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MRF Ltd. Notes to Accounts
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You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (Rs.) 56571.48 Cr. P/BV 3.85 Book Value (Rs.) 34,678.53
52 Week High/Low (Rs.) 151445/81787 FV/ML 10/1 P/E(X) 73.57
Bookclosure 21/02/2024 EPS (Rs.) 1,813.07 Div Yield (%) 0.13
Year End :2023-03 

1. Freehold land includes agricultural land - '0.12 Crores (31st March, 2022 - '0.12 Crores).

2. Other assets represents Electrical Fittings, Fire Fighting/Other Equipments and Canteen Utensils.

3. The amount of Borrowing Cost capitalised during the year ended 31st March, 2023 - '6.38 Crores (31st March, 2022 - ' 1.85 Crores.)

4. Capital expenditure on Research and Development during the year - '25.15 Crores (31st March, 2022, - '6.71 Crores) Refer Note 28 h (ii).

5. Title deeds of Freehold Land are held in the name of the Company. Title deeds in respect of Buildings which are constructed on company's Freehold Land is based on documents constituting evidence of legal ownership of the Buildings.

1. The Company has incurred '27.89 Crores (Previous year '21.94 Crores) for the year ended 31st March, 2023 towards expenses relating to short-term leases and leases of low-value assets (Refer Note 23). The total cash outflow for leases is '149.19 Crores (Previous year '118.72 Crores) for the year ended 31st March, 2023, including cash outflow of short-term leases and leases of low-value assets. Interest on lease liabilities is ' 48.70 Crores (Previous year '36.29 Crores) for the year ended 31st March, 2023 (Refer Note 22).

2. The Company's leases mainly comprise of land, buildings and vehicles. The Company mainly leases land and buildings for its manufacturing, warehouse facilities and sales offices. The Company has leased vehicles for its Goods Transporation.

Consequent to the Bilateral Advance Pricing Agreement (BAPA) signed by the Company with the Central Board of Direct Taxes (CBDT) for the financial years 2015-16 to 2023-24, with respect to Arm's Length Price (ALP) of the transactions under the Income Tax Act, with MRF SG PTE LTD (MRF SG), the wholly owned subsidiary, the amount determined as payable by MRF SG to the Company is '80.33 Crores (net of interest on tax of '2.10 Crores), which has since been received by the company. The income tax impact on account of this refund has been disclosed as relating to earlier years.

NOTE 25 :

A. Capital Management

For the purpose of Company's Capital Management, capital includes Issued Equity Capital, Securities Premium and all other Equity Reserves attributable to the Equity Holders of the Company. The primary objective of the Company's Capital Management is to maximise the Share Holder Value.

The Company manages its capital structure and makes adjustments in the light of changes in economic conditions and requirements of the financial covenants and to continue as a going concern. The Company monitors using a gearing ratio which is net debts divided by total capital plus net debt. The company includes within net debt, interest bearing loans and borrowings, less cash and short term deposit.

B. Financial Risk Management

The Company's principal financial liabilities comprise loans and borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the operations of the Company. The principal financial assets include trade and other receivables, investments in mutual funds, bonds, cash and short term deposits.

The Company has assessed market risk, credit risk and liquidity risk to its financial instruments.

Is the risk of loss of future earnings, fair values or cash flows that may result from a change in the price of a financial instrument, as a result of interest rates, foreign exchange rates and other price risks. Financial instruments affected by market risks, primarily include loans & borrowings, investments and foreign currency receivables, payables and borrowings.

a) Interest Rate Risk :

The Company borrows funds in Indian Rupees and Foreign currency, to meet both the long term and short term funding requirements.The Interest rate risk in terms of Foreign currency is managed through financial instruments available to convert floating rate liability into fixed rate liability. The Company due to its AAA rated status commands one of the cheapest source of funding. Interest rate is fixed for the tenor of the Long term loans availed by the Company. Interest on Short term borrowings is subject to floating interest rate and are repriced regularly. The sensitivity analysis detailed below have been determined based on the exposure to variable interest rates on the average outstanding amounts due to bankers over a year.

The Company had issued floating interest rate Non convertible debenture linked to 6 month T-Bill rate, to meet the long term funding requirements.

If the interest rates had been 0.50% to 1% higher / lower and all other variables held constant, the company's profit for the year ended 31st March, 2023 would have been decreased / increased by '10.66 Crores (Previous year '4.54 Crores).

b) Currency Risk :

Foreign currency risks from financial instruments at the end of the reporting period expressed in INR:

The company is mainly exposed to changes in US Dollar. The sensitivity to a 4% (Previous year 2%) increase or decrease in US Dollar against INR with all other variables held constant wifi be /( - ) '1.37 Crores (previous year '0.87 Crores).

The Sensitivity analysis is prepared on the net unhedged exposure of the company at the reporting date.

Hedged Foreign Currency Exposures:

Foreign Exchange forward Contracts on External Commercial borrowings and certain highly probable forecast transactions, are measured at fair value through OCI on being designated as Cash Flow Hedges.”

The Company also enters into foreign exchange forward contracts with the intention to minimise the foreign exchange risk of expected purchases, these contracts are not designated in hedge relationships and are measured at fair value through profit or loss.

