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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 500770ISIN: INE092A01019INDUSTRY: Chemicals - Inorganic - Caustic Soda/Soda Ash

BSE   ` 624.35   Open: 622.50   Today's Range 620.00
625.00
+3.15 (+ 0.50 %) Prev Close: 621.20 52 Week Range 550.00
781.55
Year End :2018-03 

1. Corporate information

Tata Chemicals Limited (the ‘Company’) is a public limited company domiciled in India. Its shares are listed on two stock exchanges in India; the Bombay Stock Exchange (‘BSE’) and the National Stock Exchange (‘NSE’). The Company is a diversified business dealing in inorganic chemicals, fertilisers, other agri inputs, consumer and nutritional solutions business sectors. The Company has a global presence with key subsidiaries in United States of America (‘USA’), United Kingdom (‘UK’) and Kenya that are engaged in the manufacture and sale of soda ash, industrial salt and related products.

2. Recent accounting pronouncements and business combination

2.1 Recent accounting pronouncements

Appendix B to Ind AS 21, Foreign currency transactions and advance consideration:

On 28 March, 2018, Ministry of Corporate Affairs (‘MCA’) has notified the Companies (Indian Accounting Standards)

Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency.

The amendment will come into force from 1 April, 2018. The Company is evaluating the requirements of the amendment and its effect on the financial statements.

Ind AS 115- Revenue from contracts with customers:

On 28 March, 2018, Ministry of Corporate Affairs (‘MCA’) has notified the Ind AS 115, Revenue from contracts with customers. The core principle of the new standard is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers.

The standard permits two possible methods of transition:

- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors

- Retrospectively with cumulative effect of initially applying the standard recognised at the date of initial application (Cumulative catch-up approach)

The effective date for adoption of Ind AS 115 is financial periods beginning on or after 1 April, 2018. The Company is evaluating the requirements of the amendment and its effect on the financial statements.

2.2 Business combination

Subsequent to balance sheet date, the Company has signed a Business Transfer Agreement with M/s. Allied Silica Limited to acquire their business of precipated silica, on a slump sale basis for a consideration of Rs.123 crore (subject to fulfilment of certain agreed conditions and milestones). The effect of the transfer will be reflected in the financial information of the period in which the deal is consummated post fulfilment of agreed conditions.

3. Discontinued operations

(I) Disposal of urea and customised fertilisers business

During the previous year, the Company entered into an agreement with Yara Fertilisers India Private Limited (‘Yara India’) to transfer its Urea Business (which comprises of manufacturing facilities for urea and customised fertilisers at Babrala, Uttar Pradesh), by way of a slump sale.

On 12 January, 2018, the Company consummated the sale and transfer of its Urea and Customised Fertilisers Business to Yara India as contemplated in the Scheme of Arrangement dated 10 August, 2016. The pre-tax gain of Rs.1,279.39 crore for the year ended 31 March, 2018 is included under exceptional gain for discontinued operations.

(II) Disposal of Phosphatic Fertilisers business and Trading business of bulk and non-bulk fertilisers

The Company has entered into an agreement with IRC Agrochemicals Private Limited (“IRC”) and Indorama Holdings BV, Netherlands (Parent company of IRC) to transfer its Phosphatic Fertilisers business and Trading business (which comprises of manufacturing facilities for phosphatic fertilisers at Haldia Plant), by way of a slump sale for a consideration of Rs.375.00 crore (subject to certain adjustments). The effect of the transfer will be reflected in the financial information of the period in which the deal is consummated post receipt of all the requisite regulatory approvals.

4. Finance leases

Finance lease commitments

The Company has finance lease contracts for certain items of plant and machinery and vehicles. The Company’s obligations under finance leases are secured by the lessor’s title to the leased assets.

