as changes in the value of financial assets and liabilities as a result of non-foreign exchange influenced factors.
(ii) Hedging Activities and Derivatives:
The Company evaluates exchange rate exposure arising from foreign currency transactions. The Company uses various derivative financial instruments, such as foreign exchange forward contracts, option contracts, future contracts and currency swaps to manage and mitigate its exposure to foreign exchange risk. The Company reports periodically to its risk management committee, the foreign exchange risks and compliance of the policies to manage its foreign exchange risk.
The Company has taken foreign currency floating rate borrowings, which are linked to LIBOR. For managing the foreign currency risk and interest rate risk arising from changes in LIBOR on such borrowings, the Company has entered into currency interest rate swap (CIRS). Under the terms of the CIRS, the Company pays interest at the fixed rate to the swap counterparty in INR and receives the floating interest payments based on LIBOR in foreign currency
The Company assesses hedge effectiveness based on the following criteria:
(i) an economic relationship between the hedged item and the hedging instrument;
(ii) the effect of credit risk; and
(iii) assessment of the hedge ratio
The Company designates the forward exchange contracts to hedge its currency risk and generally applies a hedge ratio of 1:1. The Company’s policy is to match the tenor of the forward exchange contracts with the hedged item.
B. Interest Rate Risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in prevailing market interest rates.The Company’s exposure to the risk due to changes in interest rates relates primarily to the Company’s short-term borrowings (excluding commercial paper) with floating interest rates. For all long-term borrowings in foreign currency with floating interest rates, the risk of variation in the interest rates is mitigated through interest rate swaps. The Company constantly monitors the credit markets and revisits its financing strategies to achieve an optimal maturity profile and financing cost.
Interest rate sensitivities for floating rate borrowings (impact of increase/(decrease) in 1%):
Interest rate sensitivity has been calculated assuming the borrowings outstanding at the reporting date have been outstanding for the entire reporting period. Increase/decrease in interest rates at the balance sheet date would result in an impact (decrease/increase in case of net income and increase/decrease in case of net loss) for the respective year(s) is as below.
The Company’s manages its interest rate risk by having a balanced portfolio of fixed and variable rate borrowings, which is monitored on continuous basis. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s short term borrowing (excluding commercial paper) with floating interest rates. For certain long-term borrowings with floating rates, the risk of variation in the interest rates is mitigated through interest rate swaps. These swaps are designated to hedge underlying debt obligations. The Company constantly monitors the credit markets and rebalances its financing strategies to achieve an optimal maturity profile and financing cost.
Interest rate sensitivity has been calculated assuming the borrowings outstanding at the reporting date have been outstanding for the entire reporting period. Further, the calculations for the unhedged floating rate borrowings have been done on the notional value of the foreign currency (excluding the revaluation).
C. Equity Price Risk:
The Company is exposed to equity price risk arising from Equity Investments (other than Subsidiaries, Joint Ventures and Associates, which are carried at cost).
Equity Price Sensitivity Analysis:
The Sensitivity analysis below has been determined based on the exposure to equity price risk at the end of the reporting period.
If equity prices of the quoted investments increase/decrease by 5%, Other Comprehensive income for the year ended 31st March 2019 would increase/decrease by Rs. 306.12 Crore (for the year ended 31st March 2018 by Rs. 186.61 Crore).
D. Credit Risk:
Credit risk arises when a customer or counterparty does not meet its obligations under a customer contract or financial instrument, leading to a financial loss. The Company is exposed to credit risk from its operating activities primarily trade receivables and from its financing/ investing activities, including deposits with banks, mutual fund investments, investments in debt securities and foreign exchange transactions. The Company has no significant concentration of credit risk with any counterparty.
The carrying amount of financial assets represents the maximum credit risk exposure.
(i) Trade Receivables:
Trade receivables are consisting of a large number of customers. The Company has credit evaluation policy for each customer and, based on the evaluation, credit limit of each customer is defined. Wherever the Company assesses the credit risk as high, the exposure is backed by either bank, guarantee/letter of credit or security deposits.
Total Trade receivables as on 31st March 2019 is Rs. 3,484.07 Crore (31st March 2018: Rs. 2,609.32 Crore)
The Company does not have higher concentration of credit risks to a single customer. Single largest customers of all businesses have exposure of 3.26% of total sales (31st March 2018: 4.20%) and in receivables 2.29% (31st March 2018: 2.72%).
The ageing analysis of the receivables (net of provision) has been considered from the date the invoice falls due.
As per simplified approach, the Company makes provision of expected credit losses on trade receivables using a provision matrix to mitigate the risk of default in payments and makes appropriate provision at each reporting date wherever outstanding is for longer period and involves higher risk.
However, total write off against receivables are Rs. 3.65 Crore of the outstanding receivables for the current year (previous year Nil).
(ii) Investments, Derivative Instruments, Cash and Cash Equivalents and Bank Deposits:
Credit Risk on cash and cash equivalents, deposits with the banks/financial institutions is generally low as the said deposits have been made with the banks/financial institutions, who have been assigned high credit rating by international and domestic rating agencies.
Credit Risk on Derivative Instruments is generally low as the Company enters into the Derivative Contracts with the reputed Banks.
Investments of surplus funds are made only with approved Financial Institutions/Counterparty. Investments primarily include investment in units of quoted Mutual Funds, quoted Bonds, Non-Convertible Debentures issued by Government/Semi-Government Agencies/PSU Bonds/High Investment grade Corporates etc. These Mutual Funds and Counterparties have low credit risk.
The Company has standard operating procedures and investment policy for deployment of surplus liquidity, which allows investment in debt securities and mutual fund schemes of debt and arbitrage categories and restricts the exposure in equity markets.
Compliances of these policies and principles are reviewed by internal auditors on periodical basis.
Total Non-current and current investments as on 31st March 2019 is Rs. 31,127.57 Crore (31st March 2018 Rs. 35,546.59 Crore).
E. 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 reasonable price. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of credit facilities to meet obligations when due. The Company’s treasury team is responsible for managing liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s liquidity position through rolling forecasts on the basis of expected cash flows.
The table below provides details of financial liabilities and investments at the reporting date based on contractual undiscounted payments.
F. Capital Management:
The Company’s objectives when managing capital are to (a) maximise shareholder value and provide benefits to other stakeholders and (b) maintain an optimal capital structure to reduce the cost of capital.
For the purposes of the Company’s capital management, capital includes issued capital, share premium and all other equity reserves attributable to the equity holders.
The Company monitors capital using debt-equity ratio, which is total debt less investments divided by total equity.
In addition, the Company has financial covenants relating to the borrowing facilities that it has taken from the lenders like interest coverage service ratio, Debt to EBITDA, etc. which is maintained by the Company.
3.8 BUSINESS COMBINATION (IND AS 103)
A) Scheme of Arrangement for Merger of Aditya Birla Nuvo Ltd. (ABNL) with the Company and demerger of Financial Services business into Aditya Birla Capital Ltd.(ABCL) (earlier known as Aditya Birla Financial Services Ltd.)
On 11th August 2016,the Board of Directors of the Company had approved a composite Scheme of Arrangement between the Company, ABNL and ABCL (a wholly owned Subsidiary of ABNL) and their respective shareholders and creditors for merger of ABNL with the Company and the subsequent demerger of it’s financial services business into ABCL and consequent listing of equity shares of ABCL.
The Major Rationale for merger of ABNL:
a. Stronger parentage for financial service business : Financial service business is likely to benefit from lower cost of funds, given strong credit rating of the Company.
b. Access to high growth business: Cash flow of the merged entity from various operating business can be meaningfully leveraged towards nurturing companies with future growth opportunities.
c. Value unlocking in financial service business: Demerger of Financial service business will unlock value for shareholders given the business has achieved scale and listing of ABCL provides flexibility to independently fund its growth through various sources of capital.
