4.2.5 Provisions and Contingent Liabilities:
The amount recognised as a provision, including tax, legal, restoration and rehabilitation, contractual and other exposures or obligations is the best estimate of the consideration required to settle the related liability, including any interest charge, taking into account the risks and uncertainties surrounding the obligation. The Company assess its liabilities and contingent liabilities based upon the best information available, relevant tax and other laws, contingencies involved and other appropriate requirements.
4.2.6 Fair value measurement and valuation process:
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
» Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date;
» Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
» Level 3 inputs are unobservable inputs for the asset or liability.
5.1 Cost of Freehold land includes cost of 43.75 acre (previous year 43.75 acre) of land handed over to Govt. of Odisha against which the alienation process is yet to be completed.
5.2 The Company incurred ' 0.67 crores (previous year ' 0.80 crores) for the year ended 31st March, 2024 towards expenses relating to short-term leases and leases of low-value assets. The total cash outflow for leases is ' 3.71 crores (previous year ' 4.08 crores) for the year ended 31st March, 2024, including cash outflow of short-term leases and leases of low-value assets.
5.3 The Company recognises items of spares having unit value more than ' 5 lakhs and useful life more than one year as property, plant and equipment. The value of such items were depreciated, over its useful life as estimated technically, commencing from the date of its issuance for installation at the designated machinery with the consideration that those spares does not contribute to the revenue as installation of such spare is an important activity to commence the depreciation. Based on the opinion of Expert Advisory Committee of Institute of Chartered Accountants of India (the Committee) on this matter, commencemnet of depreciation on such spares has been considered from the date of its acquisition/ purchase rather from the date it is actually used/fitted. With regard to the useful life of spares, the Committee is of the opinion that life should include the period of storage before its issuance along with technically estimated useful life. Being an important clarification which crystalizes the approach of determining useful life and date of commencement of depreciation which causes the change in estimated annual depreciation on such spares, the development as a change in estimates is accounted for prospectively as per Ind AS 8. Based on revised useful life of spares as evaluated technically, depreciation amount of ' 76.52 crore (' 53.43 crore for spares procured and awaiting for commencement of depreciation
and ' 23.09 crore towards spares on which depreciation has already been commenced prior to 01.04.2023) has been additionally provided for in view of such development during FY 2023-24.
5.4 The Company has two wind power plants (WPP) in the state of Rajasthan and one wind power plant in the state of Maharashtra. Based on the
indication from external and internal information to the Company, impairment assessment was carried out for both plants at Rajasthan & one plant of Maharashtra.
5.4.1 For the two WPPs at Rajasthan, the Company had a power purchase agreement (PPA) for 3 years with Jodhpur Vidyut Vitran Nigam Ltd., Rajasthan upto 31.03.2019. In view of non-existence of fresh PPA from 01.04.2019, generation/injection in the Grid without revenue receipt and considering pending writ petition of the Company before Hon’ble High Court of Rajasthan, impairement assessment was done upto the useful life of the assets.
5.4.2 The Company has a long term (25 years) PPA with NTPC Vidyut Vyapar Nigam Ltd.(NVVNL) for supply of a minimum of 100 MU per month from its WPP at Sangli, Maharashtra with a unit (KWH) rate of ' 2.92. Considering the quantum of investment made by the Company and the rate considered for the long term PPA, an impairment assessment has been carried out upto the useful life of the assets.
Details of wind power plants, investment made, carrying value of the asset (before & after impairment), and impairment provisions made are provided below:
(ii) Buy back:
During 2018-19, the Company bought back 6,73,11,386 number of equity shares of ' 5 each which led to decrease in equity share capital from
' 966.46 crore to ' 932.81 crore.
During 2020-21, the Company further bought back 2,89,85,711 numbers of equity shares of ' 5 each which led to decrease in the equity share capital from ' 932.81 crore to ' 918.32 crore.
(iii) Disinvestment:
During the year 2018-19, the Government of India divested 8,89,86,323 Nos of equity shares through Bharat ETF. Consequent to buyback and transfer of shares through ETF by Government of India during 2018-19, the holding of Government of India has come down from 1,16,37,17,107 Nos (60.20%) as on 31.03.2018 to 97,00,81,517 Nos (51.99%) as on 31.03.2019.
