To the Members of Kalyani Steels Limited
Report on the Audit of the Standalone Financial Statements
We have audited the Standalone Financial Statements of Kalyani Steels Limited(the Company) which comprise the Balance Sheet as at March 31 2021 theStatement of Profit and Loss (including Other Comprehensive Income) the Statement ofChanges in Equity and the Statement of Cash Flows for the year then ended and notes to theStandalone Financial Statements including a summary of Significant Accounting Policiesand other explanatory information (hereinafter referred to as the StandaloneFinancial Statements) and includes a Joint Operation accounted for on proportionatebasis. In our opinion and to the best of our information and according to the explanationsgiven to us and based on the consideration of report of the other auditor on separatefinancial statements of the Joint Operation the aforesaid Standalone Financial Statementsgive the information required by the Companies Act 2013 (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 2021 its profit (including other comprehensive income ) its changes in equity andits cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder Section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditors Responsibilities for the Audit of the Standalone FinancialStatements section of our report. We are independent of the Company in accordance with theCode of Ethics issued by the Institute of Chartered Accountants of India together with theethical requirements that are relevant to our audit of the Standalone Financial Statementsunder the provisions of the Act and the Rules thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics.
We believe that the audit evidence obtained by us and by the other auditor referred toin the Other Matter paragraph is sufficient and appropriate to provide abasis for our opinion.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the Standalone Financial Statements of the current period.These matters were addressed in the context of our audit of the Standalone FinancialStatements as a whole and in forming our opinion thereon and we do not provide a separateopinion on these matters.
|Key Audit Matters ||Principle Audit Procedures |
|Accounting of joint operation ||As part of our audit procedure |
|As explained in Note 2.3 the Companys composite steel manufacturing facility at Ginigera is under a strategic alliance arrangement with a joint venture partner. The facility is managed by Hospet Steels Limited. The alliance confers Kalyani Steels Limited (KSL) and Mukand Limited (ML) with rights to assets obligations for liabilities sharing of expenses / profit / loss in the proportion of product sharing ratio (viz. 41.38% by KSL and 58.62% by ML). Thus KSL and ML have right to the assets and obligations for the liabilities of this arrangement. The strategic alliance is a joint arrangement in the nature of joint operation and accordingly the Company has recognized its share of revenue and expenses and assets and liabilities from joint operation in its separate financial statements. ||- we have obtained the said strategic alliance arrangement and read the terms and conditions mentioned therein. |
|Due to the nature and complexities involved in accounting of strategic alliance arrangement as joint operation this is a key audit matter. ||- assessed the managements judgement of concluding the arrangement as joint operation as per the principles laid down under Ind AS 111. |
| ||- further we have tested the controls and procedures established by the management relating to accounting of joint venture. The accounting for joint operation requires the Company to recognize only its share of expenses from the joint operation therefore we have checked the amount charged to ML (joint venture partner) are as per the terms and conditions of strategic alliance arrangement and have been offset against the respective expense line items. Similarly the expenses incurred by the ML (joint venture partner) and charged to the Company have been reclassified to the respective expense line items based on the nature of such expenses. |
|Valuation of inventory ||As a part of our audit procedures over valuation of inventory we have performed the following procedures : |
|As on March 31 2021 the Company is having inventory of ` 1189.45 Million and disclosed in Note 10. The inventory is valued at cost or net realizable value whichever is lower. ||- assessed the design and performed tests of the design and operating effectiveness of the key controls over inventory valuation. |
|Costs includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but does not include borrowing costs. Cost of work-in-progress and finished goods are determined on a weighted average basis (refer Note (k) of Significant Accounting Policies). ||- obtained understanding of production process at each stage. |
|The Companys composite steel manufacturing involves processes such as Mini Blast Furnace (MBF) Steel Melting Shop (SMS) and Rolling Mill Shop (RMS). The production is carried out continuously by way of the simultaneous standardized and sequential process. The output of a process is the input of another. The production from the last process is transferred to finished stock. Both direct and indirect costs are charged to the processes. The production results in joint and by-products. Losses both normal and abnormal loss occur at different stages of production which are also taken into consideration while calculating the unit cost. ||- obtained and tested on sample basis the process cost of each production process. |
|Considering the calculation of process cost at each stage accounting of joint product and by-product normal / abnormal losses and allocation of overheads the valuation of inventory is regarded as a key audit matter. ||- verified the calculations accounting of joint and by-product and allocation basis of overhead as per costing principles. |
| ||- tested the assumptions such as allocation percentages of fixed and variable overheads and yield rate at each production stages with source data. |
| ||- further we have tested on sample basis net realisable value of finished goods based on subsequent sale value. |
| ||- we have also checked the aging report for identification of non-moving / slow moving finished goods on a sample basis. |
The Companys Board of Directors is responsible for the other information. The otherinformation comprises the Management Discussion and Analysis Board of Directors Reportalong with its Annexures and Corporate Governance Report included in the Annual Report butdoes not include the Standalone Financial Statements and our auditors report thereon.Our opinion on the Standalone Financial Statements does not cover the other informationand we do not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements our responsibilityis to read the other information and in doing so consider whether the other informationis materially inconsistent with the Standalone Financial Statements or our knowledgeobtained in the audit or otherwise appears to be materially misstated. If based on thework we have performed we conclude that there is a material misstatement of this otherinformation we are required to report that fact. We have nothing to report in thisregard.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Statements
The Companys Board of Directors is responsible for the matters stated in Section134(5) of the Act with respect to the preparation of these Standalone Financial Statementsthat give a true and fair view of the financial position financial performance (includingother comprehensive income) changes in equity and cash flows of the Company in accordancewith the accounting principles generally accepted in India including the IndianAccounting Standards (Ind AS) specified under Section 133 of the Act read with theCompanies (Indian Accounting Standards) Rules 2015 as amended.
This responsibility also includes maintenance of adequate accounting records inaccordance 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 design implementation and maintenance of adequate internalfinancial controls 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.
In preparing the Standalone Financial Statements the management is responsible forassessing the Companys ability to continue as a going concern disclosing asapplicable matters related to going concern and using the going concern basis ofaccounting 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 alsoresponsible for overseeing the Companys financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the StandaloneFinancial Statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditors report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these Standalone Financial Statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also :
Identify and assess the risks of material misstatement of the StandaloneFinancial Statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal control relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under Section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness 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 managements use of the going concernbasis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompanys ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditors report to therelated disclosures in the Standalone Financial Statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditors report. However future events or conditions maycause the Company and its Joint Operation to cease to continue as a going concern.
Evaluate the overall presentation structure and content of theStandalone Financial Statements including the disclosures and whether the StandaloