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Notes forming part of onancial statements (Contd.)
Annual Report 2016-17
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271
Financial risk management
Financial risk factors and risk management objectives
The Company’s activities expose it to a variety of onancial risks: market risk, credit risk and liquidity risk. The Company’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 Company is foreign exchange risk. The Company uses derivative onancial
instruments to mitigate foreign exchange related risk exposures. The use of onancial 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 foreign currency risk from onancial instruments as of March 31, 2017:
(In
`
million)
USD
EUR
GBP
Other
currencies
Total
Trade receivables
3,206.79
53.02
36.19
55.24
3,351.24
Cash and cash equivalents and bank balances
240.52
4.00
16.78
63.13
324.43
Investments (including share application money)
2,606.97
105.85
-
103.15 2,815.97
Other onancial assets (including loans)
373.66
-
0.98
-
374.64
Trade and other payables
893.85
1.87
25.19
49.03
969.94
Other onancial liabilities
20.30
-
-
-
20.30
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
2,065.48
47.87
42.79
28.32 2,184.46
Cash and cash equivalents and bank balances
390.65
2.77
13.98
3.73
411.13
Investments (including share application money)
2,024.37
113.07
-
117.80 2,255.24
Other onancial assets (including loans)
40.72
0.82
0.38
1.54
43.46
Trade and other payables
778.39
9.76
-
0.85
789.00
Other onancial liabilities
10.16
-
-
-
10.16
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 Company’s proot before tax margin
(PBT) by approximately 0.45% and 0.50% respectively.
Derivative onancial instruments
The Company 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 Company has designated
foreign exchange forward contracts as cash pow hedges to mitigate the risk of foreign exchange exposure on highly
probable forecast sales transactions.