1. Land includes certain lands at Munger with Gross Block - Rs, 1.16 Crores (2017 - Rs, 1.16 Crores) which stood vested with the State of Bihar under the Bihar Land Reforms Act, 1950 for which compensation has not yet been determined.
2. Certain trademarks with a carrying value of Rs, 309.73 Crores (2017 - Rs, 309.73 Crores) have been considered of having an indefinite useful life taking into account that there are no technical, technological or commercial risks of obsolescence or limitations under contract or law. Other trademarks have been amortized over 10 years.
3. The amortization expense of intangible assets have been included under ‘Depreciation and amortization expense’ in the Statement of Profit and Loss.
4. The amount of expenditure recognized in the carrying amount of property, plant and equipment in the course of construction is Rs, 127.92 Crores (2017 - Rs, 73.91 Crores).
5. Includes Rs, 541.21 Crores as at 31st March, 2018 towards payment to IFCI Limited (IFCI) and applicable stamp duty for purchase of a five star hotel resort in Goa operating under the name Park Hyatt Goa Resort & Spa and IFCI issued required sale certificate in favour of the Company. The erstwhile owners of the property thereafter challenged the sale. By its judgment dated 23.03.2016, the Bombay High Court set aside the sale and directed IFCI to refund the sale consideration to the Company. The Company and IFCI had approached the Hon’ble Supreme Court against the High Court judgment. The Hon’ble Supreme Court, by its judgment and order dated 19.03.2018 has set aside the impugned judgment and order of the Hon’ble Bombay High Court, thereby upholding the sale of Park Hyatt Goa Resort & Spa to the Company and directed the erstwhile owners to handover possession to the Company within a period of six months along with relevant accounts. Pursuant to the said order, the amount of Rs, 541.21 Crores has been adjusted from Capital Advances (Refer Note 7) and reflected in Capital Work-in-Progress.
The cost of inventories recognized as an expense includes Rs, 28.08 Crores (2017 - Rs, 15.06 Crores) in respect of write-downs of inventory to net realizable value. Further, a sum of Rs, 0.55 Crore (2017 - Rs, 0.65 Crore) is in respect of reversal of such write-downs. Previous write-downs have been reversed as a result of increased sales prices in certain markets.
Inventories of Rs, 710.52 Crores (2017 - Rs, 640.28 Crores) are expected to be recovered after more than twelve months.
* Also Refer Note 19.
(ii) Corporate Guarantee given to Yes Bank Limited for credit facility availed by Broadcast Audience Research Council (BARC) outstanding - Rs, 1.30 Crores (2017 - Rs, 1.30 Crores).
(b) Commitments
- Estimated amount of contracts remaining to be executed on capital accounts and not provided for Rs, 1445.07 Crores (2017 - Rs, 1990.24 Crores).
- Uncalled liability on investments partly paid is Rs, 33.90 Crores (2017 - Rs, 26.40 Crores).
(vii) (a) Defined Benefit Plans/Long Term Compensated Absences:-
Description of Plans
The Company makes contributions to both Defined Benefit and Defined Contribution Plans for qualifying employees. These Plans are administered through approved Trusts, which operate in accordance with the Trust Deeds, Rules and applicable Statutes. The concerned Trusts are managed by Trustees who provide strategic guidance with regard to the management of their investments and liabilities and also periodically review their performance.
Provident Fund, Pension and Gratuity Benefits are funded and Leave Encashment Benefits are unfunded in nature. The Defined Benefit Pension Plans are based on employees’ pensionable remuneration and length of service. Under the Provident Fund, Gratuity and Leave Encashment Schemes, employees are entitled to receive lump sum benefits.
The liabilities arising in the Defined Benefit Schemes are determined in accordance with the advice of independent, professionally qualified actuaries, using the projected unit credit method. The Company makes regular contributions to these Employee Benefit Plans. Additional contributions are made to these plans as and when required based on actuarial valuation. Some Group companies also participate in these Plans. These participating Group companies make contributions to the Plans for their respective employees on a uniform basis and each entity ascertains their obligation through actuarial valuation. The net Defined benefit cost is recognized by these companies in their respective Financial Statements.
Risk Management
The Defined Benefit Plans expose the Company to risk of actuarial deficit arising out of investment risk, interest rate risk and salary cost inflation risk.
