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

BSE: 500440ISIN: INE038A01020INDUSTRY: Aluminium

BSE   ` 208.75   Open: 207.00   Today's Range 206.00
+2.80 (+ 1.34 %) Prev Close: 205.95 52 Week Range 192.50
Year End :2018-03 

1. Company Overview

Hindalco Industries Limited (“the Company”) was incorporated in India in the year 1958 having its registered office at Ist Floor, B Wing, Mahakali Caves Road, Andheri (East), Mumbai - 400093

The Company has two main stream of business, Aluminium and Copper. In Aluminium, the Company caters to the entire value chain starting from mining of bauxite and coal through production of value added products for various application.

The Company also has one of the largest single location Copper smelting facilities in India.

The Equity Shares of the Company are listed on the Indian Stock Exchanges (National Stock Exchange and Bombay Stock Exchange), and GDRs are listed on the Luxemburg Stock Exchange.

1A. Basis of Preparation

The separate financial statements of Hindalco Industries Limited (“the Company”) comply in all material aspects with Indian Accounting Standards (“Ind AS”) as prescribed under Section 133 of the Companies Act, 2013 (“the Act”), as notified under the Companies (Indian Accounting Standards) Rules, 2015, Companies (Indian Accounting Standard) Amendment Rules, 2016, and other accounting principles generally accepted in India.

The financial statements for the year ended 31st March, 2018, have been approved by the Board of Directors of the Company in their meeting held on 16th May, 2018.

The financial statements have been prepared on historical cost convention on accrual basis, except for the following assets and liabilities, which have been measured at fair value or revalued amount:

- Financial instruments - Measured at fair value;

- Assets held for sale - Measured at fair value less cost of sale;

- Plan assets under defined benefit plans - Measured at fair value; and

- Employee share-based payments - Measured at fair value

In addition, the carrying values of recognised assets and liabilities, designated as hedged items in fair value hedges that would otherwise be carried at cost, are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationship.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for employee share-based payments, leasing transactions, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in Inventories or value in use in Impairment of Assets. The basis of fair valuation of these items are given as part of their respective accounting policies.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the

Company can access at the measurement date;

- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the

asset or liability, either directly or indirectly; and

- Level 3 inputs are unobservable inputs for the asset or liability.

The Financial Statements have been presented in Indian Rupees (INR), which is the Company’s functional currency. All financial information presented in INR has been rounded off to the nearest two decimals of Crore, unless otherwise stated.

Use of Estimates and Management Judgement

In preparing the financial statements in conformity with accounting principles generally accepted in India, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities, and the disclosure of contingent liabilities as at the date of the financial statements, and the amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Any revision to such estimates is recognised in the period in which the same is determined.

IB. Measurement of Fair Value

A. Financial Instruments

The estimated fair value of the Company’s financial instruments is based on market prices and valuation techniques. Valuations are made with the objective to include relevant factors that market participants would consider in setting a price, and to apply accepted economic and financial methodologies for the pricing of financial instruments. References for less active markets are carefully reviewed to establish relevant and comparable data.

B. Marketable and Non-Marketable Equity Securities

Fair value for listed shares is based on quoted market prices as of the reporting date. Fair value for unlisted shares is calculated based on commonly accepted valuation techniques utilising significant unobservable data, primarily cash flow-based models.

C. Derivatives

Fair value of financial derivatives is estimated as the present value of future cash flows, calculated by reference to quoted price curves and exchange rates as of the Balance Sheet date. Options are valued using appropriate option pricing models, and credit spreads are applied where deemed to be significant.

D. Embedded Derivatives

Embedded derivatives that are separated from the host contract are valued by comparing the forward curve at contract inception to the forward curve as of the Balance Sheet date. Changes in the present value of the cash flows related to the embedded derivative are recognised in the Balance Sheet and in the Statement of Profit and Loss.

IC. Critical Accounting Judgment and Key Sources of Estimation Uncertainty

The application of accounting policies requires the Management to make estimates and judgements in determining certain revenues, expenses, assets and liabilities. The following paragraphs explain areas that are considered more critical, involving a higher degree of judgement and complexity.

A. Impairment of Non-Current Assets

Ind AS-36 requires that the Company assesses conditions that could cause an asset or a Cash-Generating Unit (CGU) to become impaired and to test recoverability of potentially impaired assets. These conditions include internal and external factors, such as the Company’s market capitalisation, significant changes in the Company’s planned use of the assets or a significant adverse change in the expected prices, sales

volumes or raw material cost. The identification of CGUs involves judgement, including assessment of where active markets exist, and the level of inter-dependency of cash inflows. CGU is usually the individual plant, unless the asset or asset group is an integral part of a value chain, where no independent prices for the intermediate products exist, a group of plants is combined and managed to serve a common market, or where circumstances otherwise indicate significant inter-dependencies.

In accordance with Ind AS 36, certain intangible assets are reviewed at least annually for impairment. If a loss in value is indicated, the recoverable amount is estimated as the higher of the CGU’s fair value less cost to sell, or its value in use. Directly observable market prices rarely exist for the Company’s assets, however, fair value may be estimated based on recent transactions on comparable assets, internal models used by the Company for transactions involving the same type of assets or other relevant information. Calculation of value in use is a discounted cash flow calculation based on continued use of the assets in its present condition, excluding potential exploitation of improvement or expansion potential.

Determination of the recoverable amount involves the Management estimates on highly uncertain matters, such as commodity prices and their impact on markets and prices for upgraded products, development in demand, inflation, operating expenses and tax, and legal systems. The Company uses internal business plans, quoted market prices and the Company’s best estimate of commodity prices, currency rates, discount rates and other relevant information. A detailed forecast is developed for a period of three to five years with projections thereafter. The Company does not include a general growth factor to volumes or cash flows for the purpose of impairment tests, however, cash flows are generally increased by expected inflation and market recovery towards previously observed volumes is considered.