During the year 2019-20, Government of India further divested 92,88,506 Nos. of equity shares through Bharat 22 ETF upon which the holding of Government of India has come down from 97,00,81,517 Nos (51.99%) as on 31.03.2019 to 96,07,93,011 Nos. (51.50%) as on 31.03.2020.
During the 2020-21, consequent upon buy-back of equity shares, the holding of Government of India has come down from 96,07,93,011 Nos. (51.5%) as on 31.03.2020 to 94,17,93,011 Nos. (51.28%) as on 31.03.2021.
19.2 During the year 2018-19, the Company had bought back 6,73,11,386 number of fully paid equity shares of ' 5 each on December 4, 2018 at an offer price of ' 75 per share. The aggregate consideration paid was ' 504.83 crore. Post buyback, the paid up equity share capital of the Company is reduced by ' 33.65 crore from ' 966.46 crore to ' 932.81 crore. The premium amount ' 471.18 crore is appropriated from general reserve. The shares were extinguished on December 7, 2018 and in terms of the provisions of Companies Act, 2013, a sum of ' 33.65 crore was transferred from general reserve to capital redemption reserve.
During the year 2020-21, the Company bought back 2,89,85,711 number of fully paid equity shares of ' 5 each on March 10, 2021 at an offer price of ' 57.50 per share. The aggregate consideration paid was ' 166.67 crore. Post buyback, the paid up equity share capital of the Company is reduced by ' 14.49 crore from ' 932.81 crore to ' 918.32 crore. The premium amount ' 152.18 crore is appropriated from general reserve. The shares were extinguished on March 17, 2021 and in terms of the provisions of Companies Act, 2013, a sum of ' 14.49 crore was transferred from general reserve to capital redemption reserve.
19.3 During the year, the Company has paid Final dividend for FY 2022-23 at ' 1.00 per equity share amounting to ' 183.66 crore. The Company has paid first tranche of Interim dividend of for FY 2023-24 at 1.00 per equity share amounting to ' 183.66 crore on December 7, 2023 and the second tranche of Interim dividend at ' 2.00 per equity share amounting to ' 367.33 crore was paid on March 12, 2024. With this, the total payout ' 734.65 crore. (During the previous year, the Company had paid final dividend of ' 1.50 per equity share amounting to ' 275.49 crore.
During preceeding year, the Company had paid first tranche of Interim dividend for FY 2022-23 at ' 1.00 per equity share amounting to ' 183.66 crore on February 14, 2023 and the second tranche of Interim dividend for FY 2022-23 at ' 2.50 per equity share amounting to ' 459.16 crore was paid on March 31, 2023 for FY 2022-23. With this the total payout was ' 918.31 crore during FY 2022-23).
i. Demand from various statutory authorities towards income tax, sales tax, excise duty, custom duty, service tax, entry tax and other government levies. The Company is contesting the demands before the respective appellate authorities. It is expected that the ultimate outcome of these proceedings will be in favour of the Company and will not have any material adverse effect on the Company’s financial position and results of operation.
ii. Claims of contractors for supply of materials/services pending with arbitration/courts have arisen in the ordinary course of business. The Company reasonably expects that these legal actions will be concluded and determined in favour of the Company and will not have any material adverse effect on the Company’s results of operation or financial position.
iii. Claim from PSUs includes the energy compensation charges and the delayed payment surcharge on the same, since 2005, demanded by Odisha Hydro Power Corporation Limited (OHPC) towards loss of power generation by the Corporation due to drawal of water from the reservoir at Upper Kolab, Koraput by NALCO Refinery at M&R Complex.
iv. The claims against the company are mostly due to demands raised by the IT department at assessment stage. These claims are on account of multiple issues of disallowances such as disallowance in respect of additional depreciation under section 32(i)(iia), disallowance of peripheral development expenses, provision for non-moving stores and spares, treatment of short term capital gain and not allowing loss under long term capital gain and treating the same as business income, disallowance u/s 14A etc. These matters are sub-judice and pending before various appellate authorities. The Company, including its tax advisors, expect that its position will likely be upheld on the ultimate resolution in view of the decisions already available in favour of the Company by higher appellate forums being CIT(A) / ITAT (Jurisdictional). Thus it will not have a material adverse effect on the Company’s financial position and in the results of operations. Hence, there is no uncertainty in tax treatment which will affect the determination of taxable profit (loss), tax bases, unused tax losses, unused tax credits, and tax rates of the Company.
