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Shaping the future of software driven business
Unconsolidated Financials •
307
Financial risk management
Financial risk factors and risk management objectives
The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s
focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial
performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial
instruments to mitigate foreign exchange related risk exposures. The use of financial derivatives is governed by the Company’s
policies approved by the Board of Directors which provide written principles on foreign exchange hedging. The Company’s
exposure to credit risk is mainly for receivables that are overdue for more than 90 days. The Credit Task Force is responsible
for credit risk management. Investment of excess liquidity is governed by the Investment policy of the Company. The Company’s
Risk Management Committee monitors risks and policies implemented to mitigate risk exposures.
Market risk
The Company operates globally with its operations spread across various geographies and consequently the Company is
exposed to foreign exchange risk. Around 80% to 90% of the Company’s foreign currency exposure is in USD. The Company
holds plain vanilla forward contracts against expected future sales in USD to mitigate the risk of changes in exchange rates.
The following table analyses unhedged foreign currency risk from financial instruments as of March 31, 2019
(In
`
Million)
USD EUR GBP
Other
currencies
Total
Trade receivables
408.03
74.82
41.84
56.83
581.52
Cash and cash equivalents and bank balances
130.74
4.71
13.72
30.07
179.24
Investments
2,778.22 856.20
-
117.83
3,752.25
Other financial assets (including loans and interest accrued)
67.75
4.85
3.33
5.39
81.32
Trade and other payables
622.12
0.34
11.74
-
634.20
Other financial liabilities
-
-
0.16
12.77
12.93
The following table analyses unhedged foreign currency risk from financial instruments as of March 31, 2018:
(In
`
Million)
USD EUR GBP
Other
currencies
Total
Trade receivables
2,052.57
88.45
47.77
81.48 2,270.27
Cash and cash equivalents and bank balances
161.98
5.30
8.35
27.79
203.42
Investments
2,619.83
123.43
-
117.01 2,860.27
Other financial assets (including loans and interest accrued)
190.51
690.18
-
0.66
881.35
Trade and other payables
337.40
-
1.73
-
339.13
Other financial liabilities
179.69
-
-
-
179.69
Foreign currency sensitivity analysis
For the year ended March 31, 2019 and March 31, 2018 every percentage point depreciation / appreciation in the exchange rate
between the Indian rupee and foreign currencies would affect the Company’s profit before tax margin (PBT) by approximately
0.46 % and 0.45% respectively.
Derivative financial instruments
The Company holds derivative foreign currency forward contracts to mitigate the risk of changes in exchange rates on foreign
currency exposures. These derivative financial instruments are valued based on quoted prices for similar assets in active
markets or inputs that are directly or indirectly observable in the marketplace. The Company has designated foreign exchange
forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast sales
transactions.
Notes forming part of financial statements (Contd.)