B. Employee Retirement Plans

The Company provides both defined benefit employee retirement plans and defined contribution plans. Measurement of pension and other superannuation costs and obligations under such plans require numerous assumptions and estimates that can have a significant impact on the recognised costs and obligation, such as future salary level, discount rate, attrition rate and mortality.

The Company provides defined benefit plans in several countries and in various economic environments. The discount rate is based on the yield on high quality corporate bonds. In geographies, when the Corporate Bond market is not developed, Government bond yield is considered as discount rate. Assumptions for salary increase in the remaining service period for active plan participants are based on expected salary increase for each country or economic area. Changes in these assumptions can influence the net asset or liability for the plan as well as the pension cost. (refer Note 42)

C. Environmental Liabilities and Asset Retirement Obligations (ARO)

Estimation of environmental liabilities and ARO require interpretation of scientific and legal data, in addition to assumptions about probability and future costs. (refer Note 45)

D. Taxes

The Company calculates income tax expense based on reported income. Deferred income tax expense is calculated based on the differences between the carrying value of assets and liabilities for financial reporting purposes and their respective tax basis that are considered temporary in nature. Valuation of deferred tax assets is dependent on the Management’s assessment of future recoverability of the deferred benefit. Expected recoverability may result from expected taxable income in the future, planned transactions or planned tax optimising measures. Economic conditions may change and lead to a different conclusion regarding recoverability. (refer Note 36)

E. Classification of Leases

The Company enters into leasing arrangements for various assets. The classification of the leasing arrangement as a finance lease or operating lease is based on an assessment of several factors, including, but not limited to, transfer of ownership of leased asset at the end of lease term, lessee’s option to purchase and estimated certainty of exercise of such option, proportion of lease term to the asset’s economic life, proportion of present value of minimum lease payments to fair value of leased asset and extent of specialised nature of the leased asset. (refer Notes 18A(e), 46)

F. Useful Lives of Depreciable/Amortisable Assets (Tangible and Intangible)

The Management reviews its estimate of the useful lives of depreciable/amortisable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of certain software, IT equipment, and other plant and equipment.

G. Recoverability of Advances/Receivables

At each Balance Sheet date, based on discussions with the respective counter-parties and internal assessment of their credit worthiness, the management assesses the recoverability of outstanding receivables and advances. Such assessment requires significant management judgement based on financial position of the counter-parties, market information and other relevant factors.

H. Fair Value Measurements

The Company applies valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. This involves developing estimates and assumptions consistent with the market participants to price the instrument. The Company’s assumptions are based on observable data as far as possible, otherwise on the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date. (refer Note 48)

I. Contingent Assets and Liabilities, Uncertain Assets and Liabilities

Liabilities that are uncertain in timing or amount are recognized when a liability arises from a past event and an outflow of cash or other resources is probable and can be reasonably estimated. Contingent liabilities are possible obligations where a future event will determine whether the Company will be required to make a payment to settle the liability, or where the size of the payment cannot be determined reliably. Material contingent liabilities are disclosed unless a future payment is considered remote. Evaluation of uncertain liabilities and contingent liabilities and assets requires judgement and assumptions regarding the probability of realisation and the timing and amount, or range of amounts, that may ultimately be incurred. Such estimates may vary from the ultimate outcome as a result of differing interpretations of laws and facts. (refer Note 44)

1D. Recent Accounting Pronouncements

Amendments to Standards issued but not yet effective:

The Ministry of Corporate Affairs (MCA) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 (the ‘Rules’), on 28th March, 2018. The Rules notify the new revenue standard Ind AS 115, Revenue from Contracts with Customers, brings amendments to Ind AS 21; Foreign currency transactions and advance consideration, Ind AS 40, Investment Property - Transfers of investment property, and Ind AS 12 Income Taxes, regarding recognition of deferred tax assets on unrealised losses. The rules shall be effective from reporting periods beginning on or after 1st April, 2018 and cannot be early adopted.

A. Ind AS 115 - Revenue from Contracts with Customers

Ind AS 115, Revenue from Contracts with Customers deals with revenue recognition and establishes principles. Under the new standard, Revenue is recognised when a customer obtains control of a promised goods or services and, thus, has the ability to direct the use and obtain the benefits from the goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The standard replaces Ind AS 18 Revenue and Ind AS 11 Construction contracts and appendices,, related to these standards.

The Company is in the process of assessing the detailed impact of Ind AS 115. Presently, the Company is not able to reasonably estimate the impact that the new standard is expected to have on its Financial Statements. However, the Company does not except that adoption of Ind AS 115 is going to significantly change the timing of the Company’s revenue recognition for product sales. Consistent with the current practice, recognition of revenue will continue to occur at a point in time when products are dispatched to customers, or in other cases delivered to customers, which is also when the control of the asset is transferred to the customer under Ind AS 115.

B. Appendix B to Ind AS 21 - Foreign Currency Transactions and Advance Consideration

The appendix clarifies how to determine the date of transaction for the exchange rate to be used on initial recognition of a related asset, expense or income, where an entity pays or receives consideration in advance for foreign currency-denominated contracts. For a single payment or receipt, the date of transaction should be the date on which the Company initially recognises the non-monetary asset or liability arising from the advance consideration (the prepayment or deferred income/contract liability). If there are multiple payments or receipts for one item, date of transaction should be determined as above for each payment or receipt.

The Company intends to adopt the amendments prospectively to items in scope of the appendix that are initially recognised on or after the beginning of the reporting period in which the appendix is first applied (i.e., from 1st April, 2018).