Investment Risks: This may arise from volatility in asset values due to market fluctuations and impairment of assets due to credit losses. These Plans primarily invest in debt instruments such as Government securities and highly rated corporate bonds - the valuation of which is inversely proportional to the interest rate movements.
Interest Rate Risk: The present value of Defined Benefit Plans liability is determined using the discount rate based on the market yields prevailing at the end of reporting period on Government bonds. A decrease in yields will increase the fund liabilities and vice-versa.
Salary Cost Inflation Risk: The present value of the Defined Benefit Plan liability is calculated with reference to the future salaries of participants under the Plan. Increase in salary due to adverse inflationary pressures might lead to higher liabilities.
These Plans have a relatively balanced mix of investments in order to manage the above risks. The investment strategy is designed based on the interest rate scenario, liquidity needs of the Plans and pattern of investment as prescribed under various statutes.
The Trustees regularly monitor the funding and investments of these Plans. Risk mitigation systems are in place to ensure that the health of the portfolio is regularly reviewed and investments do not pose any significant risk of impairment. Periodic audits are conducted to ensure adequacy of internal controls. Pension obligation of the employees is secured by purchasing annuities thereby de-risking the Plans from future payment obligation.
XI Sensitivity Analysis
The Sensitivity Analysis below has been determined based on reasonably possible change of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. These sensitivities show the hypothetical impact of a change in each of the listed assumptions in isolation. While each of these sensitivities holds all other assumptions constant, in practice such assumptions rarely change in isolation and the asset value changes may offset the impact to some extent. For presenting the sensitivities, the present value of the Defined Benefit Obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the Defined Benefit Obligation presented above. There was no change in the methods and assumptions used in the preparation of the Sensitivity Analysis from previous year.
(viii) Micro, Small and Medium scale business entities:
A sum of Rs, 45.43 Crores is payable to Micro and Small Enterprises as at 31st March, 2018 (2017 - Rs, 38.54 Crores). The above amount comprises Rs, 29.43 Crores (2017 - Rs, 28.98 Crores) on account of trade payable and Rs, 16.00 Crores (2017 - Rs, 9.56 Crores) on account of liabilities other than trade payables. There are no Micro, Small and Medium Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days during the year and also as at 31st March, 2018. This information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company.
(ix) The Company’s significant leasing arrangements are in respect of operating leases for premises (land, residential, office, stores, go downs etc.). These leasing arrangements which are not non-cancellable range between 11 months and 9 years generally, or longer, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as ‘Rent’ under Note 25.
(x) Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) (Amendment) Rules, 2018 on 28th March, 2018 notifying Ind AS 115, ‘Revenue from Contracts with Customers’ and amending Ind AS 21 ‘The Effects of Changes in Foreign Exchange Rates’; Ind AS 12 ‘Income Taxes’. The same are applicable for financial statements pertaining to annual periods beginning on or after 1st April, 2018. The Company expects that there will be no material impact on the financial statements resulting from the implementation of these standards.
(xi) Under the terms of the Joint Venture Agreement (JVA), Logix Developers Private Limited (LDPL) was to develop a luxury hotel-cum-service apartment complex. However, Logix Estates Private Limited, Noida, the JV partner communicated its intention to explore alternative development plans to which the Company reiterated that it was committed only to the project as envisaged in the JV agreement. The JV partner refused to progress the project and instead expressed its intent to exit the JV by selling its stake to the Company and subsequently proposed that both parties should find a third party to sell the entire shareholding in LDPL. The resultant deadlock has stalled the project. The Company’s petition that the affairs of the JV are being conducted in a manner that is prejudicial to the interest of the Company and the JV entity is currently before the National Company Law Tribunal. The financial statements of LDPL for year ended 31st March, 2018 are yet to be approved by its Board of Directors.
