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Notes forming part of consolidated onancial statements (Contd.)
208
•
Annual Report 2016-17
Financial risk management
Financial risk factors and risk management objectives
The Group’s activities expose it to a variety of onancial risks: market risk, credit risk and liquidity risk. The Group’s focus
is to foresee the unpredictability of onancial markets and seek to minimize potential adverse effects on its onancial
performance. The primary market risk to the Group is foreign exchange risk. The Group uses derivative onancial
instruments to mitigate foreign exchange related risk exposures. The use of onancial derivatives is governed by the
Group’s policies approved by the Board of Directors which provide written principles on foreign exchange hedging. The
Group’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
Group. The Group’s Risk Management Committee monitors risks and policies implemented to mitigate risk exposures.
Market risk
The Group operates globally with its operations spread across various geographies and consequently the Group is
exposed to foreign exchange risk. Around 80% to 90% of the Group’s foreign currency exposure is in USD. The Group
holds plain vanilla forward contracts against expected future sales in USD to mitigate the risk of changes in exchange
rates.
The following table analyses foreign currency risk from onancial instruments as of March 31, 2017:
(In
`
million)
USD
EUR
GBP
Other
currencies
Total
Trade receivables
1,098.05
119.63
38.98
88.43
1,345.09
Cash and cash equivalents and bank balances
369.57
4.00
16.78
63.13
453.48
Trade and other payables
14.90
4.00
25.36
48.11
92.37
The following table analyses foreign currency risk from onancial instruments as of March 31, 2016:
(In
`
million)
USD
EUR
GBP
Other
currencies
Total
Trade receivables
376.08
142.28
41.11
86.00
645.47
Cash and cash equivalents and bank balances
494.54
2.77
13.98
3.73
515.02
Trade and other payables
8.10
1.03
-
0.85
9.98
Foreign currency sensitivity analysis
For the year ended March 31, 2017 and March 31, 2016, every percentage point depreciation / appreciation in the
exchange rate between the Indian rupee and foreign currencies, would affect the Group’s proot before tax margin (PBT)
by approximately 0.32% and 0.31% respectively.
Derivative onancial instruments
The Group holds derivative foreign currency forward contracts to mitigate the risk of changes in exchange rates on
foreign currency exposures. These derivative onancial 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 Group has designated
foreign exchange forward contracts as cash pow hedges to mitigate the risk of foreign exchange exposure on highly
probable forecast sales transactions.