Future minimum lease payments (‘MLP’) under finance lease contracts together with the present value of the net minimum lease payments are, as follows:

5. Employee benefits obligations

(a) The Company makes contribution towards provident fund, in substance a defined contribution retirement benefit plan and towards pension fund, superannuation fund, a defined contribution retirement plan for qualifying employees. The provident fund is administered by the Trustees of the Tata Chemicals Limited Provident Fund and the superannuation fund is administered by the Trustees of the Tata Chemicals Limited Superannuation Fund. The Company is liable to pay to the provident fund to the extent of the amount contributed and any shortfall in the fund assets based on Government specified minimum rates of return relating to current services. The Company recognises such contribution and shortfall if any as an expense in the year incurred.

On account of the above contribution plans, a sum of Rs.14.62 crore (2017: Rs.15.00 crore) has been charged to the Statement of Profit and Loss.

(b) The Company makes annual contributions to the Tata Chemicals Employees’ Gratuity Trust and to the Employees’ Group Gratuity-cum-Life Assurance Scheme of the Life Insurance Corporation of India, for funding the defined benefit plans for qualifying employees. The scheme provides for lump sum payment to vested employees at retirement or death while in employment or on termination of employment. Employees, upon completion of the vesting period, are entitled to a benefit equivalent to either half month, three fourth month and full month salary last drawn for each completed year of service depending upon the completed years of continuous service in case of retirement or death while in employment. In case of termination, the benefit is equivalent to fifteen days salary last drawn for each completed year of service in line with the Payment of Gratuity Act, 1972. Vesting occurs upon completion of five years of continuous service.

The Company also provides post retirement medical benefits to eligible employees under which employees at Mithapur who have retired from service of the Company are entitled for free medical facility at the Company hospital during their lifetime. Other employees are entitled to domiciliary treatment exceeding the entitled limits for the treatments covered under the Health Insurance Scheme upto slabs defined in the scheme. The floater mediclaim policy also covers retired employees based on eligibility, for such benefit.

The Company provides pension, housing / house rent allowance and medical benefits to retired Managing and Executive Directors who have completed ten years of continuous service in Tata Group and three years of continuous service as Managing Director/ Executive Director or five years of continuous service as Managing Director/Executive Director. The directors are entitled upto seventy five percent of last drawn salary for life and on death 50% of the pension is payable to the spouse for the rest of his/her life.

Family benefit scheme is applicable to all permanent employees in management, officers and workmen who have completed one year of continuous service. In case of untimely death of the employee, nominated beneficiary is entitled to an amount equal to the last drawn salary (Basic Salary, DA and FDA) till the normal retirement date of the deceased employee.

The most recent actuarial valuations of plan assets and the present values of the defined benefit obligations were carried out at 31 March, 2018. The present value of the defined benefit obligations and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.

The following tables set out the funded status and amounts recognised in the Company’s financial statements as at 31 March, 2018 for the Defined Benefit Plans.

6 The details of the Company’s post-retirement and other benefit plans for its employees given above are certified by the actuary and relied upon by the Auditors.

(a) Information about geographical areas

The Company sells its products mainly within India where the conditions prevailing are uniform. Since the sales outside India are below threshold limit, no separate geographical segment disclosure is considered necessary.

All non-current assets in the nature of property, plant and equipment (including capital work in progress) and intangible assets (including those under development) are domiciled in india.

(b) Revenue from major products

The following is an analysis of the Company’s revenue from continuing operations from its major products

(c) Major Customer

No single customers contributed 10% or more to the Company’s revenue for the year ended 31 March, 2018 and 31 March, 2017.

(d) Other notes

(i) Management has identified one reportable business segments, namely:

- Inorganic Chemicals: Comprising soda ash, marine chemicals, caustic soda, cement, bulk chemicals and salt.

- Others: Comprising pulses, spices, water purifiers and nutritional solutions.

(ii) Segment revenue, results, assets and liabilities include the respective amounts identifiable to each of the segments and amounts allocated on a reasonable basis.

7.1 Segment information

Discontinued operations (note 31)

(a) Information about operating segment

(b) Information about geographical area

Discontinued operations sells its products within India where the conditions prevailing are uniform.

(c) Revenue from major products

Discontinued operations segment deals in one product group i.e fertilisers and other agri inputs.

(d) Major Customer

No single customers contributed 10% or more to the discontinued operations of the Company’s revenue for the year ended 31 March, 2018 and 31 March, 2017.

7.2 Reconciliation of information on reportable segment to Balance sheet and Statement of Profit and Loss (a) Reconciliation of profit for the year as per Statement of Profit and Loss

(d) Valuation technique to determine fair value

The following methods and assumptions were used to estimate the fair values of financial instruments:

(i) The management assessed that fair value of cash and cash equivalents, trade receivables, trade payables, bank overdrafts and other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

(ii) The fair values of the equity investment which are quoted, are derived from quoted market prices in active markets. The Investments measured at fair value and falling under fair value hierarchy Level 3 are valued on the basis of valuation reports provided by external valuers with the exception of certain investments, where cost 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 values within that range.

(iii) The Company enters into derivative financial instruments with various counterparties, principally banks. The fair value of derivative financial instruments is based on observable market inputs including currency spot and forward rate, yield curves, currency volatility, credit quality of counterparties, interest rate and forward rate curves of the underlying insturments etc. and use of appropriate valuation models.

(iv) The fair value of non-current Borrowings carrying floating-rate of interest is not impacted due to interest rate changes, and will not be significantly different from their carrying amounts as there is no significant change in the under-lying credit risk of the Company (since the date of inception of the loans).

(v) The fair values of the 10% unsecured redeemable non-convertible debenture (included in non-current borrowings) are derived from quoted market prices. The Company has no other long-term borrowings with fixed-rate of interest.

(e) Financial risk management objectives

The Company is exposed to market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The Company’s risk management strategies focus on the un-predictability of these elements and seek to minimise the potential adverse effects on its financial performance. The Company’s senior management which is supported by a Treasury Risk Management Group (‘TRMG’) manages these risks. TRMG advises on financial risks and the appropriate financial risk governance framework for the Company and provides assurance to the Company’s senior management that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives.

All hedging activities are carried out by specialist teams that have the appropriate skills, experience and supervision. The Company’s policy is not to trade in derivatives for speculative purposes.

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk, such as equity price risk and commodity risk. 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. Financial instruments affected by market risk include loans and borrowings, deposits, investments and derivative financial instruments.

Foreign currency risk management

Foreign exchange risk arises on future commercial transactions and on all recognised monetary assets and liabilities, which are denominated in a currency other than the functional currency of the Company. The Company’s management has set a policy wherein exposure is identified, a benchmark is set and monitored closely, and accordingly suitable hedges are undertaken. The policy also includes mandatory initial hedging requirements for exposure above a threshold.

The Company’s foreign currency exposure arises mainly from foreign exchange imports, exports and foreign currency borrowings, primarily with respect to USD.

As at the end of the reporting period , the carrying amounts of the Company’s foreign currency denominated monetary assets and liabilities in respect of the primary foreign currency i.e. USD and derivative to hedge the exposure, are as follows:

* includes exposure relating to discontinued operation.

The Company’s exposure to foreign currency changes for all other currencies is not material.

Foreign currency sensitivity analysis

The following table demonstrate the sensitivity to a reasonable possible change in USD exchange rate, with all other variables held constant. The impact on the Company’s profit before tax due to changes in the fair value of monetary assets and liabilities and derivatives is as follows:

Interest rate risk management

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates. The Company’s exposure to the risk of changes in market rates relates primarily to the Company’s non-current debt obligations with floating interest rates.

The Company’s policy is generally to undertake non-current borrowings using facilities that carry floating-interest rate. The Company manages its interest rate risk by entering into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount.

Moreover, the short-term borrowings of the Company do not have a significant fair value or cash flow interest rate risk due to their short tenure.

As the Company does not have exposure to any floating-interest bearing assets, or any significant long-term fixed-interest bearing assets, its interest income and related cash inflows are not affected by changes in market interest rates.

As at the end of reporting period, the Company had the following long term variable interest rate borrowings and derivatives to hedge the interest rate risk as follows:

Interest rate sensitivity

No sensitivity analysis is prepared as the Company does not expect any material effect on the Company’s results arising from the effects of reasonably possible changes to interest rates on interest bearing financial instruments at the end of the reporting period.

Equity price risk management

Equity price risk is related to the change in market price of the investments in quoted equity securities. The Company’s exposure to equity price risk arises from investment held by the Company and classified as FVTOCI. In general, these investments are strategic investments and are not held for trading purposes. Reports on the equity portfolio are submitted to the Company’s senior management on a regular basis.

Equity price sensitivity analysis

If prices of quoted equity securities had been 5% higher / (lower), the OCI for the year ended March 31, 2018 and 2017 would increase / (decrease) by Rs.85.94 crore and Rs.82.70 crore respectively.

Credit risk management

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

The carrying amount of financial assets represents the maximum credit exposure, being the total of the carrying amount of balances with banks, short term deposits with banks, short term investment, trade receivables and other financial assets excluding equity investments.

Trade receivables

Trade receivables of the Company are typically unsecured and derived from sales made to a large number of independent customers. Customer credit risk is managed by each business unit subject to established policies, procedures and control relating to customer credit risk management. Before accepting any new customer, the Company has appropriate level of control procedures to assess the potential customer’s credit quality. The credit-worthiness of its customers are reviewed based on their financial position, past experience and other relevant factors. The credit period provided by the Company to its customers generally ranges from 0-60 days. Outstanding customer receivables are reviewed periodically.

The credit risk related to the trade receivables is mitigated by taking security deposits / bank guarantee / letter of credit - as and where considered necessary, setting appropriate credit terms and by setting and monitoring internal limits on exposure to individual customers.

There is no substantial concentration of credit risk as the revenue and trade receivables from any of the single customer do not exceed 10% of Company revenue.

Financial instruments and cash deposits

Credit risk from balances/investments with banks and financial institutions is managed in accordance with the Company’s treasury risk management policy. Investments of surplus funds are made only with approved counterparties and within limits assigned to each counterparty. The limits are assigned based on corpus of investable surplus and corpus of the investment avenue. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.

Financial guarantees

Financial guarantees disclosed in note 41.1(b) have been provided as corporate guarantees to financial institutions and banks that have extended credit facilities to the Company’s subsidiaries. In this regard, the Company does not foresee any significant credit risk exposure.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as and when required.

The Treasury Risk Management Policy includes an appropriate liquidity risk management framework for the management of the shortterm, medium-term and long term funding and cash management requirements. The Company manages the liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. The Company invests its surplus funds in bank fixed deposit and liquid schemes of mutual funds, which carry no/negligible mark to market risks.

The below table analyses the Company’s non-derivative financial liabilities as at the reporting date, into relevant maturity groupings based on the remaining period (as at that date) to the contractual maturity date. The amounts disclosed in the below table are the contractual undiscounted cash flows.

All the derivative financial liabilities are included in the above analysis, as their contractual maturity dates are essential for the understanding of the timing of the under-lying cash flows.

8. Capital management

The capital structure of the Company consists of net debt and total equity of the Company. The Company manages its capital to ensure that the Company will be able to continue as going concern while maximising the return to stakeholders through an optimum mix of debt and equity within the overall capital structure. The Company’s risk management committee reviews the capital structure of the Company considering the cost of capital and the risks associated with each class of capital.

9. Contingent liabilities and assets

9.1 Contingent liabilities

(a) Claims not acknowledged by the Company relating to cases contested by the Company and which, in the opinion of the Management, are not likely to devolve on the Company relating to the following areas:

10. Approval of financial statements

The financial statements were approved for issue by the board of directors on 18 May, 2018.