To the Members of Centum Electronics Limited
Report on the Audit of the Standalone IndAS Financial Statements
We have audited the accompanying standalone IndAS financial statementsof Centum Electronics Limited ("the Company") which comprise the Balance sheetas at March 31 2019 the Statement of Profit and Loss including the statement of OtherComprehensive Income the Cash Flow Statement and the Statement of Standalone IndASChanges in Equity for the year then ended and notes to the financial statementsincluding a summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid standalone IndAS financial statements give theinformation required by the Companies Act 2013 as amended ("the Act") in themanner so required and give a true and fair view in conformity with the accountingprinciples generally accepted in India of the state of affairs of the Company as at March31 2019 its profit including other comprehensive income its cash flows and the changesin equity for the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone IndAS financial statements inaccordance with the Standards on Auditing (SAs) as specified under section 143(10) of theAct. Our responsibilities under those Standards are further described in the 'Auditor'sResponsibilities for the Audit of the Standalone IndAS Financial Statements' section ofour report. We are independent of the Company in accordance with
the 'Code of Ethics' issued by the Institute of Chartered Accountantsof India together with the ethical requirements that are relevant to our audit of thefinancial statements under the provisions of the Act and the Rules thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and theCode of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the standalone IndAS financialstatements.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone IndAS financial statements forthe financial year ended March 31 2019. These matters were addressed in the context ofour audit of the standalone IndAS financial statements as a whole and in forming ouropinion thereon and we do not provide a separate opinion on these matters. For eachmatter below our description of how our audit addressed the matter is provided in thatcontext.
We have determined the matters described below to be the key auditmatters to be communicated in our report. We have fulfilled the responsibilities describedin the Auditor's responsibilities for the audit of the standalone IndAS financialstatements section of our report including in relation to these matters. Accordingly ouraudit included the performance of procedures designed to respond to our assessment of therisks of material misstatement of the standalone IndAS financial statements. The resultsof our audit procedures including the procedures performed to address the matters belowprovide the basis for our audit opinion on the accompanying standalone IndAS financialstatements.
|Key audit matters ||How our audit addressed the key audit matter |
|Allowance for inventory obsolescence || |
|The Company held an inventory balance of र 2251.23 million as at March 31 2019 as disclosed in Note 11 and is a material balance for the Company. Inventory obsolescence allowance is determined using policies/ methodologies that the Company deems appropriate to the business. Significant judgement is exercised by the management in identifying the slow-moving and obsolete inventories and in assessing whether provision for obsolescence for slow moving excess or obsolete inventory items should be recognized considering the production plan forecast inventory usage committed and expected orders alternative usage etc. Considering that the aforesaid assessment process is complex and involves significant estimates and judgements and the balance of inventory is material we have identified this as a key audit matter. ||Our procedures in relation to evaluate the allowance of inventories included: |
| || We obtained an understanding of how the management identifies the slow-moving and obsolete inventories and assesses the amount of allowance for inventories; |
| || We observed the inventory count performed by management and assessed the physical condition of the inventories at balance sheet date; |
| || We also assessed the allowance policy based on historical sales performance of the products in their life cycle; |
| || We further tested the ageing of the inventories and the computation of the obsolescence level on a sample basis; |
| || We have tested a sample of inventory items at significant components to assess the cost basis and net realisable value of inventory on a sample basis; |
| || We also assessed the Company's disclosures concerning this in Note 42 on significant accounting estimates and judgements and Note 11 on Inventories to the standalone IndAS financial statements. |
|Key audit matters ||How our audit addressed the key audit matter |
|Impairment testing of investments in a subsidiary |
|As at March 31 2019 the carrying amount of investment in Centum Electronics UK Limited a subsidiary of the Company is ' 474.44 million which has underlying investment in Adetel Group SA CAdetel"). Adetel has incurred losses in the earlier years whereby the carrying value of the investment in Adetel as at March 31 2019 is higher than Adetel's net worth. The determination of recoverable amounts of the Company's investments in Centum Electronics UK Limited relies on management's estimates of future cash flows and their judgment with respect to the Adetel's performance. Significant judgements are required to determine the key assumptions used in the discounted cash flow models such as revenue growth price terminal value and discount rates. Due to the uncertainty of forecasting and discounting future cash flows being inherently subjective the level of management's judgement involved and the significance of the Company's investment as at March 31 2019 we have considered this as a key audit matter. ||Our procedures in relation to evaluate the impairment of investment included: |
| || We have carried out assessment of forecasts of future cash flows prepared by the management evaluating the assumptions and comparing the estimates to externally available industry economic and financial data; |
| || We have also assessed the valuation methodology and the key assumptions adopted in the cash flow forecasts with the support of our in-house valuation experts; |
| || We have carried out discussions with management on Adetel's performance as compared to previous year in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable; |
| || We tested the arithmetical accuracy of the financial projection model; |
| || We also assessed the Company's disclosures concerning this in Note 42 on significant accounting estimates and judgements and Note 5 pertaining to the disclosures of investment in subsidiary to the standalone IndAS financial statements. |
|The basis of impairment of investment in subsidiary is presented in the accounting policies in Note 2.2(l) to the standalone IndAS financial statements. || |
Information Other than the Standalone IndAS Financial Statements andAuditor's Report Thereon
The Company's Board of Directors is responsible for the otherinformation. The other information comprises the information included in the Annual reportbut does not include the standalone IndAS financial statements and our auditor's reportthereon. The other information is expected to be made available to us after the date ofthis auditor's report.