The Company is affected by the price stability of certain commodities. Due to the significantly increased volatility of certain commodities like Natural Rubber, Synthetic Rubber and other Chemicals, the Company enters into purchase contracts on a short to medium Term and forward foreign exchange contracts are entered into to bring in stability of price fluctuations.

The Company's investments in Quoted and Unquoted Securities are susceptible to market price risk arising from uncertainties about future values of investment securities. The company manages the securities price risk through investments in debt funds and diversification by placing limits on individual and total investments. Reports on Investment Portfolio are reviewed on regular basis and all approvals of investment decisions are done in concurrence with the senior management.

As at 31st March 2023 the investments in debt mutual funds and bonds amounts to '3071 Crores (Previous year '3632.50 Crores). A 1% point increase or decrease in the NAV with all other variables held constant would have lead to approximately an additional '31 Crores (Previous year '36 Crores) on either side in the statement of profit and loss.

ii) Credit Risk

Is the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. It arises from credit exposure to customers, financial instruments viz., Investments in Equity Shares, Bonds, Debt Funds, Fixed Deposits, Others and Balances with Banks.

The Company's marketing policies are well structured and all replacement sales are predominantly through dealers and the outstanding are secured by dealer deposits. As regards sales to O.E., and other institutional sales, the Company carries out periodic credit checks and also limits the exposure by establishing maximum payment period for customers and by offering prompt payment discounts. The outstanding trade receivables due for a period exceeding 180 days as at the year ended 31st March, 2023 is 0.02%(31st March, 2022 0.25%) of the total trade receivables.

The Company holds cash and deposits with banks which are having highest safety rankings and hence has a low credit risk.

Investments in mutual funds are primarily debt funds, which have high safety ratings and are monitored on a monthly basis and the Company is of the opinion that its mutual fund investments have low credit risk.

iii) Liquidity Risk

The Company manages liquidity risk by maintaining adequate surplus, banking facilities and reserve borrowings facilities by continuously monitoring forecasts and actual cash flows.

The Company has a system of forecasting rolling three months cash inflow and outflow and all liquidity requirements are planned.

All Long term borrowings are for a fixed tenor and generally these cannot be foreclosed.

The Company has access to various source of Short term funding and debt maturing within 12 months can be rolled over with existing lenders/new lenders, or repaid based on short term requirements.

Trade and other payables are plugged into the three months rolling cash flow forecast to ensure timely funding, if required.

All payments are made along due dates and requests for early payments are entertained after due approval and availing early payment discounts.

The management assessed that cash and cash equivalents, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The Fair Value of financial assets and liabilities included is the amount at which the instrument could be exchanged in a current transaction between willing parties. The following methods and assumptions were used to estimate the fair value.

1. The Fair values of Debt Mutual Funds and Quoted Equities are based on NAV / Quoted Price at the reporting date. Further, the Company had invested in Co-operative Societies and in certain other companies towards the corpus. These are non participative shares and normally no dividend is accrued. The Company has carried these investments at it transaction value considering it to be its fair value.

2. The Company enters into Derivative financial instruments with counterparties principally with Banks with investment grade credit ratings. The Interest Rate swaps, foreign exchange forward contracts are valued using valuation techniques which employs the use of market observable inputs namely, Marked-to-Market.

(d) Terms and conditions of transactions with related parties:

The transactions with related parties are made on terms equivalent to those that prevail in arm's length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31st March 2023, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (Previous Year: ' Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

e. Disclosures under IND AS 108 - "Operating Segment”:

The Company is engaged interalia in the manufacture of Rubber Products such as Tyres, Tubes, Flaps, Tread Rubber. These in the context of IND AS - 108 - 'Operating Segment' are considered to constitute one single primary segment. The Company's operations outside India do not exceed the quantitative threshold for disclosure envisaged in the IND AS. Non-reportable segments has not been disclosed as unallocated reconciling item in view of its materiality. In view of the above, operating segment disclosures for business/geographical segment are not applicable to the Company.

(ii) Capital Expenditure on Research and Development during the year, as certified by the management is ' 25.15 Crores (Previous year - ' 6.71 Crores).

This information complies with the terms of the Research and Development recognition granted upto 31st March, 2024 for the Company's in-house

Research and Development activities by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of

India, vide their Letter No.TU/IV-RD/118/2021 dated 20th October, 2021.

i. Terms of Repayment and Security Description of Borrowings: (refer note 11)

a) Current Borrowings

i) Loans repayable on demand from banks are secured by hypothecation of Inventories and book debts, equivalent to the outstanding amount and carries interest rates at the rate of 4.00% to 7.90% (Previous year 3.8% to 6.85%).

