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RISK MANAGEMENT POLICY

About us

The Risk Management Policy of Savita Oil Technologies Limited (“the Company”) is in compliance with the revised Clause 49 of Listing Agreement, which requires the Company to lay down procedures about the risk assessment and risk minimization.

The Company has put in place Risk Management Policy whose objectives are to optimize business performance; and to promote confidence amongst the Company’s stakeholders in the effectiveness of its business management process and its ability to plan & meet its strategic objectives.

A Risk Management Committee (“RMC”) comprising senior executives of the company, chaired by the Managing Director, is responsible for the review of risk management processes within the Company, and for overseeing the implementation of the requirements of this policy. The RMC provides updates to the Board on a regular basis on key risks faced by the Company, and the relevant mitigant actions.

At an operational level, the respective functional managers are responsible for identifying and assessing risks within their area of responsibility; implementing agreed actions to treat such risks; and for reporting any event or circumstance that may result in new risks.

The Board of Directors of the Company and the Audit Committee of Directors shall periodically review the Risk Management Policy of the Company so that the management controls the risk through properly defined network.

The details of the Policy are as follows:

Risks and Concerns

  1. Raw Material Risk

    Petroleum Products Segment - Timely availability and also non-availability of good quality base oils from across the globe could negate the qualitative and quantitative production of the various products of the Company. Volatility in prices of crude oil and base oil is another major risk for this segment.

    Wind Energy Segment – Availability of good windy sites, delays in land acquisitions and forest land approvals, right of way issues, weak RPO enforcement, resistance to Open Access by State Electricity Boards, lack of adequate transmission infrastructure all can effect the decisions to invest and to operate this segment.

    • Risk Mitigation
    • Petroleum Products Segment - The Company procures base oils from various suppliers scattered in different parts of the world. The Company tries to enter into long term supply contracts with regular suppliers and at times buys the base oils on spot basis.

      Wind Energy Segment – The Company tries its best to carry out a thorough feasibility study before embarking on investment in this segment. The Company also explores the possibility of scattering its investments over various states and over a period of time.

  2. Quality Risk

    Petroleum Products Segment - Timely supplies and highest quality parameters are a must for the business in which the Company is operating and any negligence in regard to the same could lead to severe consumer attrition.

    Wind Energy Segment – Getting optimum wind speed at different wind mill sites is a must to result into optimum wind energy generation. Maintaining maximum wind mill machine availability at different locations especially during the monsoons is another big challenge to get optimum generation results.

    • Risk Mitigation
    • Petroleum Products Segment - The Company ensures the conformance to the highest quality standards coupled with fully automated and hygienic production units and comprehensive quality checks, resulting in superior products. The quality of the Company's products has not only led to better acceptance in even the fiercely competitive markets; but also has resulted in high repeat business on account of increased customer loyalty. Moreover the Company is certified for ISO 9001:2008 & ISO 14001:2004, strengthening its quality commitment.

      Wind Energy Segment – Entering into long term engineering and servicing contracts with reputed engineers/contractors takes away a lot of risk factors in giving optimum wind energy generation.

  3. Competition Risk

    Petroleum Products Segment - Like in any other business, some of the competitors with cheaper variants of products can actually penetrate the market and disturb the Company’s existing business.

    Wind Energy Segment – The resistance of the State Electricity Boards in granting open access facility to private players and providing inadequate transmission infrastructure are a major hurdle in limiting the growth in this segment.

    • Risk Mitigation
    • Petroleum Products Segment - The Company believes that in the long run, quality of the product is the sole consideration for the consumers and has therefore never compromised on the same. The Company has strong focus on Research & Development, which enables it to have an advantage in serving its long standing customers. The Company has introduced its retail brand in one line of petroleum products segment, which has been well accepted and would differentiate the Company's top line going ahead.

      Wind Energy Segment – The growing support of the government to facilitate operations in this segment, enactment of various industry-friendly measures, providing facility of accelerated depreciation and extending the tax holiday are all measures which work in favour of this segment.

  4. Foreign Exchange Risk

    Petroleum Products Segment – The Company is exposed to foreign exchange risk on account of its large imports of base oils.

    Wind Energy Segment – Since the procurement of wind mill machinery and also the sale of wind energy are mostly domestic affairs, this risk is minimal in this segment.

    • Risk Mitigation
    • The Company hedges its foreign exchange exposure partly through exports and depending upon the market situations partly through forward foreign currency covers.