29.2 As per the terms of the contract with its customers, either all performance obligations are to be completed within one year from the date of such contracts or the Company has a right to receive consideration from its customers for all completed performance obligations. Accordingly, the Company has availed the practical expedient available under paragraph 121 of Ind AS 115 and dispensed with the additional disclosures with respect to performance obligations that remained unsatisfied (or partially unsatisfied) at the balance sheet date. Further, the terms of the contracts directly identify the single transaction price for each of the completed performance obligations there are no elements of transaction price which have not been included in the revenue recognised in the financial statements.
29.3 The Company has not recognised the revenue from its two wind power plants located in the State of Rajasthan due to non execution of fresh Prower Purchase Agreement (PPA) since 01.04.2019 and such issue being subjudice before Hon’ble High Court of Rajasthan based on writ petition filed by the Company.
Notes:
33.A. Employee benefit Plans 33.A.1 Defined contribution plans
a) Pension fund: The Company pays fixed contribution to the trustee bank of Pension Fund Regulatory and Development Authority (PFRDA), which in turn invests the money with the insurers as specified by the employee concerned. The company’s liability is limited only to the extent of fixed contribution.
33.A.2 Defined benefit plans
a) Provident fund: The provident fund of the Company is managed by an exempted trust under Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Both the employees and the Company make monthly contributions to the provident fund at a specified percentage of employees salary. The Company contributes major part of the fund to the Trust, which invests the funds in permitted securities as per the statute. The remaining part is contributed to the Government administered Pension Fund.
The Company has an obligation to pay minimum rate of return to the members as specified by Government of India. As per the condition of exemption, the Company shall make good for the deficiency, if any, between the return from the investments of the Trust and the notified interest rate by the Government. The contributions made by the Company and the shortfall of interest, if any, are recognised as an expense in profit and loss under employee benefits expense.
Accordingly the Company has obtained actuarial valuation in accordance with Ind AS 19 and there is no shortfall in the funds managed by the trust as at 31 March 2024 and 31 March 2023. The present value of obligation, the fair value of the plan assets and other key assumptions are summarized below.
e) NALCO Benevolent Fund Scheme : The objective of the scheme is to provide financial assistance to families of the members of the scheme who die while in employment of the Company. As per the scheme there will be contribution by members @ ' 30/- per member per death, in the event of death of a member while in the service of the company and matching contribution is made by the Company. The liability for the same is recognised on the basis of actuarial valuation.
f) NALCO Retirement Welfare Scheme : The objective of the scheme is to provide financial assistance as a gesture of goodwill as post retirement support to employees retiring from the services of the company. As per the scheme the recovery from each employee member would be ' 10/- per retiring member. The Company would provide equivalent sum as matching contribution. The liability for the same is recognised on the basis of actuarial valuation.
g) Superannuation gift scheme: The objective of the scheme is to recognise the employees superannuating or retiring on medical ground from the services of the Company. The scheme includes a gift item worth of ' 25000/- per retiring employees to be presented on superannuation/ retirement. The liability for the same is recognised on the basis of actuarial valuation.
33.A.3 Other long term employees benefits
a) Compensated absences : The accumulated earned leave, half pay leave & sick leave is payable on separation, subject to maximum permissible limit as prescribed in the leave rules of the Company. During the service period encashment of accumulated leave is also allowed as per the Company’s rule. The obligation is funded by the Company and is managed by a separate trust. The liability for the same is recognised on the basis of actuarial valuation and is funded to the Trust.
b) Long Service Reward : The employee who completes 25 years of service are entitled for a long service reward which is equal to one month basic pay and DA. The liability for the same is recognised on the basis of actuarial valuation.
c) NEFFARS : In the event of disablement/death, on deposit of prescribed amount as stipulated under the scheme, the Company pays monthly benefit to the employee/ nominee at their option upto the date of notional superannuation. The liability for the same is recognised on the basis of actuarial valuation.