C. Amendments to Ind AS 40 - Investment Property - Transfers of Investment Property

The amendments clarify that transfers to, or from, investment property can only be made if there has been a change in use that is supported by evidence. A change in intention alone is not sufficient to support a transfer. The list of evidence for a change of use in the standard was re-characterised as a non-exhaustive list of examples, and scope of these examples have been expanded to include assets under construction/ development and not only transfer of completed properties.

The Company has decided to apply the amendment prospectively to changes in use that occur after the date of initial application (i.e., 1st April, 2018). The Company has evaluated the effect of this on the Financial Statements and the impact is not expected to be material.

D. Amendments to Ind AS 12 - Income Taxes regarding recognition of Deferred Tax Assets on Unrealised Losses

The amendments clarify the accounting for deferred taxes where an asset is measured at fair value and that fair value is below the asset’s tax base. They also clarify certain other aspects of accounting for deferred tax assets as below:

- A temporary difference exists whenever the carrying amount of an asset is less than its tax base at the end of the reporting period.

- The estimate of future taxable profit may include the recovery of some of an entity’s assets for more than its carrying amount, if it is probable then the entity will achieve this. For example, when a fixed-rate debt instrument is measured at fair value but the entity expects to hold and collect the contractual cash flows and it is probable that recoverable value will be more than its carrying amount.

- Where the tax law restricts the source of taxable profits against which particular types of deferred tax assets can be recovered, the recoverability of the deferred tax assets can only be assessed in combination with other deferred tax assets of the same type.

- Tax deductions resulting from the reversal of deferred tax assets are excluded from the estimated future taxable profit that is used to evaluate the recoverability of those assets. This is to avoid double counting the deductible temporary differences in such assessment.

The amendments to Ind AS 12 need to be applied retrospectively in accordance with Ind AS 8. However, on initial application of the amendment, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity.

The Company shall apply the amendments to Ind AS 12 retrospectively in accordance with Ind AS 8 with the corresponding impact recognised in opening retained earnings as at 1st April, 2017, based on the relief provided by the standard. The company has evaluated the effect of this on the Financial Statements and the impact is not expected to be material.

(a) Dividend Distribution Tax is net of credit Rs.4.07 crore (year ended 31/03/2017 Rs.8.14 crore) being dividend distribution tax paid by subsidiaries.

(b) Descriptions of Other Equity

(i) Share Application Money Pending Allotment:

Share application money pending allotment represents amount received from employees who has exercised ESOS for which shares are pending allotment as on Balance Sheet date.

(ii) Capital Reserve:

The Company has created capital reserve pursuant to past mergers and acquisitions.

(iii) Capital Redemption Reserve:

The Company has created capital redemption reserve as per the requirement of the Companies Act.

(iv) Business Reconstruction Reserve:

The Company had formulated a scheme of financial restructuring under Sections 391 to 394 of the Companies Act, 1956 (“the Scheme”), between the Company and its equity shareholders, approved by the High Court of judicature of Bombay, to deal with various costs associated with its organic and inorganic growth plan. Pursuant to this, a separate reserve account, titled as Business Reconstruction Reserve (“BRR”), was created during the year 2008-09 by transferring balance standing to the credit of Securities Premium Account of the Company for adjustment of certain expenses as prescribed in the Scheme.

(v) Securities Premium Account:

Securities premium reserve is used to record the premium on issue of shares. The reserve is utilised in accordance with the provision of the Act.

(vi) Debenture Redemption Reserve:

The Company is required to create a debenture redemption reserve out of the profits, which is available for payment of dividend, for the purpose of redemption of debentures.

(vii) Employee Stock Options:

The employee stock options account is used to recognise the grant date fair value of options/RSUs issued to employees under stock option schemes.

(viii) General Reserve:

The Company has created this reserve by transferring certain amount out of the profit at the time of distribution of dividend.

(ix) Other Reserves

Actuarial Gain (Loss) on Define Benefit Obligation:

The Company transfers actuarial gain (loss) arising at the time of valuation of defined benefit obligations to “Actuarial gain (loss)” component of Other Comprehensive Income (OCI).

Gain (Loss) on Equity and Debt Instruments accounted as FVTOCI:

The Company has elected to recognise changes in the fair value of certain investments in other comprehensive income. These changes are accumulated within the FVTOCI equity investments reserve and FVTOCI debt investment reserve within equity.

Effective Portion of Cash Flow Hedge:

The Company uses hedging instruments as part of its risk management policy for commodity and foreign currency risk as described in Note 51.

Cost of Hedging Reserve:

The Company designates the spot component of cross currency interest rate swap as hedging instruments in cash flow hedge relationship. The Company defers changes in the forward element of cross currency interest rate swap in the cost of hedging reserve. The deferred costs of hedging are included in the initial cost of the related hedged items when it is recognised or reclassified to the statement of profit and loss when the hedged item effects the Statement of Profit and Loss.

(a) Sales of Copper products and precious metals are accounted for provisionally pending finalisation of price and quantity. Variations are accounted for in the year of settlement. Final price receivable on sale of above products, for which quotational price was not finalised in the year ended 31/03/2017, was realigned at year-end forward LME/LMBA rate and reversal of sales of Rs.5.30 crore (year ended 31/03/2017 addition of Rs.5.24 crore) was accounted for during the year, final price was settled at reversal of Rs.10.90 crore (year ended 31/03/2017 was settled for Rs.14.73 crore) and further reduction of sales of Rs.5.60 crore (year ended 31/03/2017 additional sales of Rs.9.49 crore) was taken into account. As on 31st March, 2018, sale of Copper products and precious metals, pending for price finalisation, was realigned at year-end forward LME/LMBA and an reversal of sales of Rs.1.33 crore (year ended 31/03/2017 reversal of sales of Rs.5.30 crore) was accounted for. Actual cash flow is expected on finalisation of quotational price and quantity in the subsequent financial year.

