To the Members of GMR Infrastructure Limited
Report on the Standalone Financial Statements
We have audited the accompanying standalone financial statements of GMR InfrastructureLimited (the Company) which comprise the Balance Sheet as at March 31 2016the Statement of Profit and Loss and the Cash Flow Statement for the year then ended anda summary of significant accounting policies and other explanatory information.
Managements Responsibility for the Standalone Financial Statements
The Companys Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 (the Act) with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Company in accordance withaccounting principles generally accepted in India including the Accounting Standardsspecified under section 133 of the Act read with Rule 7 of the Companies (Accounts)Rules 2014. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding of the assets of the Companyand for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and the design implementation and maintenance of adequateinternal financial control that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe standalone financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
Our responsibility is to express an opinion on these standalone financial statementsbased on our audit. We have taken into account the provisions of the Act the accountingand auditing standards and matters which are required to be included in the audit reportunder the provisions of the Act and the Rules made thereunder. We conducted our audit inaccordance with the Standards on Auditing issued by the Institute of Chartered Accountantsof India as specified under Section 143(10) of the Act. Those Standards require that wecomply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the standalone financial statements are free from materialmisstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the standalone financial statements. The procedures selected depend on theauditors judgment including the assessment of the risks of material misstatement ofthe standalone financial statements whether due to fraud or error. In making those riskassessments the auditor considers internal financial control relevant to theCompanys preparation of the standalone financial statements that give a true andfair view in order to design audit procedures that are appropriate in the circumstances.An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of the accounting estimates made by the Companys Directors as wellas evaluating the overall presentation of the standalone financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the standalone financial statements.
Basis for Qualified Opinion
1. As detailed in Note 13(6) to the accompanying standalone financial statements forthe year ended March 31 2016 the Company through its subsidiary GMR Infrastructure(Mauritius) Limited (GIML) has investments of Rs 396.81 Crore (USD 5.94 Crore)(including equity share capital of Rs 154.24 Crore (USD 2.31 Crore) and subordinate loansand interest accrued thereon of Rs 242.57 Crore (USD 3.63 Crore) towards 77% equityshareholding in GMR Male International Airport Private Limited (GMIAL).Further GIML has placed fixed deposits of Rs 864.90 Crore (USD 12.95 Crore) with lenderstowards loan taken by GMIAL and the Company has given a corporate guarantee of Rs 2620.72Crore (USD 39.25 Crore) to the lenders in connection with the borrowings made by GMIAL.
The Concession Agreement entered into between GMIAL Maldives Airport Company Limited(MACL) and Ministry of Finance and Treasury (MoFT) Republic ofMaldives for the Rehabilitation Expansion Modernization Operation and Maintenance ofMale International Airport (MIA) for a period of 25 years was declared void abinitio by MACL and MoFT and MACL has taken possession of MIA with effect from December 82012. GMIAL has initiated the arbitration process to seek remedies under the saidagreement and on June 18 2014 the tribunal delivered its award declaring that theConcession Agreement was not void ab initio and was valid and binding on the parties.However the quantum of the damages is yet to be decided and accordingly pending finaloutcome of the arbitration such investments have been carried at cost in the standalonefinancial statements as at March 31 2016 as the management is of the view that GMIALwill be able to recover at least the carrying value of the assets of Rs 1594.68 Crore(USD 23.88 Crore) including claim recoverable of Rs 1273.14 Crore (USD 19.07 Crore) as atMarch 31 2016.
Further GMIAL had executed work construction contracts with GADL International Limited(GADLIL) a subsidiary of the Company and other service providers forRehabilitation Expansion and Modernization of MIA. Pursuant to the aforesaid takeover ofthe airport by MACL GMIAL has terminated the contracts with GADLIL and these serviceproviders and have received claims from GADLIL and other service providers towardstermination payments. However no such claims relating to the termination of contractshave been recognized in the standalone financial statements of GMIAL as at March 31 2016.The takeover of MIA by MACL initiation of arbitration proceedings and its consequentialimpact on the operations indicate the existence of a material uncertainty that may cast asignificant doubt about the going concern of GMIAL and GADLIL.