  5. Realisations Risk

    Any decline in the realisations would directly affect the Company's performance.

    • Risk Mitigation
    • Petroleum Products Segment – Though the credit periods in this segment are generally of longer duration, most of the exposures with Electricity Boards and large corporate houses is in a way secured considering the standing of these organisations. The credit policy with respect to private players is strictly monitored by the Company at periodic intervals.

      Wind Energy Segment – Since the sale is mostly to Electricity Boards and/or reputed private big corporates mostly against performance bank guarantees, the realisation risk in that way is not a major concern.

  6. Other Risks

    A) Financial Reporting Risks

    Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, Securities and Exchange Board of India (SEBI) rules, and Indian stock Exchange listing regulations have been rapidly evolving. These new or changed laws, regulations and standards may lack specificity at times and are subject to varying interpretations. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such corporate governance standards.

    The Company is committed to maintaining high standards of corporate governance and public disclosure and its efforts to comply with evolving laws, regulations and standards in this regard would further help address these issues.

    The Company’s preparation of financial statements in conformity with Indian GAAP and in accordance with the Accounting Standards issued by ICAI, requires it to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Company’s financial statements and the reported amounts of revenue and expenses during the reporting period. The Company’s Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances including consultation with experts in the field, scrutiny of published data for the particular sector or sphere, comparative study of other available corporate data, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These may carry inherent reporting risks.

    B) Risk of Corporate Accounting Fraud:

    Accounting fraud or corporate accounting fraud are business scandals arising out of misusing or misdirecting of funds, overstating revenues, understating expenses etc.

    • Risk Mitigation
      The Company mitigates this risk by -
      • Understanding the applicable laws and regulations;
      • Conducting risk assessments;
      • Enforcing and monitoring code of conduct for key executives;
      • Instituting Whistleblower mechanisms;
      • Deploying a strategy and process for implementing the new controls;
      • Adhering to internal control practices that prevent collusion and concentration of authority;
      • Employing mechanisms for multiple authorisations of key transactions with cross checks;
      • Scrutinising of management information data to pinpoint dissimilarity of comparative figures and ratios;
      • Creating a favourable atmosphere for internal auditors in reporting and highlighting any instances of even minor non-adherence to procedures and manuals and a host of other steps throughout the organisation and assign responsibility for leaving the overall effort to a senior individual like Chief Financial Officer.

    C) Environmental Risk

    The Company endeavours to protect the environment in all its activities, as a social responsibility. The legal exposure in this regard is when polluting materials are discharged into the environment by causing danger to fragile environmental surrounding, is an offence.

    • Risk Mitigation
    • The Company mitigates this risk by adequately treating all the effluents generated from its manufacturing plants before disposing them off suitably in line with the requirements under the Anti-Pollution Laws. The Company also carries out audits at regular intervals in all its relevant areas of operations to check the various anti pollution measures for their adoption and implementation.

    D) Business Operations Risks:

    These risks relate broadly to the Company’s organisation and management, such as planning, monitoring and reporting systems in the day to day management process namely:

    • Organisation and management risks
    • Production, process and productivity risks
    • Business interruption risks
    • Profitability

    • Risk Mitigation
      • The Company functions under a well defined organization structure;
      • Flow of information is well defined to avoid any conflict or communication gap between two or more Departments;
      • Second level positions are created in each Department to continue the work without any interruption in case of non-availability of functional heads;
      • Proper policies are followed in relation to maintenance of inventories of raw materials, consumables, key spares and tools to ensure their availability for planned production programmes;
      • Effective steps are being taken to reduce cost of production on a continuing basis taking various changing scenarios in the market.

    E) Liquidity Risks

    • Financial solvency and liquidity risks
    • Borrowing limits
    • Cash management risks
    • Risk Mitigation
      • Proper financial planning is put in place with detailed Annual Business Plans discussed at appropriate levels within the organisation.
      • Annual and quarterly budgets are prepared and put up to management for detailed discussion and an analysis of the nature and quality of the assumptions, parameters etc.
      • These budgets with Variance Analysis are prepared to have better financial planning and study of factors giving rise to variances.
      • Daily and monthly cash flows are prepared, followed and monitored at senior levels to prevent undue loss of interest and utilise cash in an effective manner.
      • Cash management services are availed from Bank to avoid any loss of interest on collections.

