246 Annual Report 2023-24 Atul Ltd Note 30.8 Financial risk management (continued) 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, 2024, is ` 807.20 cr (March 31, 2023: ` 534.65 cr). The fair value of bonds classified at fair value through profit and loss as at March 31, 2024, is ` 94.35 cr (March 31, 2023: ` 112.74 cr). The fair value of mutual fund and alternate investment fund classified at fair value through profit and loss as at March 31, 2024, is ` 439.72 cr (March 31, 2023: ` 189.57 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 Policy. Any new investment or divestment must be approved by the Board, Chief Financial Officer and Audit 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, a 4% increase in Nifty 50 prices may have led to approximately an additional ` 25.86 cr gain in other comprehensive income (2022-23: ` 12.87 cr). A 4% decrease in Nifty 50 prices may have led to an equal but opposite effect. For bonds, a 1% increase in prices may have led to approximately an additional ` 0.94 cr gain in the Consolidated Statement of Profit and Loss (2022-23: ` 1.13 cr). A 1% decrease in prices may have led to an equal but opposite effect. For mutual funds and alternate investment fund, a 1% increase in prices may have led to approximately an additional ` 4.40 cr gain in the Consolidated Statement of Profit and Loss (2022-23: ` 1.90 cr). A 1% decrease in prices may have led to an equal but opposite effect. ii) Interest rate risk 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, 2024, the exposure to interest rate risk due to variable interest rate borrowings amounted to ` 231.85 cr (March 31, 2023: ` 46.98 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. 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 may have led to approximately an additional ` 0.58 cr (202223: ` 0.12) gain in Consolidated Statement of Profit and Loss. A 25 bps decrease in interest rates may have led to an equal but opposite effect. iii) Foreign exchange risk TheGroup has international operations and is exposed to foreign exchange risk arising from foreign currency transactions. Foreign exchange risk arises from future commercial transactions and recognised financial assets and liabilities denominated in a currency that is not the functional currency (`) of the Group. The risk also includes highly probable foreign currency cash flows. The objective of the cash flows hedges is to minimise the volatility of the ` cash flows of highly probable forecast transactions. The Group has exposure arising out of export, import, loans and other transactions other than functional risk. The Group hedges its foreign exchange risk using foreign exchange forward contracts and currency options after considering the natural hedge. The same is within the guidelines laid down by Risk Management Policy of the Group. As an estimation of the approximate impact of the foreign exchange rate risk, with respect to Consolidated Financial Statements, the Group has calculated the impact as follows: For derivative financial instruments, a 2% increase in the spot price as on the reporting date may have led to insignificant effect in consolidated other comprehensive income (2022-23: loss of ` 0.23 cr). A 2% decrease may have led to an additional ` 0.85 cr gain in consolidated other comprehensive income (2022-23: gain of ` 1.25 cr). For non-derivative financial instruments, a 2% increase in the spot price as on the reporting date may have led to an additional ` 5.65 cr gain in Consolidated Statement of Profit and Loss (2022-23: gain of ` 6.52 cr). A 2% decrease may have led to an equal but opposite effect.
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