Having regard to the uncertainty in view of the dispute and the final outcome of thematter we are unable to comment on its impact on the carrying value of the investmentspertaining to the aforesaid entities and any other consequential impact that may arise inthis regard on the accompanying standalone financial statements for the year ended March31 2016. In respect of the above matter our audit report for the year ended March 312015 was similarly qualified.
2. As detailed in Note 13[12(b)] to the accompanying standalone financial statementsfor the year ended March 31 2016 the Company along with its subsidiary has madeinvestments of Rs 735.80 Crore in GMR Kishangarh Udaipur Ahmedabad Expressways Limited(GKUAEL) a subsidiary of the Company (including loans of Rs 35.80 Crore andinvestments in equity shares and preference shares of Rs 700.00 Crore) which is primarilyutilized by GKUAEL towards payment of capital advance of Rs 590.00 Crore to its EPCcontractor and Rs 137.47 Crore towards indirect expenditure attributable to the projectand borrowing costs (project expenses). GKUAEL has also given a bank guaranteeof Rs 269.36 Crore to National Highways Authority of India (NHAI). GKUAELissued a notice of intention to terminate the Concession Agreement and a notice of disputeto NHAI invoking arbitration provisions of the Concession Agreement during the earlieryears. Both the parties have appointed their arbitrators and the arbitration process ispending commencement. Pursuant to the notice of dispute GKUAEL terminated the EPCcontract on May 15 2015 and has received claims towards such termination. However nosuch claims have been recognized in the standalone financial statements of GKUAEL as atMarch 31 2016.
Based on its internal assessment the management of the Company made a provision fordiminution in the value of investments amounting to Rs 137.47 Crore and advances amountingto Rs 5.70 Crore (including Rs 12.18 Crore during the year ended March 31 2016). Howeverthe notice of dispute and initiation of arbitration proceedings indicate the existence ofa material uncertainty that may cast a significant doubt about the going concern of theGKUAEL. Having regard to this uncertainty we are unable to comment on the final outcomeof the matter and its consequential impact on the carrying value of the Companysinvestments in GKUAEL in the accompanying standalone financial statements of the Companyfor the year ended March 31 2016. In respect of the above matter our audit report forthe year ended March 31 2015 was similarly qualified.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effect of the matters described in sub-paragraph 1and 2 in the Basis for Qualified Opinion paragraph the aforesaid standalone financialstatements give the information required by the Act in the manner so required and give atrue and fair view in conformity with the accounting principles generally accepted inIndia of the state of affairs of the Company as at March 31 2016 its loss and its cashflows for the year ended on that date.
Emphasis of Matter
We draw attention to the following matters in the notes to the accompanying standalonefinancial statements for the year ended March 31 2016:
a. Note 13(7) regarding investments of Rs 394.17 Crore (including investments in equity/ preference shares of Rs 244.70 Crore made by the Company and its subsidiaries and loansand interest accrued thereon of Rs 149.47 Crore) as at March 31 2016 in GMR AmbalaChandigarh Expressways Private Limited (GACEPL) a subsidiary of the Company.Though GACEPL has been incurring losses since the commencement of commercial operationsand the matter is currently under arbitration based on managements internalassessment and legal opinion obtained by the management of GACEPL such investments havebeen carried at cost. Accordingly no provision for diminution in the value of investmentshas been made in the accompanying standalone financial statements for the year ended March31 2016.
b. Note 13(8) regarding (i) cessation of operations and the losses including cashlosses incurred by GMR Energy Limited (GEL) and GMR Vemagiri Power GenerationLimited (GVPGL) subsidiaries of the Company and the consequent erosion of networth resulting from the unavailability of adequate supply of natural gas and (ii)rescheduling of the commercial operation date and the repayment of certain project loansby another subsidiary of the Company GMR Rajahmundry Energy Limited (GREL)pending linkage of natural gas supply. Continued uncertainty exists as to the availabilityof adequate supply of natural gas which is necessary to conduct operations at varyinglevels of capacity in the future and the appropriateness of the going concern assumptionis dependent on the ability of the aforesaid entities to establish consistent profitableoperations as well as raising adequate finance to meet short term and long termobligations. The accompanying standalone financial statements of the Company for the yearended March 31 2016 do not include any adjustments that might result from the outcome ofthis significant uncertainty.
