1. Corporate information
Tata Chemicals Limited (the ‘Company’) is a public limited company domiciled in India. Its shares are listed on two stock exchanges in India; the Bombay Stock Exchange (‘BSE’) and the National Stock Exchange (‘NSE’). The Company is a diversified business dealing basic chemistry products, consumer products and specialty products. The Company has a global presence with key subsidiaries in United States of America (‘USA’), United Kingdom (‘UK’) and Kenya that are engaged in the manufacture and sale of soda ash, industrial salt and related products.
2. A) Recent accounting pronouncements which are not yet effective
Ind AS 116 - Leases:
The Company is required to adopt Ind AS 116, Leases from April 1, 2019. Ind AS 116 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases. It replaces existing leases guidance, Ind AS 17, Leases.
The Company in in the process of completing its detailed assessment and the quantitative impact of adoption of Ind AS 116 on the Financial Statements in the period of initial application is not reasonably estimable as at present.
i. Leases in which the Company is a lessee
The Company will recognise new assets and liabilities for its operating leases of offices, warehouse and factory facilities. The nature of expenses related to those leases will now change because the Company will recognise a depreciation charge for right-of-use assets and interest expense on lease liabilities.
Previously, the Company recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.
In addition, the Company will include the payments due under the lease in its lease liability and apply Ind AS 36, Impairment of Assets to determine whether the right-of-use asset is impaired and to account for any impairment.
The Company plans to apply Ind AS 116 initially on April 1, 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting Ind AS 116 will be recognised as an adjustment to the opening balance of retained earnings at April 1, 2019, with no restatement of comparative information.
The Company plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply Ind AS 116 to all contracts entered into before April 1, 2019 and identified as leases in accordance with Ind AS 17.
Amendments to Ind AS 12 - Income Taxes (Appendix C - Uncertainty over Income Tax Treatments):
This interpretation, which will be effective from April 1, 2019, clarifies how entities should evaluate and reflect uncertainties over income tax treatments, in particular when assessing the outcome a tax authority might reach with full knowledge and information if it were to make an examination. The Company is in the process of evaluating the impact of this amendment on its standalone financial statements.
B) Business combination
The transaction to acquire the precipitated silica business of M/s Allied Silica Limited, situated in Cuddalore, Tamil Nadu on a slump sale and going concern basis was consummated through a Business Transfer Agreement (‘BTA’) on June 18, 2018.
The consideration of Rs. 123.19 crore is towards property, plant and equipment and the normalised net working capital of which Rs.6.37 crore is outstanding as payable as at March 31, 2019 on account of contingent consideration (Subject to compliance with conditions mentioned in the BTA by June-19).
Identifiable assets acquired and liabilities recognised on the date of acquisition are based on their fair values as presented below.
* determined on a provisional basis considering depreciated replacement cost and will be revised in FY 20, based on external valuers report and settlement of contingent consideration.
The resultant provisional goodwill amounts to Rs.48.00 crore. Goodwill paid reflects the premium for gaining immediate entry to markets and access to a start-up facility, with all the regulatory permits and clearances which will enable the Company to participate in the silica market. The goodwill recognised is expected to be deductible for income tax purposes.
The Company incurred acquisition related costs of Rs. 1.51 crore on transfer fees, legal fees, valuation costs, etc which are included in other expenses.
a) Disclosures relating to fair valuation of investment property
Fair value of the above investment property as at March 31, 2019 is Rs.49.45 crore based on external valuation.
Fair Value Hierarchy
The fair value of investment property has been determined by external independent property valuers, having appropriate recognised professional qualification and recent experience in the location and category of the property being valued.
The fair value measurement for all of the investment property has been categoried as a level 3 fair value based on the inputs to the valuation techniques used.
Description of valuation technique used
The Company obtains independent valuations of its investment property after every three years as per requirement of Ind AS 40. The fair value of the investment property have been derived using the Direct Comparison Method. The direct comparison approach involves a comparison of the investment property to similar properties that have actually been sold in arms-length distance from investment property or are offered for sale in the same region. This approach demonstrates what buyers have historically been willing to pay (and sellers willing to accept) for similar properties in an open and competitive market, and is particularly useful in estimating the value of the land and properties that are typically traded on a unit basis. This approach leads to a reasonable estimation of the prevailing price. Given that the comparable instances are located in close proximity to the investment property; these instances have been assessed for their locational comparative advantages and disadvantages while arriving at the indicative price assessment for investment property.
b) The Company has not earned any material rental income on the above properties.