The employee benefit plans typically expose the Company to actuarial risks such as actuarial risk, investment risk, interest risk, longetivity risk and salary risk:-
i. Actuarial risk: It is the risk that employee benefits will cost to the Company more than expected. This can arise due to one of the following reasons:
a. Adverse Salary Growth Experience: Salary hikes that are higher than the assumed salary escalation will result into an increase in obligation at a rate that is higher than expected.
b. Variability in mortality rates: If actual mortality rates are higher than assumed mortality rate assumption then the gratuity benefits will be paid earlier than expected. Since there is no condition of vesting on the death benefit, the acceleration of cash flow will lead to an actuarial loss or gain depending on the relative values of the assumed salary growth and discount rate.
c. Variability in withdrawal rates: If actual withdrawal rates are higher than assumed withdrawal rate assumption then the gratuity benefits will be paid earlier than expected. The impact of this will depend on whether the benefits are vested as at the resignation date.
ii. Investment risk: For funded plans that rely on insurers for managing the assets, the value of assets certified by the insurer may not be the fair value of instruments backing the liability. In such cases, the present value of the assets is independent of the future discount rate. This can result in wide fluctuations in the net liability or the funded status if there are significant changes in the discount rate during the inter-valuation period.
iii. Interest risk: The defined benefit obligation calculated uses a discount rate based on government bonds. If bond yields fall, the defined benefit obligation will tend to increase.
iv. Longevity risk: The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.
v. Salary risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants beyond assumed plan will increase the plan’s liability.
Note:
36.1 Consequent upon amendment of Mines and Minerals (Development and Regulation) Amendment Act, 2021 with effect from 28th March, 2021, Section 8A(8) provides that the period of mining leases, other than the mining leases granted through auction, shall be extended on payment of such additional amount as specified in the Fifth Schedule. Based on demand raised by IBM through I3MS portal for royalty, the Company had paid DMF and NMET along with additional royalty for Both North & Central Block and South Block of Panchapatmali Bauxite Mines till November 2022. Ministry of Mines, Govt. of India Vide Letter Dated 31.1.2023 clarified that additional royalty payment in respect of government companies are applicable in case of extension of lease under 8A(8) of the Act or grant of fresh lease to Govt. Companies where area are reserved after 2015 as per Section 17A(2C) of Mines and Mineral (Development and Regulation) Act ,2015. Panchpatmali (South Block) and Panchpatmali (Central and North block) mining leases of the Company have been deemed to be granted for 50 years i.e. up to 19.07.2029 and 16.11.2032 respectively in accordance with the rule 3(1) of Mineral (Mining by Government Company) Rules,2015(now Rules 72(1) of Mineral (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016 [M(OAHCEM)CR, 2016]. Thus these leases of the Company have not been extended under Section 8A(8) read with Rule 72(2)&(3) of M(OAHCEM)CR, 2016.
Ministry of Mines, Govt. of India had also requested to Govt. of Odisha that no additional royalty may be charged from the Company till the completion of lease period of 50 years for both the Mines and the additional Royalty already paid by the Company so far in respect of these two mining leases may be adjusted in lieu of future Royalty payments.
Mines and Steel Department, Govt. of Odisha vide its letter no. 2012/S&M, Bhubaneswar dated 06.03.2024 clarified that payment of additional amount by the CPSU/SPSU in respect of their mining leases granted prior to introduction of MMDR Amendment Act, 2015 will be made applicable on completion of 50 years of the validity of the said leases in absence of any such explicit mention under the provisions of Mineral (OAHCEM) Concession Rules, 2016. It also clarifies that the Govt. of Odisha will discontinue receipt of additional amount and adjust the amount paid so far against the royalty payments in 2024-25.
Considering the above clarification, the Company does not recognise any additional royalty and related expenses during the current financial year and amount charged till 31.03.2023 has been reversed recognising ' 426.81 crore as the exceptional income during FY 2023-24. The amount of additional royalty and related expenses of ' 352.29 crore paid by the Company till Nov-22 which would be adjusted against the royalty payment of 2024-25 has been recognised as claim from Govt. Authority.
38 - Segment information
38.1 Products from which reportable segments derive their revenues
Information reported to the chief operating decision maker (CODM) for the purpose of resource allocation and assessment of segment performance focuses on the types of goods delivered. The directors of the company have chosen to organise the Company around differences in products. No reporting segment have been aggregated in arriving at the reportable segments in the Company. Specifically, the Company’s reportable segment under Ind AS 108- Operating Segments are as follows:
i) Chemical segment
ii) Aluminium segment
The Company has considered Chemicals and Aluminium as the two primary operating business segments. Chemicals include Calcined Alumina, Alumina Hydrate and other related products. Aluminium includes Aluminium ingots, wire rods, billets, strips, rolled and other related products. Bauxite produced for captive consumption for production of alumina is included under chemicals and power generated for captive consumption for production of Aluminium is included under Aluminium segment. Wind Power Plant commissioned primarily to harness the potential renewable energy sources is included in the unallocated Common segment.
