MAHINDRA & MAHINDRA LTD. | Integrated Annual Report 2021-22

347 MAHINDRA & MAHINDRA LTD. Integrated Annual Report 2021-22 36. Financial Instruments (contd.) (e) Fair Value Disclosures (i) Financial Instruments regularly measured using fair value - recurring items Rupees crores Financial assets/ financial liabilities Financial assets/ financial liabilities Fair Value Category 2022 2021 Fair value hierarchy Valuation technique(s) Key inputs Significant unobservable input(s) for level 3 hierarchy Relationship of unobservable inputs to fair value and sensitivity 1) F oreign currency forwards, Interest rate swaps & commodity derivatives Financial Assets/ (Liabilities) Financial Instruments measured at FVTPL/FVTOCI 152.46 (45.51) Level 2 Discounted Cash Flow and Interest rate Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counter parties. — — 2) C urrency options Financial Assets/ (Liabilities) Financial Instruments measured at FVTPL (119.56) (92.22) Level 2 Black Scholes valuation model Strike rate, spot rate, time to maturity, volatility and risk free interest rate. — — 3) D erivatives on interest over Subsidiaries, associates and joint ventures Financial Assets/ (Liabilities) Financial Instruments measured at FVTPL 69.68 78.39 Level 3 Comparable Companies Method/ Discounted Cash-flow/ Price of recent transactions/ Comparable Companies quoted multiples For Comparable Companies Method / Comparable Companies Quoted Multiples - compare the price for which comparable companies are traded on the capital market. For Discounted Cash Flow - Companies Financial projections. These include forecasts of balance sheet, statement of profit and loss account along with underlying assumptions. Interest rates to discount future cashflows, financial projections Any change (increase / decrease) in the discount factor, financial projections etc. would entail corresponding change in the valuation of derivatives on interest in subsidiaries, associates and joint ventures. 4) G ross obligation to acquire non- controlling interest Financial Liabilities Financial Instruments measured at FVTPL (370.86) (507.96) Level 3 Comparable Companies Method/ Discounted Cash- flow/Price of recent transactions/ Comparable Companies quoted multiples For Comparable Companies Method/Comparable Companies Quoted Multiples - compare the price for which comparable companies are traded on the capital market. For Discounted Cash Flow - Companies Financial projections. These include forecasts of balance sheet, statement of profit and loss account along with underlying assumptions. Interest rates to discount future cashflows, financial projections Any change (increase/ decrease) in the discount factor, financial projections etc. would entail corresponding change in the valuation of gross obligation to acquire non-controlling interest 5) I nvestment in Mutual Funds and Alternate Investment Fund Financial Assets Financial instrument measured at FVTPL 9,066.42 7,273.21 Level 1 Net asset value — — — 6) Investment in equity instruments -Quoted Financial Assets Financial instrument designated at FVTOCI 219.44 239.85 Level 1 Quoted bid price in active market — — — Financial Assets Financial instrument designated at FVTPL 0.24 — Level 1 Quoted bid price in active market — — — 7) I nvestment in equity instruments- Unquoted Financial Assets Financial instrument designated at FVTOCI 86.70 131.13 Level 3 Discounted Cash Flow/ Market Multiple approach For Discounted Cash Flow approach - The discounted cash flow method used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees. The key inputs includes, long term revenue growth rates, long term pre tax operating profit margin, WACC, Discount for lack market for respective equity instrument For Market Multiple approach - In this approach fair value is derived based on market multiples like PE multiple, Enterprise value (EV) multiple, Revenue Multiple etc. Terminal growth rate, weighted average cost of capital. Market multiples used for benchmarking. Increase or decrease in multiple will result in increase or decrease in valuation Financial Assets Financial instrument measured at FVTPL 19.93 13.25 Level 3 Income Approach - Discounted Cash Flow