1. ENTERPRISES WHERE CONTROL EXISTS:
Subsidiaries:
a) Srinivasa Resorts Limited
b) Fortune Park Hotels Limited
c) Bay Islands Hotels Limited
d) WelcomHotels Lanka (Private) Limited, Sri Lanka
e) Landbase India Limited
f) Russell Credit Limited and its subsidiary
Greenacre Holdings Limited
g) Technico Pty Limited, Australia and its subsidiaries
Technico Technologies Inc., Canada
Technico Asia Holdings Pty Limited, Australia and its subsidiary Technico Horticultural (Kunming) Co. Limited, China
h) Technico Agri Sciences Limited
i) Wimco Limited
j) Pavan Poplar Limited k) Prag Agro Farm Limited l) ITC Infotech India Limited and its subsidiaries ITC Infotech Limited, UK ITC Infotech (USA), Inc. and its subsidiary Indivate Inc., USA m) Gold Flake Corporation Limited n) ITC Investments & Holdings Limited and its subsidiary MRR Trading & Investment Company Limited
o) Surya Nepal Private Limited p) North East Nutrients Private Limited
The above list does not include ITC Global Holdings Pte. Limited, Singapore (in liquidation)
2. OTHER RELATED PARTIES WITH WHOM THE COMPANY HAD TRANSACTIONS
i) Associates & Joint Ventures:
Associates
a) Gujarat Hotels Limited
b) International Travel House Limited
- being associates of the Company, and
c) Tobacco Manufacturers (India) Limited, UK
- of which the Company is an associate
Associates of the Company’s subsidiaries
a) Russell Investments Limited
b) Divya Management Limited
c) Antrang Finance Limited
- being associates of Russell Credit Limited, and
d) ATC Limited
- being associate of Gold Flake Corporation Limited
Joint Ventures
a) Maharaja Heritage Resorts Limited
b) Espirit Hotels Private Limited
c) Logix Developers Private Limited
Joint Venture of the Company’s subsidiary
a) ITC Essentra Limited
- being joint venture of Gold Flake Corporation Limited
ii) a) Key Management Personnel:
Y. C. Deveshwar Chairman & Non-Executive Director
S. Puri Chief Executive Officer & Executive Director
N. Anand Executive Director
R. Tandon Executive Director & Chief Financial Officer
Z. Alam Non-Executive Director (upto 20.03.2018)
A. Malik Non-Executive Director (w.e.f. 11.04.2017 and upto 31.07.2017)
S. Banerjee* Non-Executive Director
A. Duggal* Non-Executive Director S. B. Mainak Non-Executive Director S. B. Mathur* Non-Executive Director
P. B. Ramanujam* Non-Executive Director (upto 31.07.2017)
N. Rao* Non-Executive Director
S. S. H. Rehman* Non-Executive Director
M. Shankar* Non-Executive Director
D.R. Simpson Non-Executive Director
* Independent Directors
Members - Corporate Management Committee S. Puri N. Anand R. Tandon
B. B. Chatterjee (upto 03.02.2018)
S. Sivakumar
K. S. Suresh
C. Dar
R. Sridhar
B. Sumant
S. K. Singh
Company Secretary
R. K. Singhi (w.e.f. 04.02.2018)
b) Relatives of Key Management Personnel:
Mrs. B. Deveshwar (wife of Mr. Y. C. Deveshwar)
Mrs. R. Tandon (wife of Mr. R. Tandon)
Mrs. Neelam Singhi (wife of Mr. R. K. Singhi)
iii) Employee Trusts where there is significant influence:
a) IATC Provident Fund
b) ITC Defined Contribution Pension Fund
c) ITC Management Staff Gratuity Fund
d) ITC Employees Gratuity Fund
e) ITC Gratuity Fund ‘C’
f) ITC Pension Fund
g) ILTD Seasonal Employees Pension Fund
h) ITC Platinum Jubilee Pension Fund
i) Tribeni Tissues Limited Gratuity Fund (merged with ITC Employees Gratuity Fund w.e.f. 01.04.2017) j) ITC Bhadrachalam Paperboards Limited Management Staff Pension Fund
k) ITC Bhadrachalam Paperboards Limited Gratuity Fund ‘A’
l) ITC Bhadrachalam Paperboards Limited Gratuity Fund ‘C’
m) ITC Hotels Limited Employees Superannuation Scheme
1 Post employment benefits are actuarially determined on overall basis and hence not separately provided. Payments made on settlement of leave liability upon retirement - Nil (2017 -? 4.10 Crores) has not been included in the above;
2 The Company grants Stock Options to the Directors, Key Management Personnel (KMP) and other employees under its Employee Stock Option Schemes at ‘market price’ [within the meaning of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014], Since such options are not tradeable, no perquisite or benefit is immediately conferred upon an employee by such grant. However, the Company has recorded employee benefits expense by way of share based payments to employees, in accordance with Ind AS 102, at? 349.28 Crores for the year ended 31st March, 2018 (2017- ? 450.32 Crores), out of which ? 53.43 Crores (2017 - ? 74.05 Crores) is attributable to Directors and KMP;
3 Outstanding deposit balances includes/excludes deposit with KMPs which are existing on the date of being designated/retired as KMPs.