During the previous year, the merger had become effective from 1st July 2017, hence ABNL ceased to exist effective from 1st July 2017 and demerger of financial services business into ABCL had also become effective from 4th July 2017 in terms of scheme.
Further, the Company had issued 19,04,62,665 equity shares on 9th July 2017 to the shareholders of ABNL in the ratio of 15 (fifteen) equity Shares of Rs. 2/- each fully paid up against 10 (ten) equity shares of Rs. 10/- each fully-paid up of ABNL held by them on the record date for this purpose. As a result the Company’s paid up share capital has increased from Rs. 93.37 Crore to Rs. 131.47 Crore.
The Value for the said transaction was Rs. 23,657.37 Crore based on market price of company as on 30th June 2017.
On account of demerger of financial services business, ABCL has issued it’s equity shares in the ratio of 7 (seven) equity shares of Rs. 10 each fully paid-up in respect of 5 (five) equity shares of Rs. 2 each fully paid up of the Company held by the shareholders of the Company on the record date for this purpose. As a result, the holding of the Company in ABCL stands reduced to 55.99%.
For the nine months period ended 31st March 2018, erstwhile ABNL had contributed revenue of Rs. 4,062.51 Crore and profit before tax of Rs. 318.68 Crore to the Group results. If the merger had occurred on 1st April 2017, the consolidated revenue and profit before tax for the year ended 31st March 2018 would have been Rs. 5,416.68 Crore and Rs. 424.91 Crore respectively based on the amounts extrapolated by the management. In determining these amounts, management had assumed that the fair value adjustments, that arose on the date of merger would have been same if the merger had occurred on 1st April 2017
(i) Identifiable Assets acquired and Liabilities Assumed
The following table summarises the recognised amounts for the assets acquired and liabilities assumed at the date of acquisition of ABNL and subsequent demerger of ABCL.
The gross contractual amounts and fair value of Trade and Other receivable acquired Rs. 1,287.21 Crore. However, Rs. 43.56 Crore of the Trade and Other Receivables are credit impaired and the balance Rs. 1,243.65 Crore is expected to be recoverable.
(iii) Note on Capital reserve arising:-
Capital reserve had arised as Swap Ratio was decided on the basis of Share price as on 11th August 2016 (date of Announcement of Merger) and Purchase Consideration was determined on date on which control was transferred i.e. 1st July 2017.
(v) The figures given above are based on fair valuation completed during the year for one of associate which was under progress in previous year.
B) Arrangement with Century T extiles and Industries Limited (‘CTIL’) for obtaining right and responsibility to manage, operate, use and control the Viscose Filament Yarn (‘VFY’) business of CTIL.
The Board of Directors of the Company at their meeting held on 12th December 2017 had approved an arrangement with Century Textiles and Industries Limited (CTIL), under which CTIL will grant the right and responsibility to manage, operate, use and control the Viscose FilamentYarn (VFY) business of CTIL (without transferring ownership in the underlying immovable and movable assets other than working Capital) for a duration of 15 (fifteen) years to the Company for the an agreed consideration. The above said arrangement had become effective from 1st February 2018.
The VFY business of CTIL is based out of Shahad in Maharashtra, India with an annual capacity of 26,500 tonnes. Products manufactured include Pot Spun Yarn, Continuous Spun Yarn, VFY and Rayon Tyre Yarn.
The major rationale for such arrangement:
a. Grasim with its new SSY technology & CTIL’s presence in Rayon tyre yarn would offer significant growth prospects.
b. Synergy potential in plant and sales operations would provide additional benefits
c. Potential to leverage brand strength in value chain
d. Capex light capacity expansion compared to a Greenfield expansion
In terms of the agreement, the Company has discharged consideration in the following manner:
(i) Commuted royalty amounting to Rs. 600 Crore.
(ii) Time value of money of interest free deposit Rs. 161.40 Crore.
