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Atul Ltd | Annual Report 2017-18

Note 27.8 Financial Risk Management

(continued)

b) Management of market risk

The size and operations of the Company exposes it to the following market risks that arise from its use of financial

instruments:

i) price risk

ii) interest rate risk

iii) foreign exchange risk

The above risks may affect income and expenses, or the value of its financial instruments of the Company. The

objective of the Management of the Company for market risk is to maintain this risk within acceptable parameters,

while optimising returns. The Company exposure to, and the management of these risks is explained below:

Potential impact of risk

Management policy

Sensitivity to risk

i)

Price risk

The Company is mainly exposed to

the price risk due to its investments

in equity instruments. 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 as fair value through

Other Comprehensive Income as at

March 31, 2018 is

`

451.53 cr

(March 31, 2017:

`

414.27 cr).

In order to manage its price

risk arising from investments in

equity instruments, the Company

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 Risk

Management Committee.

As an estimation of the approximate

impact of price risk, with respect to

investments in equity instruments,

the Company has calculated the

impact as follows.

For equity instruments, a 9.14%

increase in Nifty 50 prices may

have led to approximately an

additional

`

40.83 cr gain in Other

Comprehensive Income (2016-17:

`

32.52 cr). A 9.14% decrease in

Nifty 50 prices may have led to an

equal, but opposite effect.

ii)

Interest rate risk

a) Financial liabilities:

The Company 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, 2018, the

exposure to interest rate risk

due to variable interest rate

borrowings amounted to

`

Nil

(March 31, 2017:

`

51.87 cr)

In order to manage its interest rate

risk arising from variable interest

rate borrowings, the Company 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 the financial instruments,

the Company has calculated the

impact of a 25 bps change in interest

rates. A 25 bps increase in interest

ratesmayhaveledtoapproximatelyan

additional

`

Nil (2016-17:

`

0.13 cr)

gain in Other Comprehensive

Income. A 25 bps decrease in interest

rates may have led to an equal, but

opposite effect.

Notes

to the Financial Statements