(b) Includes sale of Di Ammonium Phosphate (DAP), including nutrient based subsidy of Phosphorus (P) and Potassium (K), Rs.186.98 crore (year ended 31/03/2017 Rs.295.10 crore).

(c) Includes Government Grant in the nature of Export Incentives and other benefits of Rs.315.93 crore (year ended 31/03/2017 Rs.288.16 crore).

(d) Includes Excise Duty Rs.636.89 crore (year ended 31/03/2017 Rs.2,446.51 crore) till 30/06/2017. Subsequent to the introduction of Goods and Service Tax (GST) with effect from 1st July, 2017, revenue is being reported excluding GST.

(a) Interest Income on others includes Rs.197.80 crore (year ended 31/03/2017 Rs.50.58 crore) of interest received from Income Tax Department.

(b) Dividend Income on long-term investments includes Rs.20.00 crore (year ended 31/03/2017 Rs.45.00 crore) of dividend received from subsidiary companies.

(c) Includes gain on modification of borrowings of Rs.52.92 crore (year ended 31/03/2017 ‘ Nil) resulting from change in amount and timing of expected cash flow payments on term loan.

(a) Purchase of copper concentrate is accounted for provisionally pending finalisation of contents in the concentrate and price. Variations are accounted for in the year of settlement. Final price payable on purchase of Copper concentrate, for which quotational price and quantity were not finalized in the year ended 31/03/2017, was realigned based on forward LME and LBMA rate at the year end of Copper and precious metals, respectively, and accordingly payable of Rs.75.53 crore (year ended 31/03/2017 receivable of Rs.95.20 crore) was accounted for. During the current year, final price was settled at Rs.9.48 crore (year ended 31/03/2017 Rs.43.98 crore) and accordingly balance amount of Rs.66.04 crore (year ended 31/03/2017 Rs.51.22 crore) has been accounted for. As on 31st March, 2018, payable of Rs.79.88 crore (year ended 31/03/2017 Rs.75.73 crore) was accounted for on re-alignment of unpriced Copper concentrate. Actual cash flow is expected on finalisation of quotational price and quantity in the subsequent financial year.

(a) Interest expenses include Rs.21.39 crore (year ended 31/03/2017 Rs.0.18 crore) on interest paid to Income Tax Department.

(b) The rate of interest of borrowing costs capitalised is 6.3% p.a. (year ended 31/03/2017: NIL).

The Company has two reportable segments, viz., Aluminium and Copper, which have been identified taking into account the business activities it engages in. No operating segments have been aggregated to form these reportable segments. Description of each of the reporting segments is as under:

i. Aluminium Segment: This part of business manufactures and sells Hydrate and Alumina, and Aluminium and Aluminium Products.

ii. Copper Segment: This part of business manufactures and sells Copper Cathode, Continuous Cast Copper Rods, Sulphuric Acid, DAP and Complexes, Gold, Silver and other precious metals.

The chief operating decision maker (CODM) primarily uses earnings before interest, tax, depreciation and amortisation (EBITDA) as performance measure to assess the performance of the operating segments. However, the CODM also receives information about the segment’s revenues, segment assets and segment liabilities on regular basis.

A. Segment Profit or Loss:

(i) Segment’s performances are measured based on Segment EBITDA. Segment EBITDA is defined as “Earnings from Continuing Operations before Finance Costs, Exceptional Items, Tax Expenses, Depreciation and Amortisation, Impairment of Non-Current Assets, Investment Income and Fair Value Gains or Losses on Financial Assets but after allocation of Corporate Expenses”. Segment EBITDA are as follows:

(i) The segment revenue is measured in the same way as in the Statement of Profit and Loss. Sales between operating segments are eliminated on consolidation. Segment revenue and reconciliation of the same with total revenue as follows:

(ii) Revenue of approximately Rs.4,359.88 crore for the year ended 31/03/2017 included in revenue from Copper Segment, arose from a single external customer, which is more than 10% of the Company’s total revenue. During the year, there is no revenue from a single customer which is more than 10% of the Company’s total revenue.

(iii) The amount of its revenue from external customers analysed by the country, in which customers are located, are given below:

C. Segment Assets:

Segment assets are measured in the same way as in the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset. However, certain assets like investments, loans, assets classified as held for sale, current and deferred tax assets, etc., are not considered to be segment assets as they are managed at corporate level. Further, corporate administrative assets are not allocated to individual segments as they are also managed at corporate level, and these are not linked to any specific segment.

Segment liabilities are measured in the same way as in the financial statements. These liabilities are allocated based on the operations of the segment. In measurement of Aluminium and Copper segment’s liabilities, items like borrowings, current and deferred tax liabilities, liabilities associated with assets classified as held for sale etc. are not considered to be segment liabilities as they are managed at corporate level. Further, corporate administrative liabilities are not allocated to individual segments as they also managed at corporate levels and does not linked to any specific segment.

