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

BSE: 500300ISIN: INE047A01021INDUSTRY: Diversified

BSE   ` 1031.40   Open: 1029.00   Today's Range 1020.00
1033.00
-6.05 ( -0.59 %) Prev Close: 1037.45 52 Week Range 996.30
1331.75
Year End :2017-03 

GENERAL INFORMATION

Grasim Industries Limited (“the Company”) is a limited company incorporated and domiciled in India. The address of its registered office and principal place of business are disclosed in the introduction to the annual report.

The Company is engaged primarily in three businesses, Viscose Staple Fibre (VSF), Chlor-Alkali Chemicals and in Cement, through its subsidiary UltraTech Cement Limited. It also produces Rayon Grade Pulp and allied Chemicals which are used in the manufacture of VSF. The manufacturing plants of the Company, its Subsidiaries and Joint Ventures are located in India, Canada, Sweden, China, Middle East, Sri Lanka and Bangladesh. 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.

1.1.1 details of Gross block and Accumulated depreciation as per previous GAAp as at 1st April, 2015, are as follows:

The Deemed cost as on 1st April, 2015 as per the last column of above Table has been considered as the cost for opening financial statements as per Ind AS as on 1st April 2015 as per transition provision in Ind AS 101, accordingly accumulated depreciation as per Previous GAAP as on 1st April 2015 is not carried forward for Ind AS financial statements.

1.1.2 Value of PPE acquired (Ganjam, Odisha and Pundi, Andhra Pradesh, Units of Jayshree Chemicals Ltd.) during the previous year at a consideration of Rs.206.20 Crore.

1.1.3 During the previous year, the Company has componentised PPE transferred to it on amalgamation of ABCIL, and has separately assessed the life of major components, forming part of the main asset. Consequently, the depreciation charge for the previous year is higher by Rs.28.87 Crore on account of higher depreciation on components.

1.2.1 The investments in Company’s Subsidiary, Grasim Bhiwani Textiles Limited; its Joint Ventures, AV Group NB Inc., AV Terrace Bay Inc., Birla Jingwei Fibres Company Limited, Aditya Group AB; and its Associate, Idea Cellular Limited, 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 Subsidiary and 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.

1.2.2 The Company holds 40% stake in Birla Lao Pulp and Plantations Company Ltd. (BLPP), a joint venture of the Company to secure pulp requirement for its VSF business at a cost of Rs.95.71 Crore. Considering the overcapacity in both pulp and fibre businesses, it’s strategic importance to the Company had diminished. Therefore, the Company provided Rs.55.43 Crore (Current Year: Rs.Nil Crore; Previous Year: Rs.29.19 Crore during the previous year), towards diminution, other than temporary, in the value of the said investment being the excess of the cost over the estimated enterprise value. It has been disclosed as exceptional item in the previous year.

1.2.3 During previous year, pursuant to the Composite Scheme of Arrangement, Aditya Birla Nuvo Limited (ABNL) has transferred it’s branded apparel retailing division to Aditya Birla Fashion and Retail Limited (ABFRL). In terms of the Scheme, 26 fully paid up equity shares of Rs.10 each of ABFRL has been allotted for every 5 equity shares of ABNL. Accordingly, 17,398,243 shares have been allotted to the Company.The carrying cost of equity shares of ABNL has been apportioned to equity shares of ABFRL as acquisition cost on the basis of decrease in market value of shares of ABNL as the effect of said Composite Scheme.

1.2.4 The Company holds 33.33% stake in its Joint Venture, Aditya Birla Elyaf Sanayi Ve Ticaret Anonim Sirketi (ABEST), Turkey. ABEST has decided not to pursue it’s project in Turkey. As ABEST plans to return the capital to it’s shareholders, the Company has reclassified its investment in ABEST from Non-current Investment to current investment during previous year. In the current year, ABEST has returned Rs.42.68 Crore and the difference between Gross investment amount and actual receipt has resulted in an exchange loss of Rs.13.52 Crore due to currency depreciation of Turkey.

