6.1 The Company had invested ' 56.01 lakh (March 31, 2021 : ' 56.01 lakh) in the share capital of Solentus North America Inc., its wholly owned subsidiary company ("the subsidiary”). The Company has decided to close the said subsidiary and has initiated the process of closure, which is delayed due to technical reasons. Consequently, the Company has made full provision for impairment in the value of said investment.
6.2 The Company had provided a corporate guarantee against the payment of principal and interest on the loan utilised for acquisition of 65% stake in Dresen Quimica S.A.P.I De C.V. (Dresen Quimica). Pursuant to the re-finance of loan by another bank during the year, the corporate guarantee stands cancelled. The fair value of financial guarantee amounting to ' 78.08 lakh issued in respect of the loan remains as investment. 50,820,277 Equity Shares of Dresen Quimica pledged in respect of the aforesaid loan have been released.
Pursuant to the refinance of loan, the Company has provided a fresh corporate guarantee against the payment of principal and interest to the new lender The value of investment includes ' 3723 lakh towards fair value of the said financial guarantee issued to the new lender. 50,820,277 Equity Shares are pledged in respect of the aforesaid loan.
6.3 Recognition of Put Option
As per the amended shareholders agreement dated October 18, 2021 entered into by the Company with the minority shareholder of Dresen Quimica, on November 11, 2021, the Company has, through its wholly owned subsidiary CFS De Mexico Blends S.A.P.I. DE C.V. (CFS Blends) acquired 33.50% stake in Dresen Quimica for
a total consideration of US$ 8.50 million equivalent to ' 6,344.80 lakh. The balance 1.50% non-controlling interest will extinguish on payment of preferred dividend by Dresen Quimica over a period upto December 31, 2023 amouting to US$ 4.623 million as escalated by 3% per annum from January 1, 2021 till the date of respective payments. If the aforesaid payments are not made or are inadequate, then the amended agreement provides a put option to the non-controlling interest to sell 1.50% stake which will be valued at the unpaid portion of the preferred dividend. There will be no participating rights in any profits to the noncontrolling interest effective January 1, 2021.
The fair value of put option obligation is calculated based on 'Income Approach'. The fair value of put option being negligible, there is no recognition thereof as investment and there is no corresponding recognition of other equity and / or financial obligation.
The erstwhile put option for 35% based on original shareholders' agreement has extinguished on entering into the amended agreement. The initial recognition of the fair value of esrtwhile put option as a financial obligation amounting to ' 615.15 lakh remains as investment. With extinguishment of this put option, the erstwhile put option liability has extinguished as on the date of amended agreement. The fair value of said put obligation was Nil as on March 31, 2021.
6.4'125.33 lakh (March 31, 2021: ' 125.33 lakh) towards fair value of financial guarantees issued to a Bank in relation to loan availed by CFS Europe S.p.A.
6.5 ' 5.93 lakh (March 31, 2021: ' 4.46 lakh) is towards fair value of employee stock options under CFS Employee Stock Option Scheme, 2018 (ESOP 2018) given to an employee of Industrias Petrotec de Mexico S.A. de C.V. (Refer Note 21(v)).
6.6 Includes ' 5.93 lakh (March 31, 2021: ' 4.46 lakh) towards fair value of employee stock options under CFS Employee Stock Option Scheme, 2018 (ESOP 2018) given to an employee of CFS Wanglong Flavours (Ningbo) Co. Ltd. (Refer Note 21(v)).
6.7 During the year, the Company has acquired equity stake and also invested in AlgalR Nutrapharms Private Limited ('AlgalR') for a total investment amounting to ' 654.56 lakh. Pursuant to the above, the Company holds 80% stake in the equity share capital of AlgalR with effect from November 11, 2021.
6.8 During the year, the Company has participated in 49,999 shares of CFS De Mexico Blends S.A.PI. DE C.V. its wholly owned subsidiary. The amount towards the aforesaid subscription has not been remitted as on March 31, 2022.
Includes ' 126.58 lakh towards fair value of financial guarantees issued to a Bank in relation to loan availed for acquisition of 33.5% stake in Dresen Quimica 77,013,255 Equity Shares (March 31, 2021: Nil) of Dresen Quimica and 49,999 Equity Shares (March 31, 2021: Nil) of CFS Blends are pledged in respect of the aforesaid loan.
6.9 During the year, Fine Lifestyle Brand Limited ('associate') made an application to the Registrar of Companies, under Section 248 of the Companies Act, 2013, for removal of its name from the register of companies ('register') . Pursuant to such application, the name of associate has been struck off from the register with effect from February 01, 2022 and the said Company is dissolved. The amount of investment appearing in the financial statements has been written off during the year
6.10 The provision for impairment in the value of investments represents the provision in respect of investments in Fine Renewable Energy Limited and Solentus North America Inc.
7.1 The loans to subsidiaries have been made for general corporate purposes of each subsidiary. These loans are given at rates comparable to the average commercial rate of interest and in compliance with the provisions of Companies Act, 2013.
7.2 No loans are due from Directors or other officers of the Company either severally or jointly with any other person or amount due by firms or private companies in which any director is a partner, a director or a member.
7.3 The Company had given loans of ' 189.18 lakh (' 242.27 lakh including interest of ' 53.09 lakh (Refer Note 17) to Solentus North America Inc., its wholly owned subsidiary company. The Company had also provided advances of ' 15.79 lakh to Solentus North America Inc. (Refer Note 17). The Company has decided to close the said subsidiary and has initiated the process of closure, which is delayed due to technical reasons. Consequently, the Company has made full provision for impairment of said loans and advances. (Refer Note 6.1).
8.1 The derivative asset ' 340.08 lakh (March 31, 2021: ' 9.97 lakh) represents the embedded derivative portion of compound financial instrument i.e. FCCB. The Company has measured the embedded derivative at FVTPL and the host contract has been accounted at amortised cost. The change in the carrying amount of the embedded derivative amounting to ' 330.10 lakh (2020-2021: ' 11.59 lakh) has been recognised in the Statement of Profit and Loss (Refer Note 32(b)).
19.1 The Company intends to dispose off freehold land situated at Pali in the next 12 months. This land was not utilised by the Company for its operations. No impairment loss is recognised on reclassification of the land as held for sale, as the management expects that the fair value (estimated based on the recent market prices of similar properties in similar locations) less costs to sell is higher than the carrying amount.
d) Rights, preferences and restrictions attached to Equity Shares
The Company has only one class of shares having par value of ' 1 per share. Each holder of Equity Shares is entitled to one vote per share. The Company declares and pays dividends 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 are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.
f) Shares reserved for issue under options outstanding as at the end of the year on un-issued share capital:
i) The Company has 4,500,000 (March 31, 2021: Nil) Equity Shares reserved for issue under Employee Stock Option Plan, 2021 as at March 31, 2022. As on March 31, 2022, the Company has not issued grant letters to eligible employees under the said scheme.
ii) The Company has 3,912,096 (March 31, 2021: 3,912,096) Equity Shares reserved for issue under Employee Stock Option Plan, 2020 as at March 31, 2022 (Refer Note 35.2.1 for terms of employee stock options).
iii) The Company has 310,750 (March 31, 2021: 446,525) Equity Shares reserved for issue under Employee Stock Option Scheme, 2018 as at March 31, 2022 (Refer Note 35.2.2 for terms of employee stock options).
g) Terms of any securities convertible into equity shares issued along with earliest date of conversion
i) The Company has 10,241,714 (March 31, 2021: 8,603,029) Equity Shares reserved towards conversion of Foreign Currency Convertible Bonds.(Refer Note 22.1 for terms of Foreign Currency Convertible Bonds). Pursuant to the FCCB amendment agreement entered on October 29, 2021, the FCCB conversion price is changed to ' 105 per share from ' 125 per share. This has resulted in increase of equity shares reserved towards FCCB conversion to 10,241,714 equity shares as on March 31, 2022.
ii) The Company has Nil (March 31, 2021: 29,350,000) Equity Shares reserved for issue towards conversion of Preferential Share Warrants (Refer Note 21.6 for terms of preferential warrants)
i) Utilisation of the proceeds of Preferential Issue
On September 17, 2020, the Company had allotted 35,500,000 share warrants at a subscription price of '4789 each amounting to proceeds of ' 17,000.95 lakh to select investors pursuant to Preferential Issue under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended.
