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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