1.2.5 The Company has opted to measure its Investments in Associates at cost in terms of the exemption available in Ind AS 101- First Time Adoption of Ind AS. Accordingly, the book value of Investments in Associates as on 1st April 2015 (the transition date), as per previous GAAP has been now considered as deemed cost. These investments were measured at fair value till 31st December, 2016. Therefore, the previous periods’ amount of OCI have been recasted w.e.f. 1st April, 2015 to align with the accounting policy adopted, as stated above.

1.2.6 AV Cell Inc. and AV Nackawic Inc. have been merged into AV Group NB Inc. w.e.f. 1st April 2016 and accordingly shares of AV Group NB Inc. have been received in lieu of shares held in AV Cell Inc. and AV Nackawic Inc.. There has been no change in the Company’s ownership in AV Group NB Inc. on account of merger.

1.2.7 disclosure requirement of Ind AS 107- Financial Instruments: disclosure:

a. Equity Instruments (Other than Subsidiaries, Joint venture and Associates) designated at FvTOcI

These investments have been designated on initial recognition to be measured at FVTOCI as these are strategic investments and are not intended for sale.

b. debentures and bonds designated 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 designated at FVTOCI.

c. mutual Funds’ units and preference Shares designated at fvtpl

Preference Shares and Mutual Funds have been designated 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 designated at amortised cost or FVTOCI, hence, classified at FVTPL.

* Includes deposit of Rs.5.25 Crore (Previous Year Rs.5.25 Crore) given to Aditya Birla Management Corporation Pvt. Limited (ABMCPL), a company limited by guarantee. Directors of which include Directors of the Company. The Company is one of the Promoter members of ABMCPL, which has been formed to provide a common pool of facilities and resources to its members, with a view to optimise the benefits of specialisation and minimise cost to each member. The Company’s share of expenses, under the common pool, has been accounted for under the appropriate heads.

1.3.1 The Company follows suitable provisioning norms for writing down the value of Inventories towards slow moving, non-moving and surplus inventory. Provision for the year Rs.1.96 Crore (31st March 2016 Rs.2.78 Crore). Inventory values shown above are net of the provisions.

1.3.2 Working Capital Borrowings are secured by hypothecation of stocks of the Company.

1.3.1 Working Capital Borrowings are secured by hypothecation of Book debts of the Company

1. 4.1 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.

1.4.2 During the current year, the shareholders of the Company have approved sub-division of equity shares of the Company from one (1) equity share of face value Rs.10 each fully paid up to five (5) equity shares of face value Rs.2 each fully paid up. Accordingly, Earnings Per Share of previous year has been recasted.

# Net of Deferred Employees’ Compensation Expenses Rs.3.58 Crore (Previous Year Rs.7.54 Crore, 1st April 2015 Rs.9.77 Crore)

The Description of the nature and purpose of each reserve within equity is as follows:

a. Securities premium Reserve: Securities premium reserve is credited when shares are issued at premium. It can be used to issue bonus shares, to provide for premium on redemption of shares or debentures, write-off equity related expenses like underwriting costs, etc.

b. General Reserve: It is a free reserve which is created by appropriation from profits of the current year and/or undistributed profits of previous years, before declaration of dividend duly complying with any regulations in this regard.

c. capital Reserve: Capital Reserve is mainlythe reserve created during business combination oferstwhile ABCIL with the Company.

d. 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 Proft or loss on disposal of such instruments.

e. equity Instrument through ocI: It represents the cumulative gains/(losses) arising on the revaluation 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.

f. hedging Reserve: It represents the effective portion of the fair value of forward contracts, designated as cash flow hedge.

g. employee Share option outstanding: The Company has two share 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.

1.5.1 The rate of interest on borrowings ranges from 9% to 11%.

1.6.1 Working Capital Borrowings are secured by hypothecation of stocks and book debts of the Company.

1.7.1 movement of provisions during the year as required by Ind As - 37 “Provisions, contingent Liabilities and contingent Asset”

During previous year, provision for asset transfer cost related to amalgamation of ABCIL has been made based on substantial degree of estimation. Outflow against the same is expected at the time of regulatory process of registration of assets owned by ABCIL in the name of the Company.

2.1 During current year, Donations include contribution of Rs.13.00 Crore (Previous year Rs.Nil Crore) to Satya Electoral Trust. The Trust uses such funds for contribution for Political purposes.