Nature and Purpose of Reserves:21.1 Equity component of Foreign Currency Convertible Bonds (FCCBs)
Pursuant to Ind AS 32, FCCBs issued by the Company are split into equity and liability component and presented under other equity and Non-Current Financial Liabilities respectively.
21.2 Capital Reserve
Capital Reserve comprises of amount received pursuant to preferential share warrants forfeited by the Company on account of warrants not exercised by the allottees.
21.3Securities Premium
The Securities premium account has been created to record the premium on issue of Equity Shares. This reserve is utilised in writing off the expenses incurred towards issue of preferential share warrants accordance with Section 52 of the provisions of the Companies Act, 2013
21.4Employee Stock Option Outstanding
The Company has Employees' Stock Option Scheme/Plan under which options to subscribe to the Company's shares have been given to certain employees of the Group. This reserve is used to recognise the value of equity settled share based payments provided to the employees, including Key Management Personnel, as a part of their remuneration.
The addition to Employee Stock Options Outstanding during the year is on account of CFS Employees' Stock Option Scheme, 2018 and CFS Employees' Stock Option Plan, 2020.
21.5General Reserve
General Reserve is created from time to time by way of transfer of profits from Retained Earnings.
21.6Money received against Preferential Share Warrants
At the EOGM held on July 25, 2020, the shareholders had approved an issue of 35,500,000 warrants at a price of ' 4789 each on a preferential basis to certain proposed allottees aggregating to ' 17,000.95 lakh. An amount equivalent to 1/3rd price of ' 5,610.31 lakh was subscribed on September 17, 2020 on the issue of
the warrants. Each warrant is converted into 1 Equity Share at the face value of ' 1 and premium of ' 46.89 each on or before 18 months from the date of allotment of warrants by the Company.
On November 17, 2020, the investors exercised their option of conversion of 6,150,000 warrants by subscribing the balance amount of ' 1,973.21 lakh. Pursuant to this conversion, 6,150,000 equity shares have been issued on November 24, 2020. On February 23, 2022, the investors exercised their option of conversion of balance 29,350,000 warrants by subscribing the balance amount of ' 14,055.71 lakh. Pursuant to this conversion, 29,350,000 equity shares have been issued on February 23, 2022.
21.7 Issue expenses towards non-converted Preferential Share Warrants
Issue expenses towards non converted preferential share warrants comprise expenses incurred towards issue of preferential share warrants which have not been converted as on March 31, 2021. The same are transferred to Securities Premium on conversion of warrants to equity shares.
22.1Foreign Currency Convertible Bonds -Unsecured
Foreign Currency Convertible Bonds (FCCBs) denominated in US$ carried at ' 11,988.69 lakh as at March 31, 2022 (March 31, 2021: ' 11,194.98 lakh) represent 30 unsecured, unlisted and unrated FCCBs of US$ 5,00,000 each aggregating to US$ 15,000,000. FCCBs are convertible into Company's fully paid equity shares of ' 1 each at a conversion price of ' 105 per share (March 31, 2021: ' 125 per share) at the option of the bond holder. If the conversion option is not exercised by the bond holder, the amount is payable in two equal instalments at the end of September 14, 2023 and September 14, 2024. Simple interest at the rate of 5.5% per annum from October 29, 2021 (4.5% per annum from inception upto October 28, 2021) is payable semi-annually on the outstanding amount of FCCBs, compound interest @ 1% per annum from October 29, 2021 (2% per annum from inception upto October 28, 2021) and additional interest @ 0.5% shall accrue on semi-annual basis and be payable in two equal instalments on the 5th and 6th anniversary of the FCCB subscription date.