(i) The Board of Directors of the Company has approved the Scheme of Amalgamation (‘Scheme’) under the provisions of Section 234 read with Sections 230 to 232 of the Companies Act, 2013 for the merger of Bio Energy Venture - 1 (Mauritius) Pvt. Ltd., a wholly owned subsidiary of the Company, with the Company, subject to necessary statutory and regulatory approvals, including the National Company Law Tribunal. The Scheme is in the process of being filed.
(ii) Consequent to Tata Industries Limited (‘TIL’) obtaining approval of its shareholders at the General Meeting held on 27 March, 2019, the Company along with Tata Sons Private Limited will exercise joint control over the key activities of TIL. Accordingly, the investment in TIL has been reclassified as a Joint Venture.
(iii) Shares can be transferred only with the prior approval of the Board of Directors of Tata Teleservices Ltd.
* value below Rs.50,000/-
(iii) The cost of inventories recognised as an expense includes Rs. 2.96 crore (2018: Rs.7.67 crore) in respect of write-down of inventories to net realisable value, and has been reduced by Rs.0.10 crore(2018: Rs.4.17 crore) in respect of reversal of such write-down. Reversal of previous write-downs have been largely as a result of increased selling prices of certain products.
(iv) Inventories have been offered as security against the working capital facilities provided by the bank.
(ii) Terms/ rights attached to equity shares
The Company has issued one class of ordinary shares at par value of Rs. 10 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting except in the case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company, after distribution of all preferential accounts, in proportion to their shareholding.
(i) Unsecured redeemable Non-convertible debentures having face value of Rs. 10 lakhs each are redeemable at par on July 2, 2019 and bear interest rate of 10% per annum. This has been disclosed in note 17 within the heading current maturity of non-current borrowings under other financial liabilities (current).
(ii) The External Commercial Borrowings (‘ECB’) are due for repayments during October 2019 Rs.438.85 crore (2018: Rs.413.60 crore) (USRS. 63.46 million) and bear interest of LIBOR plus spread of 1.95% semiannually. Current portion due for repayment within one year Rs.438.85 crore (2018: Rs.412.36 crore). This amount has been disclosed in note 17 within the heading current maturities of non current borrowings under other financial liabilities (current).
(i) Loans from banks on Cash Credit carry an interest ranging from 8.70% p.a. to 9.10% p.a. and are secured by way of hypothecation of stocks of raw materials, finished products, stores and work-in-process as well as book debts.
Nature of provisions :
1) Provision for asset retirement obligation includes provision towards site restoration expense and decomissioning charges. The timing of the outflows is expected to be within a period of one to thirty years from the date of balance sheet.
2) Provision for warranty relates to certain products that fail to perform satisfactorily during the warranty period. Provision made as at respective year ends represents the amount of the expected cost of meeting such obligations of rectification/replacement. The timing of the outflows is expected to be within a period of one year from the date of balance sheet.
3) Provision for others represents management’s best estimate of outflow of economic resources in respect of water charges, entry tax, land revenue and other disputed items including direct taxes, indirect taxes and other claims. The timing of outflows is uncertain and will depend on the cessation of the respective cases.
(ii) On adoption of Ind AS 115 - Revenue from Contracts with Customers with effect from April 1, 2018, the Company has evaluated its performance obligations relating to freight arrangements on sales to customers. Consequently following the cumulative effect method, freight and forwarding charges and revenue from operations are higher by Rs. 172.54 crore for the year ended March 31, 2019 (comparatives have not been restated); however, these do not have any impact on the profit.
(iii) For operating segments revenue, geographical segments revenue, revenue from major products and revenue from major customers refer note 35.1.
(iv) Sales includes excise duty upto June 30, 2017 and hence figures are not comparable.
(ii) Amount required to be spent by the Company during the year on CSR is Rs. 19.86 crore (2018: Rs. 16.80 crore) whereas the Company has spent Rs. 25.68 crore (2018: Rs. 14.28 crore). The Company has spent the following amounts during the year on the activities other than construction/acquisition of any asset.
