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

BSE: 500042ISIN: INE373A01013INDUSTRY: Chemicals - Organic - Others

BSE   ` 3336.90   Open: 3285.35   Today's Range 3256.45
3350.00
+91.00 (+ 2.73 %) Prev Close: 3245.90 52 Week Range 2229.95
3495.00
Year End :2023-03 

Fair value measurement

Financial instruments

To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under Indian accounting standard 113 - ‘Fair value measurement’.

Explanation of each

Level 1: Determination of the fair value based on quoted, unadjusted prices on active markets.

Level 2: Determination of fair value based on parameters for which directly or indirectly quoted prices on active market are available.

Level 3: Determination of fair value based on parameters for which there is no observable market data.

Fair values for financial assets and liabilities (other than those disclosed below) approximates the carrying amount. All other financial assets and financial liabilities are carried at amortised costs.

The Company is exposed to foreign-currency risks during the normal course of business. These risks are hedged through a determined strategy employing derivative instruments. Hedging is only employed for underlying items from the operating business. The risks from the underlying transactions and the derivatives are constantly monitored. Where the derivatives have a positive value, the Company is exposed to credit risks from the derivative transactions in the event of nonperformance of the other party. To minimise the default risk on derivatives with the positive market values, transactions are exclusively conducted with credit worthy banks and partners and are subject to predefined credit limits. The contracting and execution of derivative financial instruments for hedging purposes are conducted according to internal guidelines and subject to strict control mechanism.

The sensitivity analysis is conducted by simulating a 10% appreciation/ depreciation of the functional currency against respective other currencies.

(ii) Interest rate risk

I nterest rate risk results from changes in prevailing market interest rates, which can cause a change in the fair value of fixed-rate instruments and changes in the interest payments of the variable-rate instruments. To hedge interest rate risk, mix of variable and fixed instruments is judiciously applied for financing the Company’s requirements.

The Company recognises any risk from cash flow fluctuations as a part of liquidity planning. The Company has access to sufficient liquidity from unutilised credit lines from banks and ongoing commercial paper programme.

(a) Financing arrangements

The Company has access to undrawn borrowing facilities from banks for Rs. 9,188 million (Previous Year: Rs. 8,408 million) as on March 31, 2023. The Company also has unused Commercial Papers limit of Rs. 7,500 million (Previous Year: Rs. 7,500 million).

(b) Maturities of financial liabilities

The interest and principal payments as well as other payments for derivative financial instruments are relevant for the presentation of the maturities of the contractual cash flows from financial liabilities. Derivatives are included using their net cash flow, provided they have a negative fair value and therefore represent a liability. Derivatives with positive fair values are assets and are therefore not considered. Trade accounts payable are generally interest-free and due within one year. Therefore, the carrying amount of trade accounts payable equals the sum of future cash flows. Contractual maturities of lease liabilities are disclosed on an undiscounted basis.

(iv) Credit risk

Credit risk arise when counterparties do not fulfil their contractual obligations. The Company regularly analyses the credit worthiness of relevant customers and grants credit limits on the basis of this analysis. Due to the diversified customer structure of the Company, there is no significant concentration of default risk. The company uses simplified approach for trade receivables whereby the loss allowance is measured at an amount equal to the lifetime expected credit losses. The carrying amount of all receivables subject to expected credit loss and default risk represents the maximum default risk for the Company. The expected credit losses are calculated taking into consideration the credit rating of the customer, probability of default for various different credit ratings.

Accordingly expected credit loss is recognised under two stages as follows :

Stage 2 - Loss allowance at an amount equivalent lifetime expected credit losses at the reporting date Stage 3 - Loss allowance on account of credit impaired at the reporting date

Loans to related parties

The company considers the probability of default upon initial recognition of loan and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the company compares the risk of a default occurring on the loan as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information. Especially the following indicators are incorporated:

• internal credit rating

• external credit rating (as far as available)

• actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the borrower’s ability to meet its obligations

• actual or expected significant changes in the operating results of the borrower

Macroeconomic information (such as market interest rates or growth rates) is incorporated as part of the internal rating model.

Regardless of the analysis above, a significant increase in credit risk is presumed if a counterparty is more than 30 days past due in making a contractual payment.

A default on a financial asset is when the counterparty fails to make contractual payments within 60 days of when they fall due.

Cash and bank balances

For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.