22.2 Term Loans from Banks in Rupees - Secured
(a) ' Nil (March 31, 2021: ' 250.00 lakh) secured by a first pari passu charge on entire fixed assets of the Company, both present and future other than assets which are exclusively charged to other lenders. Further secured by second pari passu charge on the entire current assets of the Company, both present and future. The loan is fully repaid during the year
(b) ' 45.36 lakh (March 31, 2021: ' 152.00 lakh) secured by first pari passu charge on all current assets of the Company, both present and future. Further secured by second pari passu Charge on entire fixed assets of the Company, excluding fixed assets at Dahej and assets exclusively charged to other lenders. The loan is repayable in remaining 4 monthly instalments by July 2022. The current interest rate is equivalent to 1 year MCLR.
c) ' Nil (March 31, 2021: ' 590.00 lakh) secured by first pari passu charge on all current assets of the Company, both present and future. Further secured by second pari passu charge on entire fixed assets of the Company, excluding fixed assets at Dahej. Further secured by hypothecation of plant and machinery of the Company, excluding plant and machinery at Dahej. The loan is fully repaid during the year
(d) ' 1,463.80 lakh (March 31, 2021: ' 1,494.95 lakh) secured by first pari passu charge by way of hypthecation of inventories and book debts of the Company along with other working capital lenders. Further secured by second pari passu charge on equitable mortgage, excluding assets at Dahej and assets exclusively charged to other lenders. The loan is repayable in remaining 47 monthly instalments by March 2026. The current interest rate is at a spread of 100 basis points over 1 year MCLR.
(e) ' 565.00 lakh (March 31, 2021: ' Nil) secured by first pari passu charge by way of hypthecation of inventories and book debts of the Company along with other working capital lenders. Further secured by second pari passu charge on properties, land and building of the Company by way of equitable mortgage, excluding assets at Dahej and assets exclusively charged to other lenders. The loan is repayable in remaining 48 monthly instalments by June 2026. The current interest rate is at a spread of 100 basis points over 1 year MCLR.
(f) ' 1,581.35 lakh (March 31, 2021: ' Nil) secured by first pari passu charge by way of hypthecation of inventories and book debts of the Company. Further secured by second pari passu charge on properties, land and building of the Company by way of equitable mortgage, excluding assets at Dahej and assets exclusively charged to other lenders. The loan is repayable in remaining 47 monthly instalments by February 2026. The current interest rate is at a spread of 100 basis points over 6 months MCLR.
(g) ' 275.00 lakh (March 31, 2021: ' Nil) secured by second pari passu charge by way of hypthecation of inventories and book debts of the Company. Further secured by second pari passu charge on properties, land and building of the Company by way of equitable mortgage, excluding assets at Dahej and assets exclusively charged to other lenders. The loan is repayable in remaining 48 monthly instalments by July 2026. The current interest rate is at a spread of 100 basis points over 1 year MCLR.
22.3 Loan from others in Foreign Currency - Secured
' 10,882.69 lakh (March 31, 2021: ' 3,538.10 lakh) secured by first ranking exclusive lien on all land fixed assets at Dahej. The loan is repayable in remaining 12 semi-annual instalments commencing after a moratorium period of three years from the date of first disbursement. The current interest rate is at spread of 400 basis points over 6 months LIBOR.
22.4 The Company does not have any charges which are yet to be registered with the Registrar of Companies (ROC) beyond the statutory period. Further, no certification in relation to the satisfaction of charge received from the banks are pending for submission with ROC.
25.1Loans repayable on demand - Secured
' 17,322.15 lakh (March 31, 2021: ' 20,074.04 lakh) on account of working capital facilities availed from banks and are secured by first pari passu charge over Company's current assets, both present and future. Further, secured by second pari passu charge by an equitable mortgage on the entire movable and immovable fixed assets of the Company, both present and future, excluding assets exclusively charged to other lenders. The said working capital facilities are additionally guaranteed by Mr Ashish Dandekar, as Chairman & Managing Director and promoter of the Company. The current interest rates range from 8.95% to 10.25% p.a.