(iii) Amount includes Contribution of Rs. 10 crore (2018: Rs. Nil) to Progressive Electoral Trust (The Objects of the Trust inter alia, include holding by the Trustees of” Distribution Funds” for distribution to political parties).
(iv) Expenditure incurred on Scientific Research and Development activities @
3. Discontinued operations
(I) Disposal of Phosphatic Fertilisers business and Trading business of bulk and non-bulk fertilisers
On June 1, 2018, the Company consummated the sale and transfer of its Phosphatic Fertiliser Business located at Haldia and the Trading Business comprising bulk and non-bulk fertilisers to IRC Agrochemicals Private Limited (“IRC”) as per Business Transfer Agreement dated November 6, 2017.
Exceptional gain includes pre-tax loss of Rs.65.40 crore towards the shortfall between the carrying value of net Property, plant and equipment (‘PPE’) and the recoverable value for the year ended March 31, 2018.
(II) Disposal of urea and customised fertilisers business
During the previous year, the Company entered into an agreement with Yara Fertilisers India Private limited (‘Yara India’) to transfer its Urea Business (which comprises of manufacturing facilities for urea and customised fertilisers at Babrala, Uttar Pradesh), by way of a slump sale.
On January 12, 2018, the Company consummated the sale and transfer of its Urea and Customised Fertilisers Business to Yara India as contemplated in the Scheme of Arrangement dated August 10, 2016. The pre-tax gain of Rs. 1,279.39 crore for the year ended March 31, 2018 is included under exceptional gain for discontinued operations.
(i) (a) The Department of Fertilizers, Government of India, has notified ‘Special Banking Arrangement’ scheme to address the concern of delay in subsidy disbursement. This arrangement has been made by the Government with the State Bank of India Consortium (SBI Consortium). Loans under this scheme are secured by hypothecation of subsidy receivables.
Fixed interest rate of 7.80% per annum out of which 6.84% per annum shall be borne by the Government and repaid in April 2018. The remaining 0.96% per annum shall be borne by the Company and will be recovered upfront for 60 days from the Company at the time of disbursement of the facility. Balance as at March 31, 2019 : Rs. Nil [2018 : Rs.307.95 crore].
(b) Cash credit (Secured) of Rs. Nil (2018: Rs. 2.13 crore)
(ii) Subsidy receivables and borrowings related to Phosphatic fertilisers and Trading business along with the related revenue and expenses are disclosed as discontinued operations. These receivables and borrowings are not transferred on disposal of business. (note 9)
4. Finance leases
Finance lease commitments
The Company has finance lease contracts for certain items of plant and machinery and vehicles. The Company’s obligations under finance leases are secured by the lessor’s title to the leased assets.
Future minimum lease payments (‘MLP’) under finance lease contracts together with the present value of the net MLP are, as follows:
5. Employee benefits obligations
(a) The Company makes contributions towards provident fund, in substance a defined benefit retirement plan and towards pension fund and superannuation fund which are defined contribution retirement plans for qualifying employees. The provident fund is administered by the Trustees of the Tata Chemicals Limited Provident Fund and the superannuation fund is administered by the Trustees of the Tata Chemicals Limited Superannuation Fund. The Company is liable to pay to the provident fund to the extent of the amount contributed and any shortfall in the fund assets based on Government specified minimum rates of return relating to current services. The Company recognises such contribution and shortfall if any as an expense in the year incurred.
On account of the above contribution plans, a sum of Rs. 11.78 crore (2018: Rs. 14.62 crore) has been charged to the Statement of Profit and Loss.
(b) The Company makes annual contributions to the Tata Chemicals Employees’ Gratuity Trust and to the Employees’ Group Gratuity-cum-Life Assurance Scheme of the Life Insurance Corporation of India, for funding the defined benefit plans for qualifying employees. The scheme provides for lump sum payment to vested employees at retirement or death while in employment or on termination of employment. Employees, upon completion of the vesting period, are entitled to a benefit equivalent to either half month, three fourth month and full month salary last drawn for each completed year of service depending upon the completed years of continuous service in case of retirement or death while in employment. In case of termination, the benefit is equivalent to fifteen days salary last drawn for each completed year of service in line with the Payment of Gratuity Act, 1972. Vesting occurs upon completion of five years of continuous service.
