Auditor flags doubt on McLeod Russel's ability to stay in business

The auditor entity of McLeod Russel has raised concerns over this Williamson Magor Group (WMG) company’s ability to remain in business, if its loan restructuring application with lenders does not get a favourable response.
 
According to Deloitte Haskins & Sells, the auditor, the company’s current liabilities exceeded current assets by Rs 1,436 crore as on end-March 2019. In 2018-19, it adds, the company was unable to discharge its obligations on repayment of loans and settlement of other financial and non-financial liabilities, including statutory ones.
 
While giving an adverse opinion primarily on the issue of recovering inter-company deposits (ICDs), the auditor states the tea producer is currently in discussion with the lenders on a refinancing proposal.
 
Indications exist, it says, of “a material uncertainty which cast a significant doubt on the company's ability to continue as a going concern”. Also: “The ability to continue as a going concern is solely dependent on acceptance of the refinancing proposal, which is not wholly within the control of the company”. Explaining the basis of its adverse opinion, the auditor says as of
end-March, ICDs of Rs 1,745 crore were given to promoter group entities and other companies; Rs 77 crore had accrued as interest.
 
Recovery of these ICDs and the interest income is doubtful, considering the financial condition of WMG and the other companies to which these were given.
 
More, McLeod Russel made no formal provision for the outstanding amounts recorded as ICDs and accrued interest. “Consequently, the non-current portion of loans and interest accrued thereon are overstated and loss for the year is understated by Rs 1,821.7 crore,” the auditor said.
 
Calls to K K Baheti, the chief financial officer and director at McLeod Russel, went unanswered.
 
On a standalone basis, McLeod Russel has claimed to have incurred a loss of Rs 4.4 crore in the past financial year, and reported a profit of Rs 38.8 crore on a consolidated basis.
 

The auditor said McLeod Russel also recognised Rs 67.8 crore as sundry income from one of the promoter group companies. “In our opinion and according to the information obtained by us, the sundry income may have been funded to the said promoter group company through monies indirectly lent by the company and, therefore, may not have been actually realised. These therefore may have been reflected only by book entries and (be) prejudicial to the interest of the company,” goes its report.
 
Calls to K K Baheti, the chief financial officer and director at McLeod Russel, went unanswered.
 
The auditor has also stated that the financial statement prepared by the company is not in accordance with the requirements of Regulation 33 of the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015, as modified by a circular. And, does not give a true and fair view in conformity with Indian Accounting Standards and other accounting principles.
 
For the year ended March 31, 2019, McLeod Russel reported a nearly 20 per cent decline in total income at Rs 1,960 crore and an 82 per cent fall in net profit to Rs 38.8 crore. It has been selling its estates to pare debt and is estimated to have received Rs 940 crore from the sale proceeds.
 
On June 29, Price Waterhouse & Co quit as the auditor of another WMG company, Eveready Industries. It had cited its inability to get sufficient audit evidence on Eveready Industries’ ICDs and its recovery.
 
Also, on May 31, Deloitte Haskins & Sells and V Singhi & Associates, auditors of McNally Bharat Engineering, another WMG entity, raised concern over this firm’s ability to remain in business unless a financial restructuring proposal with lenders was approved.