25.2 Other Short Term Borrowings - Secured
' 642.05 lakh (March 31, 2021: Nil) towards buyers credit availed from banks and are secured by security stated against Note 25.1.
25.3 The Company does not have any charges which are yet to be registered with the Registrar of Companies (ROC) beyond the statutory period. Further, no certification in relation to the satisfaction of charge received from the banks are pending for submission with ROC.
25.4 During the year, the Company has entered into a consortium agreement with its working capital lenders. the Company has submitted stock statements, debtors statements and other information / returns as required by the lender on a monthly as well as quarterly basis. Such monthly / quarterly statements and returns are generally in agreement with the books of accounts except for differences in some cases on account of valuation, provisions etc, the impact of which is not material.
27.1 There are no amounts due to be credited to Investor Education and Protection Fund in accordance with Section 125 of the Companies Act, 2013 as at the year end.
27.2 The unclaimed public deposits of ' 2.30 lakh outstanding at March 31, 2022 (March 31, 2021: ' 2.30 lakh) represent deposits taken under the Companies Act, 1956. The Company has been unable to repay these deposits as certain cheques issued for repayment of the deposits have not been presented to the bank for payment and certain deposit holders have not submitted to the Company the original deposit receipts for repayment.
35.1Employee Benefit Plans(a) Other long term employment benefits
Leave encashment is payable to the employees of the Company due to death, retirement, superannuation or resignation. Employees are entitled to encash leave while in service. The leave encashment benefit is payable to all the eligible employees of the Company at the rate of daily salary as per current accumulation of leave days.
The Privilege leave encashment liability and amount charged to Statement of Profit and Loss determined on actuarial valuation using basis projected unit credit method are as under:
(b) Defined Contribution Plans:
The contributions to the Provident Fund of eligible employees are made to a Government administered Provident Fund and there are no further obligations beyond making such contribution. Under the plan, the Company has contributed ' 218.07 lakh (2020-21: ' 167.11 lakh).
(c) Defined Benefit Plans:
The Company makes contributions to the Group Gratuity cum Life Assurance Scheme administered by the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. On retirement / resignation, the Scheme provides for payment as per the provisions of Payment of Gratuity Act, 1972 with vesting period of 5 years of service. On death / permanent disablement in service, vesting period is not applicable.
The most recent actuarial valuation of plan assets and present value of defined benefit obligation of gratuity was carried out as at March 31, 2022. The present value of defined benefit obligation and the related current service cost and past service cost were measured using the Projected Unit Credit Method. The following table summaries the net benefit expense recognised in the Statement of Profit and Loss, the details of the defined benefit obligation and the funded status of the Company's gratuity plan:
The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting year, which is the same method as applied in calculating the defined benefit obligation as recognised in the balance sheet. There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
40 CORPORATE SOCIAL RESPONSIBILITY
The Company has spent ' 42.00 lakh during the financial year (2020-2021: ' 20.38 lakh) as per the provisions of Section 135 of the Companies Act, 2013 read with Schedule VII thereof, towards Corporate Social Responsibility (CSR) activities.
a) Gross amount required to be spent by the Company during the year - ' 41.97 lakh (2020-2021: ' 20.38 lakh)
c) Nature of CSR activities during the year
The Company operates CSR Policy in the areas of promoting healthcare, education including special education and employment enhancing vocation skills especially among children, the differently abled, tribal communities and measures for reducing inequalities faced by socially and economically backward classes. The projects identified and adopted are as per the activities included and amended from time to time in Schedule VII of the Companies Act, 2013.
During the year, the Company has spent ' 42.00 lakh towards CSR activities through NGOs operating in the said areas.