1. Capital Management
The Company’s financial strategy aims to support its strategic priorities and provide adequate capital to its businesses for growth and creation of sustainable stakeholder value. The Company funds its operations through internal accruals and aims at maintaining a strong capital base to support the future growth of its businesses.
During the year, the Company issued 5,69,11,840 equity shares of Rs, 1.00 each amounting to Rs, 5.69 Crores (2017 - Rs, 7.35 Crores) towards its equity-settled employee stock options. The securities premium stood at Rs, 7444.41 Crores as at 31st March, 2018 (2017 - Rs, 6432.24 Crores).
3. Financial risk management objectives
The Company has a system-based approach to risk management, anchored to policies and procedures and internal financial controls aimed at ensuring early identification, evaluation and management of key financial risks (such as market risk, credit risk and liquidity risk) that may arise as a consequence of its business operations as well as its investing and financing activities. Accordingly, the Company’s risk management framework has the objective of ensuring that such risks are managed within acceptable and approved risk parameters in a disciplined and consistent manner and in compliance with applicable regulation. It also seeks to drive accountability in this regard.
Liquidity Risk
The Company’s Current assets aggregate to Rs, 24503.00 Crores (2017 - Rs, 24537.39 Crores) including Current Investments, Cash and cash equivalents and Other Bank Balances of Rs, 12498.33 Crores (2017 - Rs, 12847.05 Crores) against an aggregate Current liability of Rs, 8856.60 Crores (2017 - Rs, 6830.07 Crores); Non-current liabilities due between one year to three years amounting to Rs, 39.06 Crores (2017 - Rs, 18.31 Crores) and Non-current liabilities due after three years amounting to Rs, 7.43 Crores (2017 - Rs, 8.89 Crores) on the reporting date.
Further, while the Company’s total equity stands at Rs, 51400.07 Crores (2017 - Rs, 45340.96 Crores), it has borrowings of Rs, 11.13 Crores (2017 - Rs, 18.00 Crores). In such circumstances, liquidity risk or the risk that the Company may not be able to settle or meet its obligations as they become due does not exist.
Market Risks
The Company is not an active investor in equity markets; it continues to hold certain investments in equity for long term value accretion which are accordingly measured at fair value through Other Comprehensive Income. The value of investments in such equity instruments as at 31st March, 2018 is Rs, 1450.55 Crores (2017 - Rs, 1115.45 Crores). Accordingly, fair value fluctuations arising from market volatility is recognized in Other Comprehensive Income.
As the Company is virtually debt-free and its deferred payment liabilities do not carry interest, the exposure to interest rate risk from the perspective of Financial Liabilities is negligible. Further, treasury activities, focused on managing investments in debt instruments, are centralised and administered under a set of approved policies and procedures guided by the tenets of liquidity, safety and returns. This ensures that investments are only made within acceptable risk parameters after due evaluation.
The Company’s investments are predominantly held in bonds/debentures, fixed deposits and debt mutual funds. Mark to market movements in respect of the Company’s investments in bonds/debentures that are held at amortized cost are temporary and get recouped through fixed coupon accruals. Other investments in bonds/debentures are fair valued through the Statement of
Profit and Loss to recognize market volatility, which is not considered to be significant. Fixed deposits are held with highly rated banks and companies and have a short tenure and are not subject to interest rate volatility.
The Company also invests in mutual fund schemes of leading fund houses. Such investments are susceptible to market price risks that arise mainly from changes in interest rate which may impact the return and value of such investments. However, given the relatively short tenure of underlying portfolio of the mutual fund schemes in which the Company has invested, such price risk is not significant.
For select agricultural commodities primarily held for trading, futures contracts are used to hedge price risks till positions in the physical market are matched. Such activities are managed by the business team within an approved policy framework. The carrying value of inventories is adjusted to the extent of fair value movement of the risk being hedged. Such hedges are generally for short time horizons and recognized in profit or loss within the crop cycle and are managed by the business within the approved policy framework. Accordingly, the Company’s net exposure to commodity price risk is considered to be insignificant.
Foreign currency risk
The Company undertakes transactions denominated in foreign currency (mainly US Dollar, Pound Sterling, Euro and Japanese Yen) which are subject to the risk of exchange rate fluctuations. Financial assets and liabilities denominated in foreign currency, including the Company’s net investments in foreign operations (with a functional currency other than Indian Rupee), are also subject to reinstatement risks.
