Atul Ltd 2016-17

Atul Ltd | Annual Report 2016-17 Note 29.8 Financial Risk Management (continued) b) Management of market risk The size and operations of the Group result in it being exposed to the following market risks that arise from its use of financial instruments: • price risk, • interest rate risk; and • foreign exchange risk The above risks may affect income and expenses, or the value of its financial instruments of the Group. The objective of the Management of the Group for market risk is to maintain this risk within acceptable parameters, while optimising returns. The Group exposure to, and the management of, these risks is explained below: Potential Impact of Risk Management policy Sensitivity to Risk i) Price risk The Group is mainly exposed to the price risk due to its investments in equity instruments and mutual funds. The price risk arises due to uncertainties about the future market values of these investments. Equity price risk is related to the change in market reference price of the investments in equity securities. In general, these securities are not held for trading purposes. These investments are subject to changes in the market price of securities. The fair value of quoted equity instruments classified at fair value through Other Comprehensive Income as at March 31, 2017 is ` 415.10 cr (March 31, 2016: ` 337.78 cr and April 01, 2015: ` 376.40 cr). The fair value of mutual funds classified at fair value through profit and loss as at March 31, 2017 is ` 2.92 cr (March 31, 2016: ` 2.05 cr and April 01, 2015: ` 2.66 cr). In order to manage its price risk arising from investments in equity instruments, the Group maintains its portfolio in accordance with the framework set by the Risk Management policies. Any new investment or divestment must be approved by the Board of Directors, Chief Financial Officer and Risk Management Committee. As an estimation of the approximate impact of price risk, with respect to investments in equity instruments, the Group has calculated the impact as follows: For equity instruments and mutual funds, a 10% increase in prices led to approximately an additional ` 7.73 cr gain inOther Comprehensive Income (2015-16: loss of ` 3.84 cr). A 10% decrease in prices would have led to an equal but opposite effect. ii) Interest rate risk a) Financial liabilities: The Group is mainly exposed to interest rate risk due to its variable interest rate borrowings. The interest rate risk arises due to uncertainties about the future market interest rate of these borrowings. As at March 31, 2017, the exposure to interest rate risk due to variable interest rate borrowings amounted to ` 51.87 cr (March 31, 2016: ` 109.68 cr and April 01, 2015: ` 84.96 cr). In order to manage its interest rate risk arising from variable interest rate borrowings, the Group uses interest rate swaps to hedge its exposure to future market interest rates whenever appropriate. The hedging activity is undertaken in accordance with the framework set by the Risk Management Committee and supported by the Treasury department. The Risk Management Committee and the Treasury department maintain a list of approved instruments which can be used for the purpose of such interest rate hedging. As an estimation of the approximate impact of the interest rate risk, with respect to financial instruments, the Group has calculated the impact of a 25 bps change in interest rates. A 25 bps increase in interest rates would have led to approximately an additional ` 0.14 cr (2015-16: ` 0.27 cr) gain in Other Comprehensive Income. A 25 bps decrease in interest rates would have led to an equal but opposite effect. Notes to the Consolidated Financial Statements