c. Note 13(9) regarding uncertainties in tying up power supplies achievingprofitability in operations mega power status refinancing of existing loans at lowerrates of interest other key assumptions made in the valuation assessment of theinvestments in GMR Chhattisgarh Energy Limited (GCHEPL) a subsidiary of theCompany. The carrying value of the investments in GCHEPL is critically dependent upon theachievement of the key assumptions as discussed in the aforesaid note. In the opinion ofthe management of the Company no further provision for diminution in the value ofinvestments (including loans) is considered necessary at this stage in the accompanyingstandalone financial statements for the year ended March 31 2016 for the reasonsexplained in the said note.
d. Note 13[12(a)] regarding investments Rs 680.10ofCrore (including investments inequity / preference shares of Rs 302.03 Crore made by the Company and its subsidiary andloans of Rs 378.07 Crore) as at March 31 2016 in GMR Hyderabad Vijayawada ExpresswaysPrivate Limited (GHVEPL) a subsidiary of the Company.
GHVEPL has been incurring losses since the commencement of commercial operations andthe Company has made a provision of Rs 269.08 Crore (including Rs 137.67 Croreduring the year ended March 31 2016) for the diminution in the value of the investmentsas at March 31 2016. Based on a valuation assessment a legal opinion and for reasonsexplained in the said note management of the Company believes that no further provisionfor diminution in the value of investments is considered necessary in the accompanyingstandalone financial statements for the year ended March 31 2016.
e. Note 13[14(a)] and 13[14(b)] regarding the uncertainties pertaining to coal pricesand other key assumptions made by the management in the valuation assessment of itsinvestments in entities which are engaged in the operation and development of coal mines.In the opinion of the management of the Company no further provision for diminution inthe value of investments (including loans) is considered necessary at this stage in theaccompanying standalone financial statements for the year ended March 31 2016 for thereasons explained in the said notes.
Our opinion is not qualified in respect of these aforesaid matters.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditors report) Order 2016 (theOrder) issued by the Central Government of India in terms of subsection (11) ofsection 143 of the Act we give in the Annexure 1 a statement on the matters specified inparagraphs 3 and 4 of the Order to the extent applicable.
2. As required by section 143 (3) of the Act we report that:
(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit;
(b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books;
(c) The balance sheet the statement of profit and loss and the cash flow statementdealt with by this Report are in agreement with the books of account;
(d) Except for the matters described in the Basis for Qualified Opinion paragraph inour opinion the aforesaid standalone financial statements comply with the AccountingStandards specified under section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014;
(e) The matters described in the Basis for Qualified Opinion paragraph Emphasis ofMatter paragraph and Qualified Opinion paragraph of Annexure II to this reportin our opinion may have an adverse effect on the functioning of the Company;
(f) On the basis of written representations received from the directors as on March 312016 and taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2016 from being appointed as a director in terms of section 164 (2) ofthe Act;
(g) The qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the Basis for Qualified Opinion paragraph above.
(h) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report dated May 30 2016 in "Annexure II" to this report;
(i) With respect to the other matters to be included in the Auditors
Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements Refer Notes 13(6)13(7) 13(a)13(b) 13(13) 13(15) 13(21) and 34 to the standalone financial statements;
ii. Except for the possible effect of the matters described in sub-paragraphs 1 and 2in the Basis for Qualified Opinion paragraph the Company did not have any long-termcontracts including derivative contracts for which there were any material foreseeablelosses.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company.
For S.R. BATLIBOI & ASSOCIATES LLP
ICAI Firm Registration Number: 101049W/E300004
Per Sunil Bhumralkar
Membership number: 035141
Date: May 30 2016