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Indian Railway Finance Corporation Ltd.

BSE: 543257 Sector: Financials
NSE: IRFC ISIN Code: INE053F01010
BSE 00:00 | 03 Dec 23.40 0.15
(0.65%)
OPEN

23.20

HIGH

23.75

LOW

23.20

NSE 00:00 | 03 Dec 23.40 0.15
(0.65%)
OPEN

23.20

HIGH

23.75

LOW

23.20

OPEN 23.20
PREVIOUS CLOSE 23.25
VOLUME 1130966
52-Week high 26.60
52-Week low 20.75
P/E 5.53
Mkt Cap.(Rs cr) 30,580
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 23.20
CLOSE 23.25
VOLUME 1130966
52-Week high 26.60
52-Week low 20.75
P/E 5.53
Mkt Cap.(Rs cr) 30,580
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Indian Railway Finance Corporation Ltd. (IRFC) - Auditors Report

Company auditors report

To

The Board of Directors

Indian Railways Finance Corporation Limited UG Floor East Tower NBcCPlace

Bhisham Pitamah Marg Lodhi Road

New Delhi-U0003

Dear Sirs

1. We have examined the attached Restated Financial Information ofIndian Railways Finance Corporation Limited (the "Company") comprising theRestated Statement of Assets and Liabilities as at September 30 2019 and as at March 312019 2018 2017 the Restated Statements of Profit and Loss (including othercomprehensive income) the Restated Statement of Changes in Equity the Restated Cash FlowStatement for the years ended March 31 2019 2018 and 2017 and six months ended September30 2019 the Statement of Significant Accounting Policies and other explanatoryinformation (collectively the "Restated Financial Information") as approved bythe Board of Directors of the Company at their meeting held on 16th January2020 for the purpose of inclusion in the Draft Red Herring Prospectus (the"DRHP") prepared by the Company in connection with its proposed initial publicoffering of equity shares ("IPO") prepared in terms of the requirements of:

(a) Section 26 of Part I of Chapter III of the Companies Act 2013 (the"Act");

(b) The Securities and Exchange Board of India (Issue of Capital andDisclosure Requirements) Regulations 2018 as amended ("ICDR Regulations"); and

(c) The Guidance Note on Reports in Company Prospectuses (Revised 2019)issued by the Institute of Chartered Accountants of India ("ICAI") as amendedfrom time to time (the "Guidance Note").

Managements' Responsibility for the Restated Standalone SummaryStatements

2. The Company's Board of Directors is responsible for thepreparation of the Restated Financial Information for the purpose of inclusion in the DRHPto be filed with Securities and Exchange Board of India and BSE Limited and NationalStock Exchange of India (collectively the "Stock Exchanges") in connection withthe proposed IPO. The Restated Financial Information have been prepared by the managementof the Company on the basis of preparation stated in para 4 below. The Board of Directorsof the Company responsibility includes designing implementing and maintaining adequateinternal control relevant to the preparation and presentation of the Restated FinancialInformation. The Board of Directors are also responsible for identifying and ensuring thatthe Company complies with the Act ICDR Regulations and the Guidance Note.

Auditor's Responsibility

3. We have examined such Restated Financial Information taking intoconsideration:

(a) The terms of reference and terms of our engagement agreed upon withyou in accordance with our engagement letter dated December 30 2019 in connection withthe proposed IPO of equity shares of the Company;

(b) The Guidance Note that also requires that we comply with theethical requirements of the Code of Ethics issued by the ICAI;

(c) Concepts of test checks and materiality to obtain reasonableassurance based on verification of evidence supporting the Restated Financial Information;and

(d) The requirements of Section 26 of the Act and the ICDR Regulations.

Our work was performed solely to assist you in meeting yourresponsibilities in relation to your compliance with the Act the ICDR Regulations and theGuidance Note in connection with the IPO.

4. These Restated Financial Information have been compiled by themanagement from:

(a) Audited Ind AS financial statements of the Company as at and forthe half year ended September 30 2019 prepared in accordance with Indian AccountingStandard (Ind AS) 34 "Interim Financial Reporting" specified under section 133of the Companies Act and other accounting principles generally accepted in India (the"Ind AS Financial Statements") which have been approved by the Board ofDirectors at their meeting held on 11th November 2019.

(b) Audited Ind AS financial statements of the company as at and forthe year ended March 31 2019 prepared in accordance with the Indian Accounting Standards(referred to as "Ind AS") as prescribed under Section 133 of the Companies Actread with Companies (Indian Accounting Standards) Rules 2015 as amended and otheraccounting principles generally accepted in India which have been approved by the Boardof Directors at their meeting held on 05th September 2019. The comparativeinformation for the year ended March 31 2018 included in such financial statements havebeen prepared by making Ind AS adjustments to the audited financial statements of theCompany as at and for the year ended March 31 2018 prepared in accordance with theaccounting standards notified under the section 133 of the Companies Act ("IndianGAAP") which was approved by the Board of directors at their meeting held on 10thSeptember 2018.

(c) The Restated Financial Information also contains the proforma IndAS financial information as at and for the year ended March 31 2017. The proforma Ind ASfinancial information have been prepared by making Ind AS adjustments to the auditedIndian GAAP financial statements as at and for the year ended March 31 2017 which hasbeen approved by the Board of Directors at their meeting held on July 31 2017.

5. Based on our examination and according to the information andexplanations given to us we report that the Restated Financial Information:

(a) have been prepared after incorporating adjustments for the changesin accounting policies material errors and regrouping/reclassifications retrospectivelyin the financial years ended March 31 2019 2018 and 2017 to reflect the same accountingtreatment as per the accounting policies and grouping/classifications followed as at andfor the half year ended September 30 2019;

(b) have been prepared after incorporating proforma Ind AS adjustmentsto the audited Indian GAAP financial statements as at and for the year ended March 312017; and

(c) have been prepared in accordance with the Act ICDR Regulations andthe Guidance Note.

6. The Restated Financial Information do not reflect the effects ofevents that occurred subsequent to the respective dates of the reports on the auditedfinancial statements mentioned in paragraph 4 above.

7. This report should not in any way be construed as a reissuance orre-dating of any of the previous audit reports issued by us nor should this report beconstrued as a new opinion on any of the financial statements referred to herein.

8. We have no responsibility to update our report for events andcircumstances occurring after the date of the report.

9. Our report is intended solely for use of the Board of Directors forthe purpose set forth in the first paragraph of this report including for inclusion in theDRHP to be filed with SEBI and the Stock Exchanges in connection with the proposed IPO.Our report should not be used referred to or distributed for any other purpose exceptwith our prior consent in writing. Accordingly we do not accept or assume any liabilityor any duty of care for any other purpose or to any other person to whom this report isshown or into whose hands it may come without our prior consent in writing.

10. The Key Audit Matters/Other Matter/Emphasis of Matter in theauditor's report as included in Annexure A to this report are to be read withsignificant accounting policies and significant notes to accounts. These do not entail anyadjustments in the Restated Financial Information.

Annexure A

Detail of Key Audit Matters Emphasis of Matters Other Matters andobservations paragraph disclosed in the Audit Reports for the half year ended 30thSeptember 2019 and financial years ended March 31 2019 2018 & 2017.

Para 1. Emphasis of Matters reported in the Audit Report

(a) For the half-year ended September 30 2019

We draw attention to the Comptroller & Audit General (C&AG) ofIndia Auditor's observations regarding the presentation/classification of the"Advance given against railway infrastructure assets to be Leased" out to therailways and advance funding against National projects into "Non financialAssets-Capital Advances" instead of "Other Financial Assets" as treated bythe Company. The total amount under observation is Rs. 699916.57 Million. As agreed withC & AG the Company has referred the matter to the Expert Advisory Committee of theInstitute of Chartered Accountants of India for an expert opinion. The reply from ICAI isawaited.

As the Company is still waiting for the Expert opinion from TheInstitute of Chartered Accountants of India the same accounting treatment has beenfollowed while preparing the financials as on September 30 2019. Our opinion is notmodified in respect of this matter.

Para 2. Observations reported in report on ‘Other Legal andRegulatory Requirements': -

(a) For the half-year ended September 30 2019

1. The Fixed Assets Records does not include the particulars of FixedAssets leased to Ministry of Railways. The same are shown as lease receivables in thebooks of accounts.

2. The Company has a regular programme of physical verification of itsfixed assets by which all fixed assets are verified except leased assets. Leased assetshave been certified by the Lessee (Ministry of Railways) as to their physical existenceand good working condition.

3. Office Building including parking area has been capitalized from thedate of taking possession. However the sale/transfer deed of office building is yet to beexecuted in favour of the Company.

4. The Company has given an amount to Ministry of Railways under leasedarrangement for financing the Railway Infrastructure Projects & National Project.However agreement for the same is yet to be executed and list of the projects financed isyet to be received from Ministry of Railways.

5. The detail of disputed statutory dues is as disclosed in financialstatement for the period ended September 30 2019.

(b) For the financial year ended March 31 2019

1. The Fixed Assets Records does not include the particulars of FixedAssets leased to Ministry of Railways. The same are shown as lease receivables in thebooks of accounts.

2. The Company has a regular programme of physical verification of itsfixed assets by which all fixed assets are verified except leased assets. Leased assetshave been certified by the Lessee (Ministry of Railways) as to their physical existenceand good working condition.

3. Office Building including parking area has been capitalized from thedate of taking possession. However the sale/transfer deed of office building is yet to beexecuted in favour of the Company.

4. The Company has given an amount to Ministry of Railways under leasedarrangement for financing the Railway Infrastructure Projects & National Project.However agreement for the same is yet to be executed and list of the projects financed isyet to be received from Ministry of Railways.

5. The detail of disputed statutory dues is as disclosed in financialstatement for the period ended March 31 2019.

(c) For the financial year ended March 31 2018

1. The Fixed Assets Records does not include the particulars of FixedAssets leased to Ministry of Railways. The same are shown as lease receivables in thebooks of accounts.

2. The Company has a regular programme of physical verification of itsfixed assets by which all fixed assets are verified except leased assets. Leased assetshave been certified by the Lessee (Ministry of Railways) as to their physical existenceand good working condition.

3. Office Building including parking area has been capitalized from thedate of taking possession. However the sale/transfer deed of office building is yet to beexecuted in favour of the Company.

4. The Company has given an amount to Ministry of Railways under leasedarrangement for financing the Railway Infrastructure Projects. However agreement for thesame is yet to be executed and list of the projects financed is yet to be received fromMinistry of Railways.

5. The detail of disputed statutory dues is as disclosed in financialstatement for the period ended March 31 2018.

(d) For the financial year ended March 31 2017

1. The Fixed Assets Records does not include the particulars of FixedAssets leased to Ministry of Railways. The same are shown as lease receivables in thebooks of accounts.

2. The Company has a regular programme of physical verification of itsfixed assets by which all fixed assets are verified except leased assets. Leased assetshave been certified by the Lessee (Ministry of Railways) as to their physical existenceand good working condition.

3. Office Building including parking area has been capitalized from thedate of taking possession. However the sale/transfer deed of office building is yet to beexecuted in favour of the Company.

4. The Company has given an amount to Ministry of Railways under leasedarrangement for financing the Railway Infrastructure Projects. However agreement for thesame is yet to be executed and list of the projects financed is yet to be received fromMinistry of Railways.

5. The detail of disputed statutory dues is as disclosed in financialstatement for the period ended March 31 2017.

Para 3. Key Audit Matters reported in the Audit Report

(a) For the half-year ended September 30 2019

Key Audit Matters Auditor's Response
1. The government has introduced new section 115BAA by the Taxation Law (Amendment) Ordinance 2019 w.e.f F.Y 2019-20 which provides an option to opt for a income tax rate of 22% Surcharge 10% & Health and Education Cess at 4% by any domestic company. By opting this total effective tax rate will be at 25.17% (under normal provision of income tax) as against earlier effective tax rate of 34.95% (under normal provision of income tax). However the earlier effective tax rate under MAT was 21.55% which was applicable on the Company. After adoption of Section 115BAA the taxable income under the normal provision income tax may become NIL. Further after adoption of section 115BAA the Company will be outside the scope and applicability of MAT Provision under section 115JB of Income Tax Act 1961. Hence no tax liability may be there w.e.f F.Y 2019-20 on the Company.
However the accumulated MAT Credit of Rs. 37559.32 Million as on 31.03.2019 by adoption of section 115BAA is not going to be claimable by the Company against their future tax liability under normal provisions of Income Tax Act 1961. As per the past records the Company was not able to adjust/claim MAT Credit against the normal
tax liability. That is the reason the same has not been provided in the books of accounts.
In view of above the Company is not likely to loose any amount against the accumulated mAt credit of Rs. 37559.32 Million.
Hence no tax provision has been created for the F.Y 2019-20.
2. The Ministry of Corporate Affairs has notified tlie Companies (Share Capital and Debentures) Amendments Rules 2019 on 16th August 2019 which exempts NBFC listed companies registered with Reserve Bank of India under section 45-IA of the RBI Act 1934 from creation of Debenture Redemption Reserve. However the Company is required to invest or deposit a sum of not less than fifteen percent of the amount of debentures maturing during the year ending on the 31st day of March of the next year as prescribed under these rules The Bond Redemption Reserve as on 31.03.2019 amounting to Rs. 57145.59 Million has been transferred to General Reserve as at September 30 2019.

(b) For the financial year ended March 31 2019

Key Audit Matters Auditor's Response
1. The Company has adopted Ind AS from 1 April i 2018 with an effective date of 1 April 2017 for such transition. For periods up to and including the year ended 31 March 2018 the Company had prepared and presented its financial statements in accordance with the erstwhile generally accepted accounting principles in India (Indian GAAP). To i give effect of the transition to Ind-AS these financial statements for the year ended 31 March 2019 together with the comparative financial information for the previous year ended 31 March 2018 and the transition date Balance Sheet as at 1 April 2017 have been prepared under Ind AS. Read the Ind-AS impact assessment performed by the Management and the resultant changes made to the accounting policies considering the requirements of the new framework.
The transition has involved significant change in the Company's policies and processes for financial reporting including generation of supportable information and applying estimates to inter alia determine impact of Ind AS on accounting and disclosure requirements prescribed under extant i Reserve Bank of India (RBI) directions. Evaluated the exemptions and exceptions allowed by Ind-AS and applied by the Management in applying the first-time adoption principles of Ind-AS 101 in respect of fair valuation of assets and liabilities existing as at transition date.
In view of the complexity involved Ind AS i transition and the preparation of financial statements subsequent to the transition date have been areas of key focus in our audit. Tested the accounting adjustments posted as at the transition date and in respect of the previous year to convert the financial information reported under erstwhile Indian GAAP to Ind AS.
2. As per the Master direction issued by Reservie Bank of India circular no. RBI/2017- 18/181_DNBR (PD) CC. No. 092/03.10.001/2017- 18 dated 31st May 2018 read with letter no. DNRB (PD). CO.No.1271/03.10.001/2018-19 dated 21st December 2018 the Company has to follow the Tested the disclosures prescribed under Ind AS.
Income recognition asset classification and provisioning norms on the loans/ advances to non sovereign bodies which was earlier exempted vide notification DNBR.PD.008/03.10.119/2016-17 dated 1st September 2016 for all government owned NBFC's. Reliance has been placed on the external expert appointed by the Company to look into the Ind-AS Compliance.
3. As per the Master direction issued by Reserve Bank of India circular no. RBI/2017- 18/181_DNBR (PD) CC. No. 092/03.10.001/2017- 18 dated 31st May 2018 read with letter no. DNRB (PD). CO.No.1271/03.10.001/2018-19 dated 21st December 2018 for all government owned NBFC's required to transfer 20% of the net profit after tax. As stated in Note 27 of the financial statements the Company has made a provision of 0.40% amounting to Rs. 275.44 Million as at 31St March 2019.
4 Company enters into derivative contracts in accordance with RBI guidelines to manage its currency and interest rate risk. The Company has applied Hedge Accounting and accounted for the derivatives either as fair value hedges or cash flow hedges. As stated in Note 22.4 of the financial statements the Company has transferred 20% of the net profit after tax amounting to Rs. 4509.49 Million in reserve fund as per Section 45-IC of RBI Act 1934 as at 31st March 2019.
We consider the valuation of the derivative financial instruments and hedge accounting as a key audit matter due to material exposure and the fact that the inappropriate application of these requirements could lead to a material effect on the financial statement. Company obtains fair value of derivative contracts from the counter party banks. Our procedure include review of the fair value obtained using observable market inputs like prevailing exchange rate interest rate curves and other volatility index subsequent thereto.
We did not find any material misstatement in measuring derivative contracts at fair value obtained from counter party banks while considering other inputs.
Yours faithfully
For SPMG & Co.
Chartered Accountants
FRN: 509249C
CA Vinod Gupta
(Partner)
Membership No: 090687
Place: Delhi
Date: 16/01/2020

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