The Company also provides post retirement medical benefits to eligible employees under which employees at Mithapur who have retired from service of the Company are entitled for free medical facility at the Company hospital during their lifetime. Other employees are entitled to domiciliary treatment exceeding the entitled limits for the treatments covered under the Health Insurance Scheme upto slabs defined in the scheme. The floater mediclaim policy also covers retired employees based on eligibility, for such benefit.
The Company provides pension, housing / house rent allowance and medical benefits to retired Managing and Executive Directors who have completed ten years of continuous service in Tata Group and three years of continuous service as Managing Director/Executive Director or five years of continuous service as Managing Director/Executive Director. The directors are entitled upto seventy five percent of last drawn salary for life and on death 50% of the pension is payable to the spouse for the rest of his/her life.
Family benefit scheme is applicable to all permanent employees in management, officers and workmen who have completed one year of continuous service. In case of untimely death of the employee, nominated beneficiary is entitled to an amount equal to the last drawn salary (Basic Salary, DA and FDA) till the normal retirement date of the deceased employee.
The most recent actuarial valuations of plan assets and the present values of the defined benefit obligations were carried out at March 31, 2019. The present value of the defined benefit obligations and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.
(a) Discount rate is based on the prevailing market yields of Indian Government securities as at the Balance Sheet date for the estimated term of the obligations.
(b) The estimates of future salary increases considered in actuarial valuation take into account the inflation, seniority, promotion and other relevant factors.
6. The details of the Company’s post-retirement and other benefit plans for its employees given above are certified by the actuary and relied upon by the Auditors.
(c ) The Company operates Provident Fund Schemes and the contributions are made to the recognised funds maintained by the Company. The Company is required to offer a defined benefit interest rate guarantee on provident fund balances of employees. The interest rate guarantee is payable to the employees for the year when the exempt fund declares a return on provident fund investments which is less than the rate declared by the Regional Provident Fund Commissioner (RPFC) on the provident fund corpus for their own subscribers. The Actuary has provided a valuation for provident fund liabilities on the basis of guidance issued by Actuarial Society of India and based on the below provided assumptions, shortfall between plan assets as the end of the year and the present value of funded obligation has been recognised in the Balance Sheet and Other Comprehensive Income.
7. Segment information
7.1 Continuing operations
(a) Information about operating segments
Based on the recommendations of the Audit Committee, post divestment of the Fertiliser business, the Board of Directors has approved the revised segment reporting, from April 1, 2018, as under:
- Basic chemistry products : Soda Ash and other bulk chemicals
- Consumer products : Branded consumer products such as salt, pulses, spices, etc.
- Specialty products : Nutrition solutions, agri Solutions and advanced materials
Inter segment pricing is determined on an arm’s length basis using transfer pricing principles. The corresponding information for the previous periods presented in these financial statements have been restated.
(b) Information about geographical areas
The Company sells its products mainly within India where the conditions prevailing are uniform. Since the sales outside India are below threshold limit, no separate geographical segment disclosure is considered necessary.
All non-current assets in the nature of property, plant and equipment (including capital work in progress) and intangible assets (including those under development) are domiciled in india.
(c) Revenue from major products
The following is an analysis of the Company’s segment revenue from continuing operations from its major products
(d) Revenue from major customers
No single customers contributed 10% or more to the Company’s revenue for the year ended March 31, 2019 and March 31, 2018.
(e) Other note
Segment revenue, results, assets and liabilities include the respective amounts identifiable to each of the segments and amounts allocated on a reasonable basis.
(b) Information about geographical area
Discontinued operations sells its products within India where the conditions prevailing are uniform.
(c) Revenue from major products
Discontinued operations segment deals in one product group i.e fertilisers and other agri inputs.
(d) Revenue from major customers
No single customers contributed 10% or more to the Company’s revenue for the year ended March 31, 2019 and March 31, 2018.
(b) Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The following tables provides the fair value measurement hierarchy of the Company’s financial assets and liabilities that are measured at fair value or where fair value disclosure is required.
(d) Valuation technique to determine fair value
The following methods and assumptions were used to estimate the fair values of financial instruments:
(i) The management assessed that fair value of cash and cash equivalents, trade receivables, trade payables, bank overdrafts and other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
(ii) The fair values of the equity investment which are quoted, are derived from quoted market prices in active markets. The Investments measured at fair value and falling under fair value hierarchy Level 3 are valued on the basis of valuation reports provided by external valuers with the exception of certain investments, where cost has been considered as an appropriate estimate of fair value because of a wide range of possible fair value measurements and cost represents the best estimate of fair values within that range.