(iii) Net working capital at closing is Rs. 103.31 Crore.
For the two months period ended 31st March 2018, the said VFY business unit had contributed revenue of Rs. 161.28 Crore and profit before tax of Rs. 8.58 Crore (including fair valuation impact of Finished goods Inventory) to the Group results. If the said arrangement had occurred on 1st April 2017, the consolidated revenue and profit before tax for the year ended 31st March 2018 would have been Rs. 967.68 Crore and Rs. 51.48 Crore respectively based on the amounts extrapolated by the management. In determining these amounts, the management had assumed that the fair value adjustments, that arose on the date of arrangement had been same as if the arrangement occurred on 1st April 2017.
The gross contractual amounts and fair value of trade and other receivable acquired Rs. 69.10 Crore. None of the trade and other receivables are credit impaired and it is expected that the full contractual amounts will be recoverable.
The above figures based on the fair valuation of assets and liabilities completed during the year which was under progress in previous year.
Acquisition Related Costs
Acquisition related costs of Rs. 1.77 Crore (including stamp duty) had been recognised under Miscellaneous Expenses and Rates and Taxes in the previous year’s Statement of Profit and loss.
3.9 Acquisition of Asset from KPR Industries India Limited (KIIL)
The Company has acquired the Chlor Alkali business of KPR Industries India Limited by way of slump sale, for a cash consideration of Rs. 253 Crore. The business consist of an under-construction ChlorAlkali plant of 200 TPD capacity at Balabhadrapuram, Andhra Pradesh. The Company has taken over the identified assets and identified liabilities associated with the business.
The following table summarises the apportionment of amounts of assets and identified liabilities acquired based on fair valuation on the date of acquisition.
(b) Ind AS 21 - The effect of changes in Foreign Exchange Rates:
The amendment clarifies on the accounting of transactions that include the receipt or payment of advance consideration in a foreign currency. The appendix explains that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. The Company is evaluating the impact of this amendment on its financial statements.
3.10 Recent Accounting Pronouncements
Ministry of Corporate Affairs (“MCA”) has notified following amendments to Ind AS on 30th March 2019 which is effective for the annual period beginning on or after 1st April 2019.
(a) Ind AS 116 “Leases”:
On 30th March 2019, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) Amendment Rules, 2019, notifying Ind AS 116 “Leases” which replaces Ind AS 17 “Leases”The new standard (Ind AS 116) introduces a single on-balance sheet lease accounting model for lessee. This will result in the company recognising right of use assets & lease liability in the books.
The Company is in the process of analysing the impact of Ind AS 116 on its financials.
(b) Ind AS 12 - Appendix C, Uncertainty over Income Tax Adjustments
The amendment requires an entity to determine probability of the relevant tax authority accepting the uncertain tax treatment that the Company has used in tax computation or plan to use in their income tax filings.
(c) Amendment to Ind AS 12 - Income taxes
The amendment clarifies that an entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events.
(d) Ind AS 19 - Plan amendment, curtailment or settlement
The amendments require an entity to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement and to recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling.
Based on preliminary assessment, the Company does not expect any significant impact on its financial statements on account of above (b), (c) and (d) amendments.
3.11 Other income for previous year ended 31st March 2018 includes reversal of earlier years’ provision of Rs. 9.10 Crore related to contribution towards District Mineral Fund (DMF) under the Mines and Mineral (Development and Regulation) Amendment Act, 2015, on the basis of Supreme Court Judgment dated 13th October 2017.
3.12 Previous year’s figures have been regrouped/ reclassified to conform to current year’s presentation and not comparable due to the merger of ABNL with the Company in previous year w.e.f. 1st July 2017 and for arrangement for rights and responsibility to manage, operate, use and control were acquired by the Company with CTIL in previous year w.e.f. 1st February 2018.
3.13 Figures less than Rs. 50,000 have been shown at actual, wherever statutorily required to be disclosed, as the figures have been rounded off to the nearest lakh.
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