During the previous year, the Company has received refund of Rs.0.21 Crore from General Electoral Trust, being undistributed balance related to earlier years.

3.1 OPERATING SEGMENTS

3.1.1 Details of products included in each of the segments are as under: Fibre and Pulp - Viscose Staple Fibre and Rayon Grade Pulp Chemicals - Caustic Soda, Epoxy and Allied Chemicals Others - Mainly Textiles

A letter of maintaining minimum shareholding and intention to provide financial support has been issued by the Company in respect of Aditya Birla Chemicals (Belgium) BVBA, a subsidiary of the Company.

In the previous year, a letter of Undertaking-cum-Indemnity was given to Banks for finance provided to Aditya Birla Chemicals (Belgium) BVBA of Rs.3.77 Crore (amount outstanding against letter of undertaking-cum-indemnity Rs.2.14 Crore)

The Board of Directors of Idea Cellular Limited (Idea), an Associate of the Company have approved the amalgamation of Vodafone India Limited (VIL) and it’s wholly owned subsidiary Vodafone Mobile Services Limited with the Idea subject to requisite regulatory and other approvals.

As a promoter of Idea, the Company has undertaken to indemnify (liable jointly and severally with other promoters of Idea) upto a maximum of US$ 500 Million to the promoters of VIL and its wholly owned subsidiary VMSL, if Idea fails to meet some of its indemnity obligation under the implementation agreement for proposed amalgamation of VIL and VMSL with Idea.

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. The above transactions are as per the 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.

3.2 RETIREMENT BENEFITS :

3.2.1 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 plan is of a defined benefit in nature which is sponsored by the Company and hence it underwrites all the risks pertaining to the plan. In particular, there is a risk for the Company that any adverse increase in salary increases for serving employees/pension increase for pensioners or adverse demographic experience can result in an increase in cost of providing these benefits to employees in future. In this case the pension is paid directly by the company (instead of pension being bought out from an insurance company) during the lifetime of the pensioners/beneficiaries and hence the plan carries the longevity risks.

(xiii) There are no amounts included in the Fair value of plan Assets for:

a) Company’s own financial instrument

b) Property occupied by or other assets used by the Company

(xiv) 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.

(xv) 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.

(xvi) Salary Escalation Rate:

The estimates of future salary increases are considered taking into account inflation, seniority, promotion, increments and other relevant factors.

(xvii) Sensitivity Analysis:

Sensitivity Analysis have been calculated to show the movement in defined benefit obligation 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.

(xviii)The best estimate of the expected Contribution for the next year amounts to Rs.20 Crore (Previous YearRs.15 Crore).

3.2.1.2 compensated Absences:

The obligation for compensated absences is recognised in the same manner as gratuity, amounting to charge of Rs.18.80 Crore (Previous Year Rs.2.01 Crore).

3.2.2 defined contribution plans:

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 3.7 as “Contribution to Provident and Other Funds” is Rs.36.40 Crore (Previous Year Rs.33.27 Crore).

The actuary has provided for a valuation and based on the below provided assumption there is no interest shortfall as at 31st March, 2017; 31st March, 2016 and 1st April, 2015.

3.3.1 Government Grant (Ind AS 20)

The Company has received an interest-free loan of Rs.13.15 Crore from a State Government, repayable in full after seven years. Using prevailing market interest rate of 8.9% p.a. for an equivalent loan, the fair value of loan at initial recognition is estimated at Rs.7.07 Crore. The difference of Rs.6.08 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. Accordingly, an amount of Rs.0.41 Crore has been recognised as income in the current year and correspondingly equivalent amount has been accounted as an interest expense.

3.3.2 The Company has spent Rs.18.06 Crore on Corporate Social Responsibility Projects/initiatives during the year including Rs.1.64 Crore towards capital expenditure. (Previous Year Rs.15.05 Crore including Rs.1.17 Crore towards capital expenditure).

The amount required to be spent under Section 135 of the Companies Act, 2013 for the year ended 31st March 2017 is Rs.15.80 Crore (31st March 2016 Rs.15.82 Crore) i.e. 2% of average net profits for last three financial years, calculated as per Section 198 of the Companies Act, 2013.