40.2 Financial risk management objectives
In the course of its business, the Company is exposed primarily to fluctuations in foreign currency exchange rates, interest rates, equity prices, liquidity and credit risk, which may adversely impact the fair value of its financial instruments. The Company has a risk management policy which not only covers the foreign exchange risks but also other risks associated with the financial assets and liabilities such as interest rate risks and credit risks.
The objectives of the Company’s risk management policy are, inter-alia, to ensure the following:
i) Sustainable business growth with financial stability;
ii) Provide a strategic framework for Company’s risk management process in alignment with the strategic objectives including the risk management organisation structure;
iii) That all the material risk exposures of Company, both on and off-balance sheet are identified, assessed, quantified, appropriately mitigated and managed and
iv) Company’s compliance with appropriate regulations, wherever applicable, through the voluntary adoption of international best practices, as far as may be appropriate to the nature, size and complexity of the operations.
The risk management policy is approved by the board of directors. The Internal Control Team would be responsible to evaluate the efficacy and implementation of the risk management system. It would present its findings to the Audit Committee every quarter. The Board is responsible for the Company’s overall process of risk management. The Board shall, therefore, approve the compliance and risk management policy and any amendments thereto, and ensure its smooth implementation.
40.3 Market risk
Market risk is the risk of any loss in future earnings (spreads), in realizable fair values (economic value) or in future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, liquidity and other market changes. The Company may also be subjected to liquidity risk arising out of mismatches in the cash flows arising out of sales proceeds and funds raised and loan repayments/prepayments. Future specific market movements cannot be normally predicted with reasonable accuracy.
40.4 Foreign currency risk management
Foreign currency risk emanates from the effect of exchange rate fluctuations on foreign currency transactions. The overall objective of the currency risk management is to protect the Company’s income arising from changes in foreign exchange rates. The policy of the Company is to avoid any form of currency speculation. Hedging of currency exposures shall be effected either naturally through offsetting or matching assets and liabilities of similar currency, or in the absence of thereof, through the use of approved derivative instruments transacted with reputable institutions. The
Currency risk is measured in terms of the open positions in respective currencies vis-a-vis the Company’s operating currency viz. INR. A currency gap statement shall be prepared to find the gap due to currency mismatch.
The fluctuation in foreign currency exchange rates may have impact on the income statement and equity, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the respective consolidated entities.
The Company undertakes transactions denominated in foreign currency; consequently, exposures to exchange rate fluctuations arise. Exchange rate are managed within approved policy parameters utilising forward foreign exchange contracts.
The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:-
40.6 Credit risk management
Credit risk is the risk of financial loss arising from counterparty failure to repay or service debt according to the contractual terms or obligations. Credit risk encompasses both the direct risk of default and the risk of deterioration of creditworthiness as well as concentration risks. There is no significant credit exposure as advance collection from customer is made.
Financial instruments that are subject to concentrations of credit risk, principally consist of investments classified as loans and receivables, trade receivables, loans and advances and derivative financial instruments. None of the financial instruments of the Company result in material concentrations of credit risks.
40.7 Liquidity risk management
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements.
Company has established an appropriate liquidity risk management framework for the management of the Company’s short-term, medium-term and long-term funding liquidity management requirements. The Company manages liquidity risk by maintain adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and financial liabilities.
1. The Company does not have any borrowings/debt except bill discounting (refer Note 21).
2. The variation in ratios over the previous year is attributable to higher net profit arising out of exceptional income due to reversal of additional royalty considered earlier periods.
3. The trade receivable turnover ratio has been computed considering the sale and rececivable of the Wind Power only.
44 - Regrouping of previous year’s figures
Previous year’s figures have been regrouped/rearranged wherever considered necessary to make them comparable.
For and on behalf of Board of Directors
(CS N. K. Mohanty) (R.C. Joshi) (CA Sridhar Patra)
Company Secretary Director (Finance) Chairman-cum-Managing Director
DIN:08765394 DIN: 06500954
In terms of our attached report of even date For A. K. Sabat & Co. For P. A. & Associates
Chartered Accountants Chartered Accountants
FRN-321012E FRN: 313085E
(CA A.K. Sabat) (CA S.S. Poddar)
Place: Bhubaneswar Partner Partner
Date: 27th May, 2024 M. No.: 030310 M. No.: 051113
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