(iii) The fair values of investments in mutual fund units is based on the net asset value (‘NAV’) as stated by the issuers of these mutual fund units in the published statements as at Balance Sheet date. NAV represents the price at which the issuer will issue further units of mutual fund and the price at which issuers will redeem such units from the investors.
(iv) The Company enters into derivative financial instruments with various counterparties, principally banks. The fair value of derivative financial instruments is based on observable market inputs including currency spot and forward rate, yield curves, currency volatility, credit quality of counterparties, interest rate and forward rate curves of the underlying insturments etc. and use of appropriate valuation models.
(v) The fair value of non-current borrowings carrying floating-rate of interest is not impacted due to interest rate changes, and will not be significantly different from their carrying amounts as there is no significant change in the under-lying credit risk of the Company (since the date of inception of the loans).
(vi) The fair values of the 10% unsecured redeemable non-convertible debenture (included in current maturities of non-current borrowings) are derived from quoted market prices. The Company has no other non-current borrowings with fixed-rate of interest.
(e) Financial risk management objectives
The Company is exposed to market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The Company’s risk management strategies focus on the un-predictability of these elements and seek to minimise the potential adverse effects on its financial performance. The Company’s senior management which is supported by a Treasury Risk Management Group (‘TRMG’) manages these risks. TRMG advises on financial risks and the appropriate financial risk governance framework for the Company and provides assurance to the Company’s senior management that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives.
All hedging activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. The Company’s policy is not to trade in derivatives for speculative purposes.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk, such as equity price risk and commodity risk. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity price fluctuations, liquidity and other market changes. Financial instruments affected by market risk include loans and borrowings, deposits, investments and derivative financial instruments.
Foreign currency risk management
Foreign exchange risk arises on future commercial transactions and on all recognised monetary assets and liabilities, which are denominated in a currency other than the functional currency of the Company. The Company’s management has set a policy wherein exposure is identified, a benchmark is set and monitored closely, and accordingly suitable hedges are undertaken. The policy also includes mandatory initial hedging requirements for exposure above a threshold.
The Company’s foreign currency exposure arises mainly from foreign exchange imports, exports and foreign currency borrowings, primarily with respect to USD.
As at the end of the reporting period , the carrying amounts of the Company’s foreign currency denominated monetary assets and liabilities in respect of the primary foreign currency i.e. USD and derivative to hedge the exposure, are as follows:
Foreign currency sensitivity analysis
The following table demonstrate the sensitivity to a reasonable possible change in USD exchange rate, with all other variables held constant. The impact on the Company’s profit before tax due to changes in the fair value of monetary assets and liabilities and derivatives is as follows:
Based on the movements in the foreign exchange rates historically and the prevailing market conditions as at the reporting date, the Company’s Management has concluded that the above mentioned rates used for sensitivity are reasonable benchmarks.
Interest rate risk management
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates. The Company’s exposure to the risk of changes in market rates relates primarily to the Company’s non-current debt obligations with floating interest rates.
The Company’s policy is generally to undertake non-current borrowings using facilities that carry floating-interest rate. The Company manages its interest rate risk by entering into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount.
Moreover, the short-term borrowings of the Company do not have a significant fair value or cash flow interest rate risk due to their short tenure.
As the Company does not have exposure to any floating-interest bearing assets, or any significant long-term fixed-interest bearing assets, its interest income and related cash inflows are not affected by changes in market interest rates.
As at the end of reporting period, the Company had the following long term variable interest rate borrowings and derivatives to hedge the interest rate risk as follows:
Interest rate sensitivity
No sensitivity analysis is prepared as the Company does not expect any material effect on the Company’s results arising from the effects of reasonably possible changes to interest rates on interest bearing financial instruments at the end of the reporting period.
Equity price risk management
Equity price risk is related to the change in market price of the investments in quoted equity securities. The Company’s exposure to equity price risk arises from investment held by the Company and classified as FVTOCI. In general, these investments are strategic investments and are not held for trading purposes. Reports on the equity portfolio are submitted to the Company’s senior management on a regular basis.