41 OPERATIONS AT CFS WANGLONG FLAVORS (NINGBO) Co. Ltd.
Supreme People's Court of China vide its judgement dated February 19, 2021 had imposed a penalty of RMB 159.32 million (about US$ 25 million / ' 18,000 lakh) including right protection cost of RMB 3.49 million (about US$ 0.55 million / ' 390 lakh) on our JV partner Wanglong Technology (being 49% stake holder in Company's subsidiary CFS Wanglong Flavors (Ningbo) Co. Ltd. ('the subsidiary')) and others for alleged infringement of intellectual property used in the process for manufacturing Vanillin. Further, 7% of the aforesaid penalty amounting to RMB 11.15 million (about US$ 1.70 million / ' 1,265 lakh) has also been levied on the subsidiary. Consequent to the Order, as an abundant legal caution, the production of Vanillin at the subsidiary's manufacturing facility in China has been stopped till further directions of the Court.
In the opinion of the management and based on the discussions with the JV Partner, the findings and allegations of the Honourable Court are not based on the facts and that the order passed by the Court is arbitrary. As a co-defendant with the JV Partner, the subsidiary has preferred an application for retrial of the aforesaid order before Supreme People's Court of China which was heard in the month of October 2021, the decision thereof is awaited. The management is confident of favourable decision in the retrial proceedings and that no penalty is sustained and consequently the production is expected to restart in a very near future.
Further in terms of the shareholders' agreement dated April 28, 2017 and its subsequent amendments, the Company and its subsidiary are indemnified against penalty and/ or legal consequences emanating from the violation of IP rights.
Under these circumstances, no impairment of the investment value of the subsidiary and / or other receivables is envisaged in the financial statements.
42 EXCEPTIONAL ITEMS
Exceptional item for 2020-2021 pertains to impairment in the value of investment of CFS International Trading (Shanghai) Ltd, a wholly owned subsidiary, amounting to ' 50.32 lakh.
43 EARNINGS PER SHAREa) Basic Earnings Per Share
The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders and weighted average number of ordinary shares outstanding.
b) Diluted Earnings Per Share
The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders and weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares.
45.1 Pursuant to the refinance of borrowing availed by Dresen Quimica S.A.P.I. de C.V. (Dresen Quimica) during the year, corporate guarantee amounting to ' 4,730.03 lakh as on March 31, 2021, issued against the aforesaid borrowing stands cancelled.
The Company has issued a fresh corporate guarantee amounting to ' 1,920.53 lakh towards the new lender during the year.
45.2 Pursuant to the directions of the Honorable Supreme Court dated December 14, 2020, National Green Tribunal had reheard the matter and vide its direction dated January 24,2022 had enhanced the portion of compensation attributable to the Company for alleged violations of environmental norms by manufacturers at Tarapur MIDC for an amount of ' 1,712.31 lakh from ' 515.56 lakh. The Honourable Supreme Court vide its order dated April 27, 2022 has stayed the proceedings of the aforesaid directions until the matter is heard. Further the Honourable Supreme Court has directed to deposit ' 515.56 lakh until the matter is heard. The Company has deposited ' 154.97 lakh which is disclosed as recoverable advance (Refer Note 18). Based on the assessment of the management, the Company believes that it has strong grounds to defend its position against these directions and hence no provision for the compensation is considered necessary in the financial statements.
45.3 There are numerous interpretative issues relating to the Supreme Court judgements on Provident Fund dated February 28, 2019. As a matter of caution, the Company has made a provision on a prospective basis from the date of the Supreme Court Order and the provisions will be updated on receiving further clarity on the subject.
b) Fair value hierarchy (Refer Note B to significant accounting policies)c) Measurement of Fair Value
The fair values of financial assets or liabilities are included at the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Methods and assumptions used to estimate the fair values are consistent in both the year The following methods and assumptions are used to estimate the fair values:
(i) The Management assesses that fair values of trade receivables, cash and cash equivalents, other bank balances, loans, trade payables, current borrowings and other financial liabilities approximate to their carrying amounts largely due to the short-term maturities of these instruments. The Company does not anticipate that the carrying amount would be significantly different from the values that would eventually be received or settled.