Security deposits and other receivables

The Company periodically monitors the recoverability and credit risks of its security deposits and other receivables. The Company evaluates 12 month expected credit losses of 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.

Accordingly, financial assets other than trade receivables are subject to the impairment requirements of Ind AS 109 and the identified impairment loss was immaterial.

Significant estimates and judgements Impairment of financial assets

The impairment provision for the financial assets disclosed above are based on credit ratings, assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting year.

38. Capital management

(a) Risk management

The aim of capital structure management is to maintain the financial flexibility needed to further develop the Company’s business portfolio and take advantage of strategic opportunities. The objective of the Company’s financing policy are to secure solvency, limit financial risks and optimise the cost of capital. The Company’s capital structure is managed using equity and debt ratios as a part of the Company’s financial planning.

Generally a mix of commercial paper programme, inter corporate deposits, overdraft facilities and bank loans are used for short term financing while group external commercial borrowings are used for financing long term requirements.

The goal is to optimise the Company’s capital cost financing conditions.

39. Contingent liabilities

Rs. in million

Nature

As at March 31, 2023

As at March 31, 2022

Contingent liabilities (excluding interest & penalties)

a) Claims against the Company not acknowledged as debts

31.0

29.0

In respect of which the Company has counterclaim

-

b) Demand for taxes and duties in respect of which the Company has preferred appeals with appropriate authorities

a. Income tax

1,955.3

1,955.3

b. Customs, Excise, Service tax and Sales tax (refer Note (i) below)

27.7

3,223.7

Total

2,014.0

5,208.0

Note:

(i) The Commercial Tax Department (CTD) of Karnataka had issued demand notices initially for the periods April 2006 to March 2010 by treating the stock transfers from Company’s Mangalore Plant to various depots in other states as Interstate sales liable to tax under Central Sales Tax Act. Appeals were made by the Company before the Hon’ble Karnataka Appellate Tribunal (KAT) and Central Sales Tax Appellate Authority (CSTAA), however CTD’s view was upheld therein. Consequently, the CTD reissued revised demand notices for the above period and also issued fresh demand notices for the period April 2010 to June 2017, aggregating to Rs. 7,560.6 million (including interest and penalty till date). However, a stay on recovery of these demands had been granted by KAT for the period 2006-07 to 2016-17.

The Company had also challenged the Order of CSTAA by filing a Writ Petition before the Hon’ble Karnataka High Court in September 2019. The Hon’ble Karnataka High Court vide Order dated October 14, 2022, has allowed the Writ Petition filed by the Company and has quashed the Order passed by the CSTAA by holding that the movement of goods between states as merely ‘Stock Transfers’.

The above order is consistent with the Company’s stand to not consider these stock transfers as interstate sales and hence, no provision was considered necessary in the books. Accordingly contingent liability has been reduced by Rs 3,196.5 million.

40. Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided (net of advances) for Rs. 232.2 million (Previous Year Rs. 348.0 million).

41. Leases

The Company has adopted modified retrospective approach as per para C8 (c) (ii) of Ind AS 116 - Leases. The Company leases warehouses, vehicles, office facilities, storage tanks, equipments etc.

The lease liabilities are measured at the present value of the remaining lease payments, discounted using the leasee’s incremental borrowing rate. The weighted average incremental borrowing rate used to discount the gross lease liability additions during the current year & previous year was 4 to 9%.

(i) The Company had announced realignment of its business service units, which aims at bundling of services and resources including implementation of a wide-ranging digitalization initiatives thereby simplifying processes and utilizing digital solutions. Considering the aforesaid, the Company had recognised provision aggregating Rs. 215.2 million during the year ended March 31, 2021 as employees compensation towards realignment of business service units. The Company re-assessed the provision in previous year and accordingly, had reversed provision aggregating Rs. 125.6 million during the previous year ended March 31, 2022.

Trade receivables

The Company gives rebates/ discounts for certain business units. Under the terms of contract, the amounts payable by the Company are offset against receivables from customers and only the net amount is settled (i.e. after adjustment of credit notes towards rebates/ discounts). The relevant amounts have therefore been presented net in the Balance Sheet.

Other provisions represents provisions for certain income tax, indirect taxes and other legal matters, the outflow of which would depend on settlement/ conclusion of these matters with the relevant authorities or cessation of the respective events.