Equity price sensitivity analysis
I f prices of quoted equity securities had been 5% higher / (lower), the OCI for the year ended March 31, 2019 and 2018 would increase/ (decrease) by Rs.98.94 crore and Rs.85.94 crore respectively.
Credit risk management
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities, primarily trade and other receivables and from its financing activities, including deposits with banks and financial institutions, investment in mutual funds and other financial instruments.
The carrying amount of financial assets represents the maximum credit exposure, being the total of the carrying amount of balances with banks, short term deposits with banks, short term investment, trade and other receivables and other financial assets excluding equity investments.
Trade and other receivables
Trade and other receivables of the Company are typically unsecured and derived from sales made to a large number of independent customers. Customer credit risk is managed by each business unit subject to established policies, procedures and control relating to customer credit risk management. Before accepting new customer, the Company has appropriate level of control procedures to assess the potential customer’s credit quality. The credit-worthiness of its customers are reviewed based on their financial position, past experience and other relevant factors. The credit period provided by the Company to its customers generally ranges from 0-60 days. Outstanding customer receivables are reviewed periodically.
The credit risk related to the trade receivables is mitigated by taking security deposits / bank guarantee / letter of credit - as and where considered necessary, setting appropriate credit terms and by setting and monitoring internal limits on exposure to individual customers.
There is no substantial concentration of credit risk as the revenue and trade receivables from any of the single customer do not exceed 10% of Company revenue.
For certain other receivables, where recoveries are expected beyond twelve months of the balance sheet date, the time value of money is appropriately considered in determining the carring amount of such receivables.
Financial instruments and cash deposits
Credit risk from balances/investments with banks and financial institutions is managed in accordance with the Company’s treasury risk management policy. Investments of surplus funds are made only with approved counterparties and within limits assigned to each counterparty. The limits are assigned based on corpus of investable surplus and corpus of the investment avenue. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.
Financial guarantees disclosed in note 41.1(b) have been provided as corporate guarantees to financial institutions and banks that have extended credit facilities to the Company’s subsidiaries. In this regard, the Company does not foresee any significant credit risk exposure.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements.
The Treasury Risk Management Policy includes an appropriate liquidity risk management framework for the management of the Company’s short-term, medium-term and long term funding and cash management requirements. The Company manages the liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. The Company invests its surplus funds in bank fixed deposit and liquid schemes of mutual funds, which carry no/negligible mark to market risks.
The below table analyses the Company’s non-derivative financial liabilities as at the reporting date, into relevant maturity groupings based on the remaining period (as at that date) to the contractual maturity date. The amounts disclosed in the below table are the contractual undiscounted cash flows.
All the derivative financial liabilities are included in the above analysis, as their contractual maturity dates are essential for the understanding of the timing of the under-lying cash flows.
8. Capital management
The capital structure of the Company consists of net debt and total equity. The Company manages its capital to ensure that the Company will be able to continue as going concern while maximising the return to stakeholders through an optimum mix of debt and equity within the overall capital structure. The Company’s risk management committee reviews the capital structure of the Company considering the cost of capital and the risks associated with each class of capital.
9.1 Contingent liabilities
(a) Claims not acknowledged by the Company relating to the cases contested by the Company and which, in the opinion of the Management, are not likely to devolve on the Company relating to the following areas:
Item (i) to (vii)) above includes Rs.100.11crore (2018: Rs.136.65 crore) relating to discontinued operations.
(b) Guarantees provided by the Company to third parties on behalf of subsidiaries aggregates USRS. 54 million & GBP 2.76 million (Rs.398.39 crore) (2018: USRS. 124.80 million & GBP 2.76 million (Rs.838.82 crore)).
(c) The Hon’ble Supreme Court of India (‘SC’) by their order dated February 28, 2019, in the case of Surya Roshani Limited & others v/s EPFO, set out the principles based on which allowances paid to the employees should be identified for inclusion in basic wages for the purposes of computation of Provident Fund contribution. Subsequently, a review petition against this decision has been filed and is pending before the SC for disposal.
In view of management, any additional financial liability for the period from date of the SC order (February 28, 2019) to March 31, 2019 is not significant.
I n addition, pending the outcome of the review petition and directions from the EPFO, the impact for past periods, if any, is not ascertainable and consequently no financial effect has been provided for in the accounts.
10. Approval of financial statements
The financial statements were approved for issue by the board of directors on May 3, 2019.