3.3.3 Assets held for disposal (Ind AS 105)

The Company has identified certain assets to be disposed off like Chimneys, Hot Gas filter, Heat exchanger, Waste Heat boilers, Pipelines, Sulphur furnace, 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.

3.3.4 capital Management (Ind AS 1)

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.

3.3.5 disclosure of Specified bank Notes

During the year, the Company had specified bank notes or other denomination note as defined in the MCA notification G.S.R. 308(E) dated 31st March, 2017 on the details of Specified Bank Notes (SBN) held and transacted during the period from 8th November, 2016 to 30th December, 2016, the denomination wise SBNs and other notes as per the notification is given below:

3.4 1,152,595 Equity Shares of Face Value of Rs.2 each (Previous Year 241,426 shares of Rs.10 each) are reserved for issue under Employee Stock Option Scheme-2006 (ESOS-2006) and Employee Stock Option Scheme, 2013 (ESOS-2013)

3.4.1 a. Under the ESoS-2006, the company has granted 1,533,375 options to its eligible employees, the details of which are given hereunder:

The number of options have been adjusted for the sub-division of face value of shares from Rs.10 each to Rs.2 each during the current financial year.

3.4.2 Fair valuation

The fair value of options used to compute proforma net income and earnings per equity share has been done by an independent firm of Chartered Accountants on the date of grant using Black-Scholes Model.

The Key Assumptions in Black-Scholes Model for calculating fair value as on the date of grant are:

3.4.3 Employee Stock Option expenses recognised in the statement of Profit and Loss Rs. 5.33 Crore (Previous Year Rs. 5.62 Crore).

3.5 financial instruments-accounting classifications and fair value measurements (ind AS 107) A. classification of Financial Assets and Liabilities:

A. 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, 2017 and 31st March, 2016, there was no transfer between level 1 and level 2 fair value measurement.

3.5.1 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 Fixed Income and Money Market Association (FIMMDA) valuation (Level 2)

3. Listed Equity Investments (other than Subsidiaries, Joint Ventures and Associates): Quoted Bid Price on Stock Exchange (Level 1)

3.5.2 description of Significant Unobservable Inputs used for Financial Instruments (Level 3)

The following table shows the valuation techniques used for financial instruments :

3.5.3 The following table shows a reconciliation from the opening balances to the closing balances for level 3 fair values :

3.5.4 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.7.50 Crore or increase by Rs.11.00 Crore (as at 31st March, 2016: decrease by Rs.3.50 Crore or increase by Rs.5.50 Crore ; as at 1st April, 2015: decrease by Rs.1.50 Crore or increase by Rs.2.50 Crore).

B. Equity Investments - unquoted (For Equity Shares where Net Worth is used):

A 500 bps increase/decrease in the profit or loss while all the other variables were held constant, the carrying value of the shares would increase/decrease by Rs.0.01 Crore or (as at 31st March, 2016: increase/ decrease by Rs.0.01 Crore; as at 1st April, 2015: increase/decrease by Rs.0.01 Crore).

C. 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.5.60 Crore or increase by Rs.5.80 Crore (as at 31st March, 2016: decrease by Rs.6.60 Crore or increase by Rs.7.00 Crore; as at 1st April, 2015: decrease by Rs.6.80 Crore or increase by Rs.6.60 Crore).

3.6 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, such as foreign exchange forward contracts 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 on a quarterly basis about the implementation of the above policies. It also updates to the Internal Risk Management Committee of the Company 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 equipments, exports of VSF and Chemicals, and the Company’s net investments in foreign Subsidiaries and Joint Ventures.

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.

Forward Exchange contracts:

a. Derivatives for Hedging Foreign currency Outstanding are as under:

b. cash Flow Hedges: 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. During the current year, the Company has not designated any forward cover as cash flow hedge.

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.

Note: If the rate is decreased by 1% profit will increase by an equal amount.

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, 2017 would increase/decrease by Rs.118.97 Crore (for the year ended 31st March, 2016 by Rs.71.43 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.

a. 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, 2017 is Rs.1,189.55 Crore (31st March, 2016: Rs.992.37 Crore, 1st April, 2015: Rs.687.49 Crore)

The Company does not have higher concentration of credit risks to a single customer. Single largest customers of all businesses have exposure of 5.6% of total sales (31st March, 2016 5.4%) and in receivables 10% (31st March, 2016: 9.6%, 1st April, 2015: 1.4%).