Our opinion on the standalone IndAS financial statements does not coverthe other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone IndAS financialstatements our responsibility is to read the other information identified above when itbecomes available and in doing so consider whether such other information is materiallyinconsistent with the standalone IndAS financial statements or our knowledge obtained inthe audit or otherwise appears to be materially misstated.
Responsibilities of Management for the Standalone IndAS FinancialStatements
The Company's Board of Directors is responsible for the matters statedin section 134(5) of the Act with respect to the preparation of these standalone IndASfinancial statements that give a true and fair view of the financial position financialperformance including other comprehensive income cash flows and changes in equity of theCompany in accordance with the accounting principles generally accepted in Indiaincluding the Indian Accounting Standards (IndAS) as specified under section 133 of theAct read with the Companies (Indian Accounting Standards) Rules 2015 as amended. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; andthe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the standalone IndAS financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the standalone IndAS financial statements management isresponsible for assessing the Company's ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing theCompany's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone IndASFinancial Statements
Our objectives are to obtain reasonable assurance about whether thestandalone IndAS financial statements as a whole are free from material misstatementwhether due to fraud or error and to issue an auditor's report that includes our opinion.Reasonable assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these standalone IndAS financialstatements.
As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thestandalone IndAS financial statements whether due to fraud or error design and performaudit procedures responsive to those risks and obtain audit evidence that is sufficientand appropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations or the overrideof internal control.
Obtain an understanding of internal control relevant to theaudit in order to design audit procedures that are appropriate in the circumstances. Undersection 143(3)(i) of the Act we are also responsible for expressing our opinion onwhether the Company has adequate internal financial controls system in place and theoperating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the standalone IndAS financial statements or if such disclosuresare inadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditions maycause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of thestandalone IndAS financial statements including the disclosures and whether thestandalone IndAS financial statements represent the underlying transactions and events ina manner that achieves fair presentation.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the standaloneIndAS financial statements for the financial year ended March 31 2019 and are thereforethe key audit matters. We describe these matters in our auditor's report unless law orregulation precludes public disclosure about the matter or when in extremely rarecircumstances we determine that a matter should not be communicated in our report becausethe adverse consequences of doing so would reasonably be expected to outweigh the publicinterest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016("the Order") issued by the Central Government of India in terms of sub-section(11) of section 143 of the Act we give in the "Annexure 1" a statement on thematters specified in paragraphs 3 and 4 of the Order.