Quarterly returns or statements of current assets filed by the Company with the banks in connection with the working capital limit sanctioned are in agreement with the books of accounts.

b) Non Current Borrowings

i) Indian Rupee Term Loan (Unsecured) from the HSBC Bank

a) Indian Rupee Term Loan of ' 150 Crores availed in February, 2019 is for capital expenditure. Interest is payable at a rate equal to the three months T-Bill rate plus a margin of 1.49% (Previous year- 1.49%) payable monthly. The said Loan is repayable in one full installment in Febuary, 2024.

b) Indian Rupee Term Loan of ' 150 Crores availed in July, 2021 is for capital expenditure. Interest is payable at a rate equal to the three months T-Bill rate plus a margin of 1.33% payable monthly. The said Loan is repayable in three equal annual installment in July, 2025/ July 2026/July 2027.

ii) Indian Rupee Term Loan (Unsecured) from the HDFC Bank.

a) Indian Rupee Term Loan of ' 300 Crores availed in June, 2020 is for capital expenditure. Interest is payable at a rate equal to repo rate plus a margin of 1.70% payable monthly. The said Loan is repayable in three equal annual installment in June, 2024/June 2025/June 2026.

b) Indian Rupee Term Loan of ' 150 Crores availed in June, 2021 is for capital expenditure. Interest is payable at a rate equal to repo rate plus a margin of 0.75% payable monthly. The said Loan is repayable in three equal annual installment in June, 2025/June 2026/June 2027.

iii) 15,000 [Floating Interest rate linked to 6 months T-Bill rate] Listed Unsecured rated redeemable Taxable Non-Convertible Debentures of ' 1,00,000/- each aggregating to '150 Crore issued on 24th February 2023, are to be redeemed on 24th February, 2026.

iv) Secured Loan of '80.92 Crores was availed under SIPCOT soft loan in March 2020, further, additional SIPCOT Loan (secured) of '7.75 Crores was availed in March 2023. Interest is payable quarterly at a rate of 0.10% (Previous year - 0.10%). These loans are secured by way of second charge on the Fixed Assets created at the company's plants at Perambalur, near Trichy,Tamil Nadu.These loans will be repaid in full in April 2033 and April 2036 respectively.

v) Deferred payment credit is repayable along with interest (at varying rates) in 240 consecutive monthly instalments ending in March 2026.

j. Inventories

Provision for obsolescence and Non-moving stocks for the year amounts to '0.01 Crores (Previous year - '16.70 Crores) net of reversal.The amount of write down of inventories to net realizable value recognised as an expenses was '4.31 crores( Previous year - '15.44 crores). The reversal of write-down is on account of offtake/usage and better price realization.The cost of inventories recognised as an expense during the year in respect of continuing operations was '15637.04 Crores (Previous year - '12812.74 Crores).

k. Managerial Remuneration

During the current financial year ended 31st March 2023, the company has complied with the provisions of Sections 197 & 198 of the Companies Act, 2013 in respect of payment of remuneration to managerial personnel. Further, necessary approval is being sought from the shareholders of the Company in compliance with the provision of Regulation 17(6)(e)(ii) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of remuneration of Promoter Executive Directors of the Company.

l. The amount due and paid during the year to "Investor Education and Protection Fund” is ' 0.05 Crores (Previous year - ' 0.38 Crores).

m. Corporate Social Responsibility

As per Section 135 of the Companies Act,2013, a Company, meeting the applicability threshold, needs to spend at least 2% of its average net profit for the immediately preceeding three financial years on corporate social responsibility (CSR) Activities, which for the financial year ended 31st March 2023 amounts to '29.13 crores (Previous year '33.92 crores). A CSR Committee has been formed by the Company as per the Act. During the financial year ended 31st March 2023, the Company has incurred an amount of '17.49 Crores.

(ii) The company did not have any material transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of

the Companies Act, 1956 during the financial year.

(i) Contingent Liabilities not provided for:

Claims not acknowledged as debts:

(a) Competition Commission of India (CCI) matter - Refer Note 1 below

(b) Disputed Sales Tax demands pending before the Appellate Authorities /High Court - '198.44 Crores (Previous Year- ' 196.00 Crores)

(c) Disputed Excise/Customs Duty demands pending before the Appellate Authorities/High Court - '377.84 Crores (Previous Year - '378.66 Crores)

(d) Disputed Income Tax Demands - '275.64 Crores (Previous Year - '159.87 Crores). Against the said demand the company has deposited an amount of '131.61 Crores (Previous Year '97.52 Crores)

(e) Disputed Goods and Service Tax demands pending before the Appellate Authorities - '0.56 Crores (Previous Year- '1.70 Crores)

(f) Contested EPF Demands pending before Appellate Tribunal- '1.10 Crores (Previous year '1.10 Crores)

Note 1 : The Competition Commission of India (CCI) had on 2nd February, 2022 released its order dated 31st August, 2018,imposing penalty on certain Tyre Manufacturers including the Company and also the Automotive Tyre Manufacturers' Association, concerning the breach of the provisions of the Competition Act, 2002, during the year 2011-12. A penalty of '622.09 Crores was imposed on the Company. The appeal filed by the Company has been disposed off by National Company Law Appellate Tribunal (NCLAT) in December 2022 by remanding the matter to CCI for review after hearing the parties. CCI has in February 2023 filed an appeal against the Order of NCLAT before the Hon'ble Supreme Court. Pending disposal of the same, the Company is of the view that no provision is considered necessary in respect of this matter in the Standalone Financial Statements.


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