    F) Logistics Risks:

    • Use of outside transport sources.
    • Risk Mitigation
      • Possibilities to optimize the operations, by having a combination of transportation through road/ rail and sea/air are explored.
      • Company has a dedicated internal division to handle all requirements relating to movement of goods, including capital equipment, domestic and imported, as and when necessary with a well defined system of allocation of vehicles based on priorities and time aspects.

    G) Human Resource Risks:

    • Labour turnover risks, involving replacement risks, training risks, skill risks, etc.
    • Unrest risks due to Strikes and Lockouts.
    • Risk Mitigation
      • Proper recruitment policy for recruitment of personnel at various levels in the organization is adopted.
      • Proper appraisal system for revision of compensation on a periodical basis has been evolved and followed regularly.
      • Employees are trained at regular intervals to upgrade their skills.
      • Labour problems are obviated by negotiations and conciliation.
      • Activities relating to the welfare of employees are undertaken from time to time.
      • Employees are encouraged to make suggestions and discuss any problems with their Superiors.

    H) Disaster Risks:

    • Natural risks like Fire, Floods, Earthquakes, etc.
    • Risk Mitigation
      • The properties of the Company are insured against natural risks like fire, flood, earthquakes, etc. with periodical review of adequacy, rates and risks covered under professional advice.
      • Fire extinguishers have been placed at fire sensitive locations.
      • First aid training is given to watch and ward staff and safety personnel.
      • Workmen of the Company are covered under ESI, EPF, etc., to serve the welfare of the workmen.

    I) System Risks:

    • System capability
    • System reliability
    • Data integrity risks
    • Coordinating and interfacing risks
    • Risk Mitigation
      • EDP Department maintains repairs and upgrades the systems on a continuous basis with personnel who are trained in software and hardware.
      • Password protection is provided at different levels to ensure data integrity.
      • Licensed software is being used in the systems.
      • The Company ensures “Data Security” by having access control/ restrictions.

    J) Legal Risks:
    These risks relate to the following:

    • Contract Risks
    • Contractual Liability
    • Data integrity risks
    • Frauds
    • Judicial Risks
    • Insurance Risks
    • Risk Mitigation
      Following are the risk mitigation measures adopted by the Company to mitigate the risks relating to Legal aspects:
      • A study of contracts with focus on contractual liabilities, deductions, penalties and interest conditions is undertaken on a regular basis.
      • The Legal Department vets all legal and contractual documents with legal advice from Legal retainers for different branches of legislation.
      • Contracts are finalized as per the advice from legal professionals and Advocates.
      • Insurance policies are audited to avoid any later disputes.
      • Timely payment of insurance premia and full coverage of properties of the Company under insurance.
      • Internal control systems for proper control on the operations of the Company and to detect any frauds.

    Risk Strategy and Management System

    The Company recognises that risk is an integral and unavoidable component of business and is committed to managing the risk in a proactive and effective manner. The Company believes that the risk cannot be completely eliminated. However, it can be –

    • Transferred to another party, who is willing to take risk, say by buying an insurance policy or entering into a forward contract;
    • Reduced, by having good internal controls;
    • Avoided, by not entering into risky businesses;
    • Retained, to either avoid the cost of trying to reduce risk or in anticipation of higher profits by taking on more risk, and;
    • Shared, by following a middle path between retaining and transferring risk.

    As a diversified enterprise, the Company has always had a system-based approach to business risk management. The current risk management framework consists of the following:

    - A combination of centrally issued policies and divisionally – evolved procedures bringing robustness to the process which ensure business risks are effectively addressed.

    - Appropriate structures have been put in place to effectively address the inherent risks in businesses with unique / relatively high risk profiles.

    - A strong and independent Internal Audit Function at the corporate level carries out risk focused audits across all businesses, enabling identification of areas where risk managements processes may need to be improved.

    The Audit Committee of the Board reviews internal audit findings and provides strategic guidance on internal controls, monitors the internal control environment within the Company and ensures that Internal Audit recommendations are effectively implemented.

    The combination of policies and processes as outlined above adequately addresses the various risks associated with the Company’s businesses.

    The senior management of the Company periodically reviews the risk management framework to maintain its contemporariness so as to effectively address the emerging challenges in a dynamic business environment.

    Disclaimer Clause
    The Management cautions readers that the risks outlined above are not exhaustive and are for information purposes only. Management is not an expert in assessment of risk factors, risk mitigation measures and management's perception of risks. Readers are therefore requested to exercise their own judgment in assessing various risks associated with the Company.

    Place – Mumbai
    Date – 31st October, 2014