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 “nil” of the outstanding receivables for the current year (0.09% in the previous year).

b. 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, NonConvertible 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, 2017 is Rs.8,996.42 Crore (31st March, 2016 Rs.7,099.62 Crore; 1st April, 2015: Rs.6,588.74 Crore).

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.

3.7 FIRST TIME Adoption of IND AS (IND AS 101):

The Company has prepared financial statements for the year ended 31st March, 2017, in accordance with Ind AS for the first time. For the periods upto and including the year ended 31st March, 2016, the Company prepared its financial statements in accordance with the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Previous GAAP).

Accordingly, the Company has prepared its financial statements to comply with Ind AS for the year ending 31st March, 2017, together with comparative information as at and for the year ended 31st March, 2016, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening Balance Sheet was prepared as at 1st April, 2015 i.e. the transition date to Ind AS for the Company. This note explains the principal adjustment made by the Company in restating its previous GAAP financial statements, including the Balance Sheet as at 1st April, 2015, and the financial statements as at and for the year ended 31st March, 2016.

Exemptions availed:

- Deemed Cost for Property, Plant and Equipment and Intangible Assets:

The Company has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets recognised as of 1st April, 2015 (the transition date), measured as per the Previous GAAP and use that carrying value as its deemed cost as of the transition date under Ind AS.

- Share-Based Payments:

The Company has not applied Ind AS 102 to equity instruments that vested before the date of transition to Ind AS.

- Investments in Subsidiaries, Joint Ventures and Associates:

The Company has elected to apply Previous GAAP carrying amount of its investments in Subsidiaries, Joint Ventures and Associates as deemed cost as on the date of transition to Ind AS.

- Sales Tax Deferment Loan:

The Company has used its Previous GAAP carrying amount of the loan at the date of transition to Ind AS as the carrying amount of the loan in the opening Ind AS Balance Sheet.

- Past Business Combinations:

The Company has elected not to apply Ind AS 103 Business Combinations retrospectively to past business combinations that occurred before the transition date of 1st April, 2015. Consequently,

- the Company has kept the same classification for the past business combinations as in its Previous GAAP financial statements;

- the Company has not recorded assets and liabilities that were not recognised in the previous GAAP; and

- the Company has not excluded from its opening Balance Sheet those items recognised in accordance with Previous GAAP that do not qualify for recognition as an asset or liability under Ind AS.

The above exemptions in respect of business combinations have also been applied to past acquisitions of investments in Associates and Joint Ventures.

- Classification and Measurement of Financial Assets:

The Company has classified the financial assets in accordance with Ind AS 109 on the basis of facts and circumstances that exist at the date of transition to Ind AS.

- Fair Value of Financials Assets and Liabilities:

As per Ind AS exemption, the Company has not fair valued the financial assets and liabilities retrospectively and has measured the same prospectively.

3.8 NOTES TO the REcONciLIATION OF equity AS AT 1ST April, 2015 AND 31ST march, 2016 AND TOTAL comprehensive income for THE year ended 31ST march, 2016

A. Fair valuation of Non-current Investments [bonds/ preference Shares/Equity Investments (other than Investments in Subsidiaries, Joint ventures and Associates)]:

i. bonds/Equity Investments (Other than Investments in Subsidiaries, Joint ventures and Associates):

Under Previous GAAP, long- term investments were measured at cost less diminution in value other than temporary. Under Ind AS, these financial assets have been classified as fair value through Other Comprehensive Income (FVTOCI). On the date of transition to Ind AS, these financial assets have been measured at their fair value which is higher than the cost as per the previous GAAP. As a result there has been:

ii. Preference Shares:

Under Previous GAAP, Preference Shares were measured at cost less diminution in value, which is other than temporary. Under Ind AS, these financial assets have been classified as fair value through Profit and Loss (FVTPL). On the date of transition to Ind AS, these financial assets have been measured at their fair value which is lower than the cost as per previous GAAP As a result there has been:

B. Fair Valuation of Investments (Mutual Funds):

Under previous GAAP, current investments were measured at lower of cost or fair value. Under Ind AS, these financial assets have been classified as FVTPL on the date of transition. The fair value changes are recognised in the Statement of Profit and Loss. On transitioning to Ind AS, these financial assets have been measured at their fair values which is higher than cost as per previous GAAP As a result there has been:

C. Share-based Payments:

Under Previous GAAP, the cost of equity-settled employee share-based payments was recognised using the intrinsic value method. Under Ind AS, the cost of equity-settled employee share-based payments is recognised based on the fair value of the options as on the grant date. The change does not affect total equity, but there is a decrease in profit before tax as well as profit for the year ended 31st March, 2016 by Rs.3.27 Crore. On account of the above, amount recoverable from wholly owned subsidiary has increased by Rs.0.43 Crore as on 31st March 2016 (Rs.0.29 Crore as on 1st April, 2015).

D. other comprehensive Income (oci):

Under Previous GAAP, there was no concept of OCI. Under Ind AS, fair valuation of Bonds and Equity Investments not held for trade (other than Subsidiaries, Joint Ventures and Associates) and re-measurement of defined benefit plan liability are recognised in OCI.

E. proposed Dividend:

Under Previous GAAP, proposed dividend including Corporate Dividend Tax (CDT), was recognised as liability in the period to which it relates, irrespective of period of declaration of the dividend. Under Ind AS, proposed dividend is recognised as a liability when approved by shareholders in a General Meeting.

Therefore, dividend liability (proposed dividend) including CDT amounting to Rs.220.81 Crore as at 31st March, 2016 and Rs.168.70 Crore as at 1st April, 2015 was derecognised and recognised in Retained Earnings during the year ended 31st March, 2016 as declared and paid.

F. Excise Duty:

Under Previous GAAP, revenue from sale of products was presented net of excise duty under revenue from operations. Whereas, under Ind AS, revenue from sale of products is inclusive of excise duty amounting to Rs.809.16 for the year ended 31st March, 2016. Accordingly, Excise duty has been included in the cost of production, as it is a liability of the manufacturer, irrespective of whether the goods are sold or not.

G. cash Discount:

Under Previous GAAP, cash discount of Rs.7.52 Crore was recognised as part of other expenses, which has been adjusted against the revenue from operations under Ind AS during the year ended 31st March, 2016.

H. Defined Benefit obligation:

Both under Previous GAAP and Ind AS, the Company recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under Previous GAAP, the entire cost, including actuarial gain and losses, are charged to profit or loss. Under Ind AS, remeasurements (comprising of actuarial gains and losses, the effect of assets ceiling, excluding amounts included in net interest on the net defined benefit liability and return on plan assets excluding amount included in net interest on the net defined benefit liability) are recognised in the Balance Sheet through Other Comprehensive Income (OCI). Thus, employee benefit expense is reduced by Rs.3.85 Crore and is recognised in OCI during the year ended 31st March, 2016.

The current tax amounting to Rs.1.33 Crore is also regrouped from profit or loss to OCI for the year ended 31st March, 2016. The above change does not affect total equity as at 31st March, 2016. However, profit before tax and profit for the year ended 31st March, 2016, is reduced by Rs.3.85 Crore and Rs.2.52 Crore respectively.

I. Exchange Difference on a loan given to a Joint venture (Net investment in a Non-Integral Foreign operations):

Under previous GAAP, exchange difference on a monetary item (Loan to a Joint Venture) is accumulated in foreign currency translation reserve (FCTR). On disposal of investment, such exchange difference is recognised in profit or loss. Whereas, as per Ind AS, exchange difference on such monetary item shall be recognised in profit or loss.

Exchange gain of Rs.3.54 Crore as on 31st March, 2016 (Rs.2.05 Crore as on 1st April, 2015) is regrouped from FCTR to Retained Earnings.

The above change does not affect total equity as at 1st April, 2015 and 31st March, 2016. However, profit before tax and profit for the year ended 31st March, 2016 is increased by Rs.1.49 Crore.

J. Stamp duty on Transfer of Assets of erstwhile ABcIL to company’s name in a business combination:

Under Previous GAAP, stamp duty/registration charges payable on transfer of assets in a business combination was allowed to be capitalised as it was considered as cost incurred on bringing the asset to location and working condition for its intended use.