46. Corporate Social Responsibility (‘CSR’)

As per Section 135 of the Act, a Company meeting the applicability threshold, needs to spend atleast 2% of its average net profit for the immediately preceding three financial years on CSR activities. The major areas for CSR activities are promoting education facilities, sanitation and making available safe drinking water. A CSR committee has been formed by the Company as per the Act.

(a) Gross amount required to be spent by the Company during the year: Rs. 86.0 million (Previous Year: Rs. 29.0 million)

47. Employee Benefits

(a) Defined contribution plans:

The Company’s contribution to defined contribution funds comprising of Superannuation fund, Provident fund, Employees’ State Insurance Schemes and National Pension System (NPS) scheme amounting to Rs. 85.1 million (Previous Year Rs. 101.0 million) (net of recoveries) has been charged to the Statement of Profit and Loss.

Further effective September 1,2022 provident fund contribution due to transition to Employees’ Provident Fund Organisation (EPFO) from own managed trust amounting to Rs 103.2 million has been charged to the Statement of Profit and Loss.

The expected rate of return on assets is based on the expectation of the average long term rate of return on investment of the fund, during the estimated term of obligation.

The obligations are measured at the present value of estimated future cash flows by using a discount rate that is determined with reference to the market yields at the Balance Sheet date on Government Bonds which is consistent with the estimated terms of the obligation.

The above 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 correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of defined benefit obligation calculated with projected unit credit method at the end of reporting period) has been applied as when calculating the defined benefit liability recognised in the Balance Sheet. The method and type of assumptions used in preparing the sensitivity analysis for current year are in line with previous year.

The contribution expected to be made by the Company during the financial year 2023-24 is Rs. Nil (Previous Year Rs. 104.2 million).

(ii) Provident Fund

Eligible employees receive benefits from a provident fund administered through the Company managed BASF India Limited Provident Fund Trust (‘the Trust’). During the year, the Company filed an application for surrender of exemption granted from the EPF Scheme, 1952 w.e.f August 31,2022. The surrender application was filed with Regional Provident Fund Commissioner (RPFC) Bandra. The applications were accepted by the RPFC effective September 1, 2022. As a process of transfer of activities to RPFC, all the investments held by the trust were liquidated and the liabilities as on September 1, 2022 were transferred to the EPFO. A deficit funding of Rs. 241.8 million was made by the Company during the year prior to surrender of the trust.

During the year ended March 31, 2023, amount recognised in the Statement of Profit and Loss for the Company’s contribution to Employee provident fund (net of recoveries, if any) is Rs. 88.8 million (Previous year Rs. 176.3 million) prior to transfer to EPFO.

Risk exposure

The fund assets for Gratuity are maintained by BASF trust fund, a legally independent funded plan, which is financed by contribution of employees and the employer as well as the return on plan asset.

Following risk-mitigating strategies are adopted for the Funds:

Being managed passively, the debt segments of the portfolios are predominantly exposed to Credit Risk and Reinvestment Risk. These risks are managed in the following manner:

Reinvestment risk: Reinvestment risk is minimized by spreading maturities of debt investments across various years. Here a balance is struck between minimizing reinvestment risk and maximizing yield given the term structure of interest rates, issuance pattern of debt instruments and their liquidity.

Owing to the investment regulation, the Funds have also invested in Equity Mutual Funds which are exposed to Market Risk.

Market risk: Market risk is minimized by (a) ensuring that schemes selected for investment have high-ranking by independent agencies (b) large-cap orientation and (c) have a track record of superior downside management. Further, volatilities in returns of these schemes are minimized by staggering deployment in the schemes across months which bring in cost-averaging. Performance of the schemes is monitored on a monthly basis. Corrective action, if required, is recommended for schemes that underperform their peers and the benchmark consistently.

Credit risk: Credit risk is minimized by spreading exposure to multiple debt issuers, i.e. by not allowing exposure to an individual debt issuer to exceed by 5%-10% (depending on the issuer type) of the total portfolio at any time. Further, investments are made only in high grade bonds. Rating migrations in the instruments held in the portfolios are tracked regularly and are reported to the Trustees in case of downgrades. Corrective action on downgrades is suggested, if deemed necessary.

(c) Share-based payments (Long Term Incentive):

The Ultimate Holding Company (‘BASF SE’) offers following two types of Share Price based compensation program for senior executives of BASF group. Participation in these programs is voluntary.