2. As required by Section 143(3) of the Act we report that:
(a) We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of ouraudit;
(b) In our opinion proper books of account as required by law havebeen kept by the Company so far as it appears from our examination of those books;
(c) The Balance Sheet the Statement of Profit and Loss including theStatement of Other Comprehensive Income the Cash Flow Statement and Statement of Changesin Equity dealt with by this Report are in agreement with the books of account;
(d) In our opinion the aforesaid standalone IndAS financial statementscomply with the Accounting Standards specified under Section 133 of the Act read withCompanies (Indian Accounting Standards) Rules 2015 as amended;
(e) On the basis of the written representations received from thedirectors as on March 31 2019 taken on record by the Board of Directors none of thedirectors is disqualified as on March 31 2019 from being appointed as a director in termsof Section 164 (2) of the Act;
(f) With respect to the adequacy of the internal financial controlsover financial reporting of the Company with reference to these standalone IndAS financialstatements and the operating effectiveness of such controls refer to our separate Reportin "Annexure 2" to this report;
(g) In our opinion the managerial remuneration for the year endedMarch 31 2019 has been paid / provided by the Company to its directors in accordance withthe provisions of section 197 read with Schedule V to the Act;
(h) With respect to the other matters to be included in the Auditor'sReport in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 asamended in our opinion and to the best of our information and according to theexplanations given to us:
i. The Company has disclosed the impact of pending litigations on itsfinancial position in its standalone IndAS financial statements - Refer Note 46 to thestandalone IndAS financial statements;
ii. The Company did not have any long-term contracts includingderivative contracts for which there were any material foreseeable losses;
iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Company
| ||For S.R. Batliboi & Associates LLP |
| ||Chartered Accountants |
| ||ICAI Firm Registration Number: 101049W/E300004 |
| ||per Sandeep Karnani |
|Place of Signature: Bengaluru ||Partner |
|Date: May 29 2019 ||Membership Number: 061207 |
Annexure 1 referred to in clause 1 of paragraph on the 'Report on OtherLegal and Regulatory Requirements' of our report of even date
Re: Centum Electronics Limited ('the Company')
(i) (a) The Company has maintained proper records showing fullparticulars including quantitative details and situation of property plant andequipment.
(b) All property plant and equipment have not been physically verifiedby the management of the Company during the year but there is a regular programme ofverification which in our opinion is reasonable having regard to the size of the Companyand the nature of its assets. No material discrepancies were noticed on such verification.
(c) According to the information and explanations given to us by themanagement of the Company the title deeds of immovable properties included in propertyplant and equipment's are pledged with the banks in connection with the borrowings and notavailable with the Company. The same has not been independently confirmed by the bank andhence we are unable to comment on the same.
(ii) The inventory except goods in transit has been physicallyverified by the management during the year. In our opinion the frequency of verificationis reasonable. No material discrepancies were noticed on such physical verification.
(iii) According to the information and explanations given to us by themanagement of the Company the Company has not granted any loans secured or unsecured tocompanies firms Limited Liability Partnerships or other parties covered in the registermaintained under section 189 of the Companies Act 2013 ('the Act'). Accordingly theprovisions of clause 3(iii)(a) (b) and (c) of the Order are not applicable to the Companyand hence not commented upon.
(iv) In our opinion and according to the information and explanationsgiven to us provisions of section 185 of the Act in respect of loans and advances todirectors including entities in which they are interested is not applicable. In ouropinion and according to the information and explanations given to us provisions ofsection 186 of the Act in respect of investments made and guarantees and securities givenhave been complied with by the Company.
(v) The Company has not accepted any deposits within the meaning ofSections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules 2014 (asamended). Accordingly the provisions of clause 3(v) of the Order are not applicable.
(vi) We have broadly reviewed the books of account maintained by theCompany pursuant to the rules made by the Central Government for the maintenance of costrecords under section 148(1) of the Act and are of the opinion that prima facie thespecified accounts and records have been made and maintained. We have not however made adetailed examination of the same.
(vii) (a) Undisputed statutory dues including provident fundemployees' state insurance income-tax sales-tax service tax duty of customs duty ofexcise value added tax goods and service tax cess and other material statutory dues asapplicable to the Company have generally been regularly deposited with the appropriateauthorities though there has been slight delays in a few cases.
(b) According to the information and explanations given to us by themanagement of the Company no undisputed amounts payable in respect of provident fundemployees' state insurance income-tax service tax sales-tax duty of customs duty ofexcise value added tax goods and service tax cess and other material statutory dues asapplicable to the Company were outstanding at the year end for a period of more than sixmonths from the date they became payable.
(c) According to the records of the Company the dues outstanding ofincome-tax sales-tax service tax duty of customs duty of excise value added taxgoods and service tax and cess on account of any dispute are as follows:
|Name of the statute ||Nature of the dues ||Amount (in ' million) ||Period to which the amount relates ||Forum where the dispute is pending |
|Income Tax Act 1961 ||Disallowance of exemptions ||1.89 ||Financial year 2007-2008 ||Commissioner of Income Tax (Appeals) - Bangalore |
|Central Excise Act 1944 ||Non-payment of service tax ||52.52 |
|Financial year 2009-2010 to 2014-2015 ||Customs Excise and Service Tax Appellate Tribunal ('CESTAT') Bangalore |
|Customs Act 1962 ||Non-payment of customs duty ||1.00 ||Financial year 2006-2007 and 2007-2008 ||CESTAT Bangalore |
|Central Excise Act 1944 ||Disallowance of CENVAT Credit availed ||9.99 ||Financial year 2004-2005 to 2005-2006 ||Commissioner of Central Excise Bangalore |
|Central Excise Act 1944 ||Disallowance of CENVAT Credit availed ||22.26 ||Financial year 2010-2011 to 2012-2013 ||CESTAT Bangalore |
|The Karnataka Stamp Act 1957 ||Stamp duty ||16.28 ||Financial year 2007-08 ||The District Registrar Gandhinagar Registration District |
|Karnataka Value Added Tax 2003 ||Commercial Tax ||0.55 |
|Financial year 2009-2010 ||Deputy Commissioner of Commercial Taxes Bangalore |
|Karnataka Value Added Tax 2003 ||Commercial Tax ||6.49 |
|Financial year 2013-2014 ||Deputy Commissioner of Commercial Taxes Bangalore |
* Amount in parenthesis represents the payment made under protest.
(viii) According to the information and explanations given by themanagement the Company has delayed in repayment of loans or borrowings to financialinstitutions and banks during the year to the extent of ' 2.59 million (thedelay in such repayments being for less than 90 days in each individual case) and '2.59 million of such dues were in arrears as on the balance sheet date. The lender wisedetails are tabulated as under:
|Particulars ||Amount (in ' million) of the default as at March 31 2019 ||Period of default ||Remarks |
|SREI Equipment Finance Limited ||1.30 ||0-90 days ||Subsequently paid on April 24 2019 |
|Citi Bank NA (Post Shipment Credit in Foreign Currency) ||1.29 ||0-90 days ||Subsequently paid on April 5 2019 |
The Company did not have any outstanding loans or borrowing dues inrespect to government or dues to debenture holders during the year.
(ix) According to the information and explanations given to us by themanagement of the Company the Company has not raised any money way of initial publicoffer / further public offer / debt instruments. In our opinion and according to theinformation and explanations given to us by the management of the Company the Company hasutilized the monies raised by way of term loans for the purposes for which they wereraised.
(x) Based upon the audit procedures performed for the purpose ofreporting the true and fair view of the Standalone IndAS financial statements andaccording to the information and explanations given to us by the management of theCompany we report that no fraud by the Company or no fraud on the Company by the officersand employees of the Company has been noticed or reported during the year.
(xi) According to the information and explanations given to us by themanagement of the Company the managerial remuneration has been paid / provided inaccordance with the requisite approvals mandated by the provisions of section 197 readwith Schedule V to the Act.
(xii) In our opinion the Company is not a Nidhi Company. Thereforethe provisions of clause 3(xii) of the Order are not applicable to the Company and hencenot commented upon.
(xiii) According to the information and explanations given to us by themanagement of the Company transactions with the related parties are in compliance withsection 177 and 188 of the Act where applicable and the details have been disclosed inthe notes to the standalone IndAS financial statements as required by the applicableaccounting standards.
(xiv) According to the information and explanations given to us and onan overall examination of the balance sheet the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year under review and hence reporting requirements under clause 3(xiv) of the Orderare not applicable to the Company and not commented upon.
(xv) According to the information and explanations given to us by themanagement of the Company the Company has not entered into any non-cash transactions withdirectors or persons connected with him as referred to in section 192 of the Act.
(xvi) According to the information and explanations given to us theprovisions of section 45-IA of the Reserve Bank of India Act 1934 are not applicable tothe Company.
| ||For S.R. Batliboi & Associates LLP |
| ||Chartered Accountants |
|ICAI Firm Registrati ||on Number: 101049W/E300004 |
| ||per Sandeep Karnani |
|Place of Signature: Bengaluru ||Partner |
|Date: May 29 2019 ||Membership Number: 061207 |