(ii) The embedded derivative in FCCB is fair valued by an external independent valuer by computing the average cash flows determined through the Monte Carlo Simulation technique based on the market observable rates and published price.
(iii) The fair value of forward contracts is determined using FEDAI forward exchange rates for the remaining maturity period of the forward contracts. The fair value so determined is not discounted.
Unobservable inputs used in Level 3 of fair value hierarchy
The fair value of put option is calculated by independent expert based on the shareholders agreement using 'Income Approach'. The unobservable inputs used in fair valuation under level 3 are determined by considering historical financial statements, management's estimates of probability of put option being exercised by the minority shareholders, Share Holder's Agreement, discount rate and the review of projected revenue and profit after tax.
d) Risk Management Framework
The Company's business activities expose it to a variety of financial risks, namely credit risk, liquidity risk and market risks. Market risks comprise of currency risk and interest rate risk. The Company's Senior Management and Key Management Personnel have the ultimate responsibility for managing these risks. The Company has a process to identify and analyse the risks faced by the Company, to set appropriate risk limits, to control and monitor risks and adherence to these limits. Risk Management policies and systems are reviewed regularly to reflect changes in market conditions and Company's activities. Further, Audit Committee undertakes regular reviews of Risk Management Controls and Procedures.
Credit risk is the risk that a customer or counterparty fails to meet its contractual obligations resulting in financial loss to the Company. The Company is exposed to credit risk from its operating activities (trade receivables) and from its financing activities including investments in mutual funds, deposits with banks and financial institutions and financial instruments.
Trade Receivables
Credit risk from trade receivables is managed by establishing credit limits, credit approvals and monitoring creditworthiness of the customers. Outstanding customer receivables are regularly monitored. The Company has computed credit loss allowances based on Expected Credit Loss Model, which excludes transactions with subsidiaries.
Term Deposits and Bank Balances
The Company's exposure in term deposits with banks is limited, as the counterparties are highly rated banks.
(ii) Liquidity Risk
Liquidity risk is the risk that the Company will face in meeting its obligations associated with its financial liabilities. The Company's approach to managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses.
Tabulated below are the Company's remaining contractual maturities of financial liabilities as at the reporting date with agreed repayment periods. The tables have been drawn up considering the undiscounted contractual cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows.
# The contractual cash flows of FCCBs are calculated on the assumption that the FCCBs will not get converted into equity shares of the company before the maturity date.
* The amounts included above for financial guarantee contracts are the maximum amounts the Company could be forced to settle under the arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantee. Based on expectations at the end of the reporting period, the Company considers that it is more likely than not that such an amount will not be payable under the arrangement.
The Company's operations result in it being exposed to foreign currency risk on account of trade receivables, trade payables, borrowings and lendings. The foreign currency risk may affect the Company's income and expenses, or its financial position and cash flows. The objective of the Company's Management of foreign currency risk is to maintain these risk within acceptable parameters, while optimising returns.
48 CAPITAL MANAGEMENT
The primary objective of the Company's capital management is to maintain an efficient capital structure and to maximise shareholder's value. The Management seeks to maintain a balance between higher returns that is achieved by raising funds through equity and the advantages by a sound capital position.
The Company monitors capital using a ratio of 'Net Debt to Equity'. For this purpose, Capital includes issued capital and all other equity reserves. Net Debt is defined as total borrowings less cash & bank balances and other current investments.
49 DISCLOSURES U/S 186(4) OF THE COMPANIES ACT, 2013
a Details of investments made are disclosed in Note 6.
b Details of Loans given to subsidiaries, associates, firms/companies in which directors are interested are disclosed in Note 7 and 16.
c Details of Guarantee given on behalf are disclosed in Note: 45(I)(c) and (d).
50 DISCLOSURES MADE IN TERMS OF SCHEDULE V OF THE SEBI (LISTING OBLIGATION AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015
For disclosure of loans, investments and Guarantee- 'Refer Note 49'. Further, there is no investment in shares of the Company by the parties to whom loan have been given.
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