However, Ind AS 103 specifically does not allow to capitalise such cost incurred on transfer of asset as it is considered as acquisition related cost.

Thus, stamp duty amounting to Rs.83.95 Crore payable on transfer of Assets of erstwhile ABCIL to Company’s name has been decapitalised from property, plant and equipment and charged to profit or loss for the year ended 31st March, 2016. Depreciation of Rs.0.81 Crore charged on account of above capitalisation under Previous GAAP has also been reduced. Accordingly, deferred tax liability has been reversed by Rs.26.01 Crore.

The above change has resulted in decrease in total equity as at 31st March, 2016 and profit for the year ended 31st March, 2016 by Rs.57.13 Crore.

K. capitalisation of major spares as Property, plant and Equipment (PPE):

As per Ind AS 16, spare parts, stand-by equipment and servicing equipment are recognised as Property, Plant and Equipment (‘PPE’) when they meet the following criteria:

- are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

- are expected to be used during more than one period.

Based on the above provision, stores and spares satisfying above criteria are de-recognised from Inventory and capitalised as PPE from the date of purchase. Accordingly,

- Spares inventory amounting to Rs.2.95 Crore as at 1st April, 2015 and Rs.6.10 Crore as at 31st March, 2016 have been capitalised as part of PPE.

- Spares consumption amounting to Rs.5.00 Crore charged to Profit or Loss for the year ended 31st March, 2016, has been reversed in Profit or Loss as per Ind AS.

- Depreciation of Rs.0.35 Crore has been charged to Retained Earnings as at 1st April, 2015, and Rs.1.01 Crore has been charged to Profit or Loss for the year ended 31st March, 2016.

- Deferred tax asset of Rs.0.12 Crore has been credited to Retained Earnings as at 1st April, 2015 and Rs.1.38 Crore has been charged to Profit or Loss for the year ended 31st March, 2016

The above change has resulted in increase in total equity by Rs.2.38 Crore as at 31st March, 2016 and decrease in total equity by Rs.0.23 Crore as at 1st April, 2015 and increase in profit before tax by Rs.3.99 Crore and profit for the year ended 31st March, 2016 by Rs.2.61 Crore.

L. Loss on sale of Non-current Investment:

Under Previous GAAP, Loss on sale of Non-current Investment was charged to profit and loss. Under Ind AS, the loss has been routed through OCI as per the accounting policy adopted for equity investments (other than Subsidiaries, Joint Ventures and Associates) and thereafter transferred to retained earnings.

M. Minimum Alternate Tax (MAT) credit Entitlement:

As per Ind AS 12, the Company has considered MAT credit entitlement as deferred tax asset being unused tax credit entitlement.

N. Deferred Tax:

IGAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS12 requires entities to account for deferred taxes using the Balance Sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the Balance Sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under IGAAP

In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred tax adjustments are recognised in correlation to the underlying transaction either in retained earnings, OCI or profit and loss respectively.

O. Re-classification of Assets and Liabilities as per Schedule III of the companies Act, 2013:

1. As per Schedule III, Security Deposits which are financial in nature are to be classified under Loans and other deposits are classified under Other Non-Current/Current Assets respectively.

2. Under Previous GAAP, Loans as well as Advances were shown together under heading “Loans and Advances”. However, as per Schedule III, Loans are classified under Financial Assets.

3. Fixed deposits with banks with maturity greater than twelve months have been reclassified from Cash and Cash equivalents to other non-current financial assets as per Schedule III of the Companies Act, 2013.

4. Fixed deposit with banks with maturity less than twelve months and those earmarked for specific purpose have been reclassified from Cash and Cash equivalents to Other Bank Balances as per Schedule III of the Companies Act, 2013.

5. Capital Advances have been reclassified from Long-term loans and advances to other Non-Current Assets.

6. Current and Non-Current Liabilities have been reclassified into financial and non-financial liabilities as per the nature of liabilities.

3.9 In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, ‘Statement of Cash Flows’ and Ind AS 102, ‘Share-based Payment.’ These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, ‘Statement of cash Flows’ and IFRS 2, ‘Share- based Payment,’ respectively. The amendments are applicable to the company from 1st April, 2017.The Company is evaluating the requirements of the amendment and the effect on the consolidated financial statements is being evaluated.