The Company uses forward exchange contracts and currency options to hedge its exposures in foreign currency arising from firm commitments and highly probable forecast transactions. Accordingly,
The Company has established risk management policies to hedge the volatility arising from exchange rate fluctuations in respect of firm commitments and highly probable forecast transactions, through foreign exchange forward and options contracts. The proportion of forecast transactions that are to be hedged is decided based on the size of the forecast transaction and market conditions. As the counterparty for such transactions are highly rated banks, the risk of their non-performance is considered to be insignificant.
The Company uses derivatives to hedge its exposure to changes in movement in foreign currency. Where such derivatives are not designated under hedge accounting, changes in the fair value of such hedges are recognized in the Statement of Profit and Loss.
The Company may also designate certain hedges, usually for large transactions, as a cash flow hedge under hedge accounting, with the objective of shielding the exposure from variability in cash flows. The currency, amount and tenure of such hedges are generally matched to the underlying transaction(s). Changes in the fair value of the effective portion of cash flow hedges are recognized as cash flow hedging reserve in Other Comprehensive Income. While the probability of such hedges becoming ineffective is very low, the ineffective portion, if any, is immediately recognized in the Statement of Profit and Loss.
Foreign Currency Sensitivity
For every percentage point change in the underlying exchange rate of the outstanding foreign currency denominated assets and liabilities, including derivative contracts, holding all other variables constant, the profit before tax for the year ended 31st March, 2018 would change by Rs, 0.32 Crore [2017 - Rs, (0.24) Crore] and pre-tax total equity as at 31st March, 2018 would change by Rs, (1.62) Crores (2017 - Rs, 1.11 Crores).
Credit Risk
Company’s deployment in debt instruments are primarily in fixed deposits with highly rated banks and companies; bonds issued by government institutions, public sector undertakings and certificate of deposits issued by highly rated banks and financial institutions. Of this, investments that are held at amortized cost stood at Rs, 13220.19 Crores (2017 - Rs, 8705.47 Crores). With respect to the Company’s investing activities, counter parties are shortlisted and exposure limits determined on the basis of their credit rating (by independent agencies), financial statements and other relevant information. As these counter parties are Government institutions, public sector undertakings with investment grade credit ratings and taking into account the experience of the Company over time, the counter party risk attached to such assets is considered to be insignificant.
The Company’s customer base is large and diverse limiting the risk arising out of credit concentration. Further, credit is extended in business interest in accordance with guidelines issued centrally and business-specific credit policies that are consistent with such guidelines. Exceptions are managed and approved by appropriate authorities, after due consideration of the counterparty’s credentials and financial capacity, trade practices and prevailing business and economic conditions. The Company’s exposure to trade receivables on the reporting date, net of expected loss provisions, stood at Rs, 2357.01 Crores (2017 - Rs, 2207.50 Crores).
The Company’s historical experience of collecting receivables and the level of default indicate that credit risk is low and generally uniform across markets; consequently, trade receivables are considered to be a single class of financial assets. All overdue customer balances are evaluated taking into account the age of the dues, specific credit circumstances, the track record of the counterparty etc. Loss allowances and impairment is recognized, where considered appropriate by responsible management.
‘Represents Fair value of Non-current Financial Instruments Fair value hierarchy
Fair value of the financial instruments is classified in various fair value hierarchies based on the following three levels:
Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities.
Level 2: Inputs other than quoted price included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
The fair value of financial instruments that are not traded in an active market is determined using market approach and valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.
Derivatives are valued using valuation techniques with market observable inputs such as foreign exchange spot rates and forward rates at the end of the reporting period, yield curves, risk free rate of returns, volatility etc., as applicable.
Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
If one or more of the significant inputs is not based on observable market data, the fair value is determined using generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparty.
The fair value of trade receivables, trade payables and other current financial assets and liabilities is considered to be equal to the carrying amounts of these items due to their short-term nature. Where such items are non-current in nature, the same has been classified as Level 3 and fair value determined using discounted cash flow basis. Similarly, unquoted equity instruments where most recent information to measure fair value is insufficient, or if there is a wide range of possible fair value measurements, cost has been considered as the best estimate of fair value.
There has been no change in the valuation methodology for Level 3 inputs during the year. The Company has not classified any material financial instruments under Level 3 of the fair value hierarchy. There were no transfers between Level 1 and Level 2 during the year.