(i) BASF Option Program (‘BOP’):

The option program starts every year on July 1. After the two-year vesting period, the options can be exercised for a period of four years. Options that have not been exercised by the end of the exercise period of the respective program are forfeited, without any subsequent payment obligations towards the bearer. BOP was offered for the last time in 2020. All option rights granted during the BOP program years remain valid until the end of their respective exercise periods.

The model used in the valuation of the option plans are based on the arbitrage-free valuation model according to Black-Scholes. The fair values of the options are determined using the binomial model.

(ii) ‘Strive!’ - Performance Share Units (PSUs):

Since 2020, a new Long term incentive program, known as Strive!, is established in the form of a performance share plan. The new plan is based on achievement of strategic targets and takes into account BASF SE’s share price and dividend performance (total shareholder return) over a four-year period.

A Strive! plan includes a four-year performance period with a fixed disbursement date. A target amount is determined at the beginning of a new Strive! plan for every participant. This target amount is converted into a preliminary number of virtual performance share units (PSUs) by dividing it by the average BASF share price. The number of PSUs that are ultimately paid out at the end of the performance period depends on the achievement of the strategic targets.

Since the Company receives the services of the employees to whom the options have been granted by BASF SE and the Company has no obligation to settle these options, the Company has recognized both the above plans as equity settled share based payment transactions in accordance with the requirements of paragraph 43 A and 43 B of Ind AS 102 Share Based Payments. Charge for the year and related assumptions are summarised in below tables:

(d) Other long term employee benefits:

(i) Long service awards:

Long Service Awards are payable to employees on completion of specified years of service.

(ii) Compensated absences:

Eligible employees can carry forward and encash leave on superannuation, death, permanent disablement and resignation as per Company’s policy.

For compensated absences, the amount of the provision of Rs. 480.0 million (Previous Year: Rs. 482.2 million) is presented as current, since the Company does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Company does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. Leave obligations not expected to be settled within the next 12 months is Rs. 420.9 million (Previous Year: Rs. 423.6 million).

48. Operating Segments

The Company has following business segments for reporting purpose. The divisions are allocated to the segments based on their business models.

Details of type of products included in each segment:

— Agricultural Solution - The Agricultural Solutions segment consists of the Crop Protection division. Agricultural Solution is seasonal in nature

— Materials - The Materials segment comprises Performance Materials divisions, the Monomers divisions and Polyamides business of BASF Performance Polyamides India Private Limited (‘BPPIPL’) merged with the Company

— I ndustrial Solutions - The Industrial Solutions segment consists of the Dispersions & Pigments divisions and Performance Chemicals divisions

— Surface Technologies - The Surface Technologies segment comprises of Catalysts and Coatings divisions

— Nutrition & Care - The Nutrition & Care segment consists of the Care Chemicals and Nutrition & Health divisions

— Chemicals - The Chemicals segment consists of the Petrochemicals and Intermediates divisions

— Others - Others includes activities that are not allocated to any of the continued operating divisions. These includes remaining activities after divestiture of leather and textile chemicals business, paper wet-end and water chemicals business, technical and service charges other than those specifically identifiable to above segments.

Un-allocable Corporate Assets mainly includes Current tax assets (net), Deferred tax assets (net), Cash and cash equivalents, Inter corporate deposit and other un-allocable assets.

50. Disclosure under Indian Accounting Standard 115

(a) Deferred revenue:

The Company considers deferred revenue as contract liability as per terms of customer contracts. There

was no deferred revenue outstanding as on March 31, 2023 and March 31, 2022.

(b) Contract liability:

i. Contract liability in respect of amount collected in advance towards satisfaction of performance obligations for goods/ services to customers has been reflected as “Advances received from customers” in Note 22 - Other Current Liabilities.

ii. The Company operates a customer incentive programme where retail customers accumulate reward points for purchases made which entitle them to incentives. A contract liability for the reward points is recognised at the time of the sale. Contract liability in respect of customer incentive schemes has been adjusted in Revenue and reflected as “Accrual for customer incentive schemes” in Note 22 -Other Current Liabilities.

b) Struck off companies having transactions during the year:

The company did not have any transactions with the companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956 during the current and previous financial year.

52. Previous year figures have been regrouped/ reclassified, wherever necessary to conform to current year classification.