(A) Amendment to Ind AS 7:

The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of the financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the Balance Sheet for liabilities arising from financing activities, to meet the disclosure requirement.

(B) Amendment to Ind AS 102:

The amendment to Ind AS 102 provides specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes.

3.10 AMALGAMATION OF ADITYA BIRLA CHEMICALS (INDIA) LTD.

During the previous year, the Hon’ble High Courts of Madhya Pradesh and Jharkhand have by their respective orders, approved the Scheme of Amalgamation of Aditya Birla Chemicals (India) Limited (ABCIL), a leading manufacturer of Chlor Alkali and allied chemicals, with the Company and their respective Shareholders and Creditors. ABCIL has been amalgamated with the Company on 4th January, 2016 w.e.f. the appointed date of 1st April, 2015.

All the assets and liabilities have been accounted for in the books of account of the Company at the value appearing in the books of account of ABCIL as on 1st April, 2015 under the “Pooling of Interest” method as per the Court approved scheme of Amalgamation.

In terms of the Scheme, the Company has issued 14.62 lakh equity shares to the shareholders of the erstwhile ABCIL in the ratio of 1 (one) share of Rs.10/- each fully paid-up against 16 (sixteen) shares of Rs.10/- each fully paid up of ABCIL held by them. As a result, issued and paid up Equity Share Capital of the Company has increased by Rs.1.46 Crore to Rs.93.33 Crore.

Difference between Share Capital of ABCIL of Rs.23.39 Crore and Equity Share Capital issued by Company of Rs.1.46 Crore to ABCIL shareholders amounting to Rs.21.93 Crore has been disclosed as “Capital Reserve”

Further, Chlor Alkali plant and related assets of Ganjam, Odisha and Salt Works at Pundi, Andhra Pradesh were acquired during the previous year at a total consideration of Rs.212 Crore as per the Business Transfer Agreement between the ABCIL and Jayshree Chemicals Ltd.

The Company has followed the accounting treatment prescribed in the court approved Scheme of Amalgamation of ABCIL which is at deviation from the treatment for the amalgamation as per the Ind AS 103 (Business Combinations) in terms of general instruction clause (1) of notification dated 16th February, 2015 of Ministry of Corporate Affairs.

Disclosure of Assets and Liabilities recognised at the appointed date of Business Combination as per the Scheme of Amalgamation of ABCIL:

3.11 SCHEME OF ARRANGEMENT FOR AMALGAMATION OF ADITYA BIRLA NUVO LTD.(ABNL) WITH THE COMPANY AND DEMERGER OF FINANCIAL SERVICES BUSINESS INTO ADITYA BIRLA FINANCIAL SERVICES LTD. (ABFSL).

During the year, the Board of Directors of the Company approved a composite Scheme of Arrangement between the Company, ABNL and ABFSL - a wholly owned Subsidiary of ABNL and their respective shareholders and creditors (‘Scheme’). The Scheme provides for Amalgamation of ABNL with the Company and the subsequent demerger of financial services business into ABFSL and consequent listing of equity shares of ABFSL.

In terms of the Scheme, the Company will issue equity shares 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 in the first stage.

Subsequently in the second stage, on demerger of financial services business into ABFSL, the Shareholders of the Company will be issued equity shares of ABFSL 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 them on the record date for this purpose.

The Scheme has been approved by the Equity Shareholders and Creditors of the Company at their meeting held on 6th April, 2017. Shareholders and Creditors of ABNL and ABFSL have also approved the Scheme. Other regulatory approvals such as from Competition Commission of India, Stock Exchanges have also been received. The proceedings for sanction of the Scheme by the National Company LawTribunal (NCLT) are in progress. Pending sanction of the Scheme by NCLT and the Scheme becoming effective with other regulatory requirements, no effect has been given for the Scheme in these financial statements. In terms of the Scheme, the effective date will be the appointment date and there is no separate appointment date for the Scheme. The Scheme is expected to become effective by second quarter of the financial year 2017-18.

The Audited Financial Statements (Standalone and Consolidated) of ABNL for the year ended 31st March, 2017 have been duly approved by its Board of Directors at its meeting held on 18th May, 2017, extracts of which are as under:

3.12 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.