2. Employee Share-based Payments

The Company has formulated employee share-based payment schemes with objective to attract and retain talent and align the interest of employees with the Company as well as to motivate them to contribute to its growth and profitability. The Company views employee stock options as instruments that would enable the employees to share the value they create for the Company in the years to come. At present, two employee share-based payment schemes are in operation which details are given below:

(I) Employee Stock Option Scheme 2006 (“ESOS 2006”):

The shareholders of the Company has approved on 23/01/2007 an Employee Stock Option Scheme 2006 (“ESOS 2006”), formulated by the Company, under which the Company may issue 3,475,000 stock options to its permanent employees in the management cadre, whether working in India or out of India, including Managing and the Whole-time Directors of the Company, in one or more tranches. The ESOS 2006 is administrated by the Compensation Committee of the Board of Directors of the Company (“the Committee”). Each stock option, when exercised, would be converted into one fully paid-up equity share of Rs.1/- each of the Company. The stock options will vest in 4 equal annual instalments after completion of one year of service from the date of grant. The exercise price shall be average price of the equity shares of the Company in the immediate preceding seven-day period on the date prior to the date on which the ESOS compensation committee finalises the specific numbers of Options to be granted to the employees discounted by such percentage not exceeding 30% (thirty per cent) to be determined by ESOS Compensation Committee in the best interest of the various stake holders in the prevailing market conditions. The maximum period of exercise is 5 years from the date of vesting and these stock options do not carry rights to dividends or voting rights till the date of exercise. Further, forfeited/expired stock options are also available for grant. Further, on 23/09/2011 the ESOS 2006 has been partially modified and by which the Company may issue 6,475,000 stock options to its eligible employees.

Under the ESOS 2006, till 31/03/2018 the Committee has granted 4,328,159 stock options (31/03/2017: 4,328,159 stock options) to its eligible employees, out of which 1,819,941 stock options (31/03/2017: 1,819,941 stock options) have been forfeited/expired and are available for grant as per term of the Scheme. A summary of movement of the stock options and weighted-average exercise price (WAEP) is given below:

Under ESOS 2006, as at 31/03/2018 the range of exercise prices for stock options outstanding was Rs.118.35 to Rs.118.73 (as at 31/03/2017 Rs.118.35 to Rs.118.73) whereas the weighted average remaining contractual life for the stock options outstanding was 2.83 years (as at 31/03/2017: 3.50 years).

(II) Employee Stock Option Scheme 2013 (“ESOS 2013”):

On 10/09/2013, the shareholders of the Company has approved another Employee Stock Option Scheme 2013 (“ESOS 2013”), under which the Company may grant up to 5,462,000 Options (comprising of Stock Options and/or Restricted Stock Units (RSU)) to the permanent employees in the management cadre and Managing and Whole time Directors of the Company and its subsidiary companies in India and abroad, in one or more tranches. The ESOS 2013 is administered by the Compensation Committee of the Board of Directors of the Company (“the Committee”). The stock options exercise price would be determined by the Committee whereas the RSUs exercise price shall be the face value of the equity shares of the Company as at the date of grant of RSUs. Each stock option and each RSU entitles the holders to apply for and be allotted one fully paid-up equity share of Rs.1/- each of the Company upon payment of exercise price during exercise period. The stock options will vest in 4 equal annual instalments after completion of one year of the services from the date of grant, whereas RSU will vest upon completion of three years of services from the date of grant. The maximum period of exercise is 5 years from the date of vesting and these stock options/RSUs do not carry rights to dividends or voting rights till the date of exercise. Further, forfeited/expired stock options and RSUs are also available for grant.

In terms of ESOS 2013, till 31/03/2018 the Committee has granted 2,250,754 stock options and 2,252,254 RSUs (as at 31/03/2017: 2,250,754 stock options and 2,252,254 RSUs) to the eligible employees of the Company and some of its subsidiary companies. Further, 239,996 stock options and 248,954 RSUs (as at 31/03/2017: 235,611 stock options and 248,954 RSUs) have been forfeited/expired and are available for grant as per the term of the Scheme.

Under ESOS 2013, the range of exercise prices for stock options outstanding as at 31/03/2018 was Rs.73.60 to Rs.167.15 (as at 31/03/2017 Rs.73.60 to Rs.167.15), whereas exercise price in the case of RSUs was Rs.1 (as at 31/03/2017 Rs.1). The weighted average remaining contractual life for the stock options and RSUs outstanding as at 31/03/2018 was 3.96 years and 4.68 years, respectively (as at 31/03/2017: 4.29 years and 5.06 years, respectively).

No grants were made during the year (the fair value at the grant date of the Stock Option and RSU granted during the year ended 31/03/2017 was Rs.96.94 and Rs.163.40, respectively).The fair value has been carried out by an independent valuer by applying Black-Scholes Model. The inputs to the model include the exercise price, the term of option, the share price at grant date and the expected volatility, expected dividends and the risk-free rate of interest. The assumptions used for fair valuation of awards are given below:

The expected volatility was determined based on the historical share price volatility over the past period, depending on life of the options granted which is indicative of future periods, and which may not necessarily be the actual outcome.

Effect of Employee Share-based Payment Transactions on Profit or Loss for the Period and on Financial Position:

For the year ended 31/03/2018, the Company recognised total expenses of Rs.1.95 crore (year ended 31/03/2017 Rs.5.54 crore) related to equity-settled share based transactions. During the year ended 31/03/2018, the Company has allotted 1,708,812 fully paid-up equity shares of Rs.1/- each of the Company (year ended 31/03/2017 : 1,440,671) on exercise of equity-settled share-based transactions, for which the Company has realised Rs.13.57 crore (year ended 31/03/2017 Rs.6.15 crore) as exercise prices. The weighted average share price at the date of exercise of options was Rs.243.95 per share (year ended 31/03/2017 Rs.165.93 per share).

3. Disclosure as required by Indian Accounting Standard (Ind AS) 19 on Employee Benefits

A. Defined Benefit Plans:

Defined benefit plans expose the Company to actuarial risks such as: Interest Rate Risk, Salary Risk and Demographic Risk.

i. Interest Rate Risk: The defined benefit obligation calculated uses a discount rate based on government bonds. If the bond yield falls, the defined benefit obligation will tend to increase.

ii. Salary Risk: Higher than expected increases in salary will increase the defined benefit obligation.

iii. Demographic Risk: This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligations is not straight forward and depends on the combination of salary increase, discount rate and vesting criteria. It is important not to overstate withdrawals because in the financial analysis the retirement benefit of a short career employee typically costs less per year as compared to a long service employee.

(I) Gratuity Plans

The Company has various schemes (funded/unfunded) for payment of gratuity to all eligible employees calculated at specified number of days (ranging from 15 days to 1 month) of last drawn salary depending upon the tenure of service for each year of completed service, subject to minimum service of five years payable at the time of separation upon superannuation or on exit otherwise. These defined benefit gratuity plans are governed by Payment of Gratuity Act, 1972.

(j) Sensitivity Analysis:

Sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be co-related. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the Balance Sheet.

(k) Methodology for Defined Benefit Obligation:

The Projected Unit Credit (PUC) actuarial method has been used to assess the plan’s liabilities, including those related to death-in-service and incapacity benefits.

Under PUC method a projected accrued benefit is calculated at the beginning of the year and again at the end of the year for each benefit that will accrue for all active members of the plan. The projected accrued benefit is based on the plan’s accrual formula and upon service as of the beginning or end of the year, but using a member’s final compensation, projected to the age at which the employee is assumed to leave active service. The plan liability is the actuarial present value of the projected accrued benefits as of the beginning of the year for active members.

(n) Expected contributions to Post-employment Benefit Plan of Gratuity for the year ending 31st March, 2019, are Rs.58.18 crore.

II Other Defined Benefit and contribution Plans

(a) Pension

The Company contributes a certain percentage of salary for all eligible employees in the managerial cadre towards Superannuation Funds with option to put certain portion in NPS and/or in funds managed by approved trusts of by Life Insurance Corporation of India. The amount charged to the Profit and Loss during the year is Rs.23.40 crore (year ended 31/03/2017 Rs.17.84 crore). Junior

Pension Plan, provided to certain employees, is in the nature of defined benefit plan which provides an annuity in the form of pension amount at retirement. Amount of actuarial gain/(loss) recognised in Other Comprehensive Income during the year is Rs.0.41 crore (year ended 31/03/2017 Rs.0.20 crore).

(b) Post-Retirement Medical Benefit:

The Company provides post retirement medical benefit to its certain employees. The scheme involves reimbursement of expenses towards medical treatment of self and dependents. The amount charged to the Profit and Loss during the year is Rs.0.41 crore (year ended 31/03/2017 Rs.0.38 crore) and amount of actuarial gain/(loss) recognised in Other Comprehensive Income during the year is Rs.1.45 crore (year ended 31/03/2017 Rs.1.84 crore).

(c) Leave Obligation:

The leave obligation cover the Company’s liability for earned leave. The entire amount of the provision of Rs.211.57 crore (year ended 31/03/2017 Rs.186.59 crore) is presented as current, since the Company does not have an unconditional right to defer settlement for these obligations.

(d) Provident Fund:

The Company contributes towards Provident Fund, managed either by approved trusts or by the Central Government and debited to the Statement of Profit and Loss. In respect of provident fund management by the approved trust, the Company has an obligation to fund any shortfall on the yield of the trust’s investments over the administered interest rates on an annual basis. The amount debited to the Statement of Profit and Loss during the year was Rs.89.26 crore (year ended 31/03/2017 Rs.58.72 crore).

Based on actuarial valuation, the Company has recognised obligation of Rs.7.78 crores as at 31/03/2018 (year ended 31/03/2017 Rs.6.62 crore) towards shortfall on the yield of the trust’s investments over the administered interest rates.

The Company also contributes to Coal Mines Provident Fund (CMPF) in respect of employees working in coal mines.

Assumption use in determining the present value obligation of the interest rate guarantee under the Deterministic Approach:

(II) Trusts

Contribution to Trusts:

(a) Hindalco Employee’s Gratuity Fund, Kolkata

(b) Hindalco Employee’s Gratuity Fund, Renukoot

(c) Hindalco Employee’s Provident Fund Institution, Renukoot

(d) Hindalco Superannuation Scheme, Renukoot

(e) Hindalco Industries Limited Employees’ Provident Fund II

(f) Hindalco Industries Limited Senior Management Staff Pension Fund II

(g) Hindalco Industries Limited Office Employees’ Pension Fund For details of transaction with the trust refer Note 42.


(i) Including Excise Duty (till 30/06/2017).

(ii) Excluding Excise Duty and GST.

(iii) Includes Foreign Exchange Gain/Loss on Return of Capital.

(iv) With respect to fair valuation of Financial Guarantees.

(V) The Company is one of the promoter members of Aditya Birla Management Corporation Private Limited (ABMCPL), a Company limited by guarantee, which has been formed to provide common facilities and resources to its members, with a view to optimise the benefits of specialisation and minimise cost for each member. The Company is one of the participants in the common pool and shares the expenses incurred by ABMCPL and accounted for under appropriate heads. The share of expenses charged by ABMCPL during the year is Rs.326.66 crore(year ended 31/03/2017 Rs.263.05 crore) and net outstanding payable balance as at 31/03/2018 is Rs.71.58 crore(as at 31/03/2017 Rs.18.46 crore). The outstanding deposit with ABMCPL as at 31/03/2018 is Rs.44.71 crore(as at 31/03/2017 Rs.44.71 crore).

(b) The Board of Directors of Idea Cellular Limited (Idea), an Associate of the Company has approved the amalgamation of Vodafone India Limited (VIL) and its wholly owned subsidiary Vodafone Mobile Services Limited (VMSL) with the Idea, subject to requisite regulatory and other approvals. As a member of promoter group of Idea, the Company has undertaken to indemnify (liable jointly and severally with other promoters of Idea) to the promoters of VIL and its wholly owned subsidiary VMSL upto USD 500 million, if Idea fails to meet some of its indemnity obligation under the implementation agreement for proposed amalgamation of VIL and VMSL with Idea.

(c) The Company has given the following undertakings in connection with the loan of Utkal Aluminium International Limited (UAIL), a wholly owned subsidiary:

(i) To hold minimum 51% equity shares in UAIL.

(ii) To ensure to meet the Financial Covenants, except Fixed Asset Coverage Ratio, as provided in the loan agreements.

4. Operating Leases

The Company has entered into various leasing arrangements under operating lease:

As a Lessee:

(a) The Company has entered in operating leases for land, material handling facilities to material handling, storage, rental premise contracts under both cancellable and non-cancellable in nature. The rent for cancellable and non-cancellable operating leases included in the Statement of Profit and Loss for the year is Rs.83.41 crore (year ended 31/03/2017 Rs.74.35 crore).

(b) Operating Lease as Lessor

The Company has entered into operating leases for certain of its premises. All of these leases are cancellable in nature (refer Note 26).

5. Offsetting Financial Liabilities and Financial Assets

Financial instruments subject to offsetting , enforceable master netting arrangement and similar arrangements.

(v) Valuation techniques used for valuation of instruments categorised as Level 3:

For valuation of investments in equity shares and associates which are unquoted, peer comparison has been performed wherever available. Valuation has been primarily done by considering the net worth of the Company and price to book multiple to arrive at the fair value. In cases, where income approach was feasible, valuation has been arrived using the earnings capitalisation method. For inputs that are not observable for these instruments, certain assumptions are made based on available information. The most significant of these assumptions are the discount rate and credit spreads used in the valuation process.

For valuation of investments in debt securities categorised as Level 3, market polls which represent indicative yields are used as assumptions by market participants when pricing the asset.

There were no significant inter-relationships between unobservable inputs that materially affect fair values.

6. Financial Instruments: Financial Risk Management

The Company’s activities expose it to various risk such as market risk, liquidity risk and credit risk. This section explains the risks which the Company is exposed to and how it manages the risks.

A. Market Risk

(i) Market Risk: Commodity Price Risk

Hindalco’s India operations consist of two businesses - Copper Business and Aluminium Business. The Copper Business works under a “Custom Smelting” model, wherein the focus is to improve the processing margin. The timing mis-match risk between the input and output price, which is linked to the same international pricing benchmark, is eliminated through use of derivatives. This off-set hedge model (through use of derivatives) is used to manage the timing mis-match risk for both Commodity (Copper and Precious Metals) and Currency Risk (primarily, USD/INR). The Copper Business also has a portion of View-Based exposure for both Commodity and Currency, beyond the above timing mis-match risk. Lower Copper Prices, Stronger USD/INR exchange rate and Higher “Other Input” Prices are the major price risks that adversely impact the business. Here, the Company may use derivative instruments, wherever available, to manage these pricing risks. A variety of factors, including the risk appetite of the business and price view, are considered while taking Hedging Decisions. Such View-based hedges are usually done for the next 1-8 quarters.

The Aluminium Business is a vertically integrated business model wherein the input and output pricing risks are independent of each other, i.e. - are on different pricing benchmarks, if any. Here, the Company may use derivative instruments, wherever available, to manage its pricing risks for both input and output products. Lower Aluminium Prices, Stronger USD/INR exchange rate and Higher Input Prices are the major price risks that adversely impact the Business. Hedging decisions are based on a variety of factors, including risk appetite of the business and price View. Such Hedge decisions are usually done for the next 1-12 quarters.

(ii) Market Risk: Foreign Currency Risk

The Company may also have Foreign Currency Exchange Risk on procurement of Capital Equipment for its businesses. The Company manages this forex risk, using derivatives, wherever required, to mitigate or eliminate the risk. The Company may also have Foreign Currency Exchange Risk on Foreign Currency denominated Borrowings for its businesses. The Company manages this forex risk, using derivatives, wherever required, to mitigate or eliminate the risk.

(iii) Market Risk: Other Price Risk

The Company’s exposure to equity securities price risk arises from movement in market price of related securities classified either as fair value through OCI. The Company manages the price risk through diversified portfolio.

The table below summaries gain/(loss) impact on of increase/decrease in the equity share price on the Company’s equity and profit for the year:

(iv) Market Risk: Interest Rate Risk

The Company is exposed to interest rate risk on financial liabilities such as borrowings, both short-term and long-term. It maintains a balance of fixed and floating interest rate borrowings, and the proportion is determined by current market interest rates, projected debt servicing capability and view on future interest rates. Such interest rate risk is actively evaluated and interest rate swap is taken whenever considered necessary.

The Company is also exposed to interest rate risk on its financial assets that include fixed deposits, bonds, debentures, commercial, other mutual funds and liquid investments comprising mainly mutual funds (which are part of cash and cash equivalents). Since all these are generally for short durations, the Company believes it has manageable and limited risk.

B. Liquidity Risk

The Company determines its liquidity requirements in the short, medium and long term. This is done by drawing up cash forecast for short and medium term requirements and strategic financing plans for long-term needs.

The Company manages its liquidity risk in a manner so as to meet its normal financial obligations without any significant delay or stress. Such risk is managed through ensuring operational cash flow while, at the same time, maintaining adequate cash and cash equivalent position. The Management has arranged for diversified funding sources and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a regular basis. Surplus funds, not immediately required, are invested in certain products (including mutual fund), which provide flexibility to liquidate at short notice, and are included in current investments and cash equivalents. Besides, it generally has certain undrawn credit facilities which can be accessed as and when required; such credit facilities are reviewed at regular intervals.

The Company has developed appropriate internal control systems and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and availability of alternative sources for additional funding, if required.

(i) Financing Arrangement

The Company had access to the following undrawn borrowing facilities at the end of the reporting period:

(ii) Maturity Analysis

The Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities and net settled derivative financial instruments. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

* Includes principal and interest payments, short-term borrowings, current portion of debt, and excludes unamortised fees.

** Excludes financial guarantee liability contract which has been fair valued.

*** Guarantee given for loans as at 31/03/2018 Rs.4,865.12 crore and 31/03/2017 Rs.5,040.78 crore has been reported to the extent of loan amount outstanding as on 31/03/2018 Rs.2,435.18 crore and 31/03/2017 Rs.4,757.61 crore.

(C) Credit Risk

Credit risk is the risk of financial loss to the Company if a customer or counter-party to a financial instrument fails to meet its contractual obligation.

Credit risk is managed on a group basis. The Company invests only in those instruments issued by high rated banks/institutions. For other financial assets, the Company assesses and manages credit risk based on the credit rating. The Company has assessed its other financial assets as high quality, negligible credit risk. The Company periodically monitors the recoverability and credit risks of its other financials assets including security deposits and other receivables. The Company evaluates 12-month expected credit losses for all the financial assets for which credit risk has not increased. In case credit risk has increased significantly, the Company considers life time expected credit losses for the purpose of impairment provisioning.

Credit risk is managed on a group basis. The Company invests only in those instruments issued by high rated banks/institutions. For other financial assets, the Company assesses and manages credit risk based on the credit rating. The Company has assessed its other financial assets as high quality, negligible credit risk.

The Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward-looking information. The expected credit loss allowance is based on the ageing of the days the receivables are due and the rates as given in the provision matrix. The provision matrix at the end of the reporting period is as follows:

7. Capital Management

The Company’s objective to manage its capital is to ensure continuity of business while at the same time provide reasonable returns to its various stakeholders but keep associated costs under control. In order to achieve this, requirement of capital is reviewed periodically with reference to operating and business plans that take into account capital expenditure and strategic investments. Apart from internal accrual, sourcing of capital is done through judicious combination of equity and borrowing, both short-term and long-term. Net debt (total borrowings less current investment, and cash and cash equivalents) to equity ratio is used to monitor capital. No changes were made to the objectives, policies or processes for managing capital during the years ended 31st March, 2018 and 31st March, 2017.

8. Derivative Financial Instruments

The Company uses derivative financial instruments such as forwards, futures, swaps, options, etc., to hedge its risks associated with foreign exchange fluctuation. Risks associated with fluctuation in the price of the products (copper, aluminium, coal, furnace oil and precious metals) are minimised by undertaking appropriate derivative instruments. Derivatives embedded in other financial instruments are treated as separate derivatives when their risks and characteristics are not closely related to their host contracts. In some cases, the embedded derivatives may be designated in a hedge relationship. The fair values of all such derivative financial instruments are recognised as assets or liabilities at the Balance Sheet date.

The Company also appiles hedge accounting using certain foreign currency non-derivative monetary items, which are used as hedging instruments for hedging foreign exchange risk.

(H) The Company’s hedging policy only allows for effective hedge relationships to be established. The effective portion of hedge is taken to OCI while ineffective portion of hedge is recognised immediately to the Statement of Profit and Loss. The Company uses hypothetical derivative method to assess effectiveness. Ineffectiveness may arise if the terms of the hedging instrument and the hedged item differ or differences between the credit risk inherent within the hedged item and the hedging instrument.

The amount of gain/(loss) recognised in the Statement of Profit and Loss on account of hedge ineffectiveness for cash flow hedges for the period ended 31st March, 2018 and 31st March, 2017 is ‘ (20.78) crore and ‘ (167.11) crore, respectively, which forms part of Gain/Loss on fair value of derivatives under Note 35 for Other Expenses.

9. Additional Information

A. As per Section 135 of the Companies Act, 2015, a Corporate Social Responsibility Committee has been formed. As per the provisions of the Companies Act, 2013, amount not less than Rs.26.70 crore (year ended 31/03/2017 Rs.20.97 crore) should have been incurred during the year under CSR. The Company has incurred expenses amounting to Rs.31.43 crore (year ended 31/03/2017: Rs.28.36 crore), in line with the CSR policy, which is in conformity with the activities specified in Schedule VII of the Companies Act, 2013.

B. Details of loans given, investments made and guarantees given covered under Section 186(4) of the Companies Act, 2013:

i. Details of investments made have been given as part of Note Rs.5’, Investments in Subsidiaries, Note Rs.6’, Investments in Associates and Note Rs.7B’, Investments in Debt and Equity Instruments.

ii. Loans and Financial Guarantees given below:

iii. Disclosure relating to the amount outstanding at year end and maximum outstanding during the year of loans and advances, in nature of loan, required under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, are given below:

10. During the financial year ended 31st March, 2018, the Company has reclassified/regrouped certain comparatives, in order to confirm with current year’s presentation.

The key reclassification/regrouping included the following:

(i) Provisions amounting to Rs.394.27 crore reclassified from Trade Payable to Current Provisions. Further, an amount of Rs.36.69 crore has been reclassified from current provision to non-current provisions.

(ii) Other current assets related to tax amounting to Rs.1,254.95 crore reclassified to non-current tax assets amounting to Rs.1,567.68 crore and current income tax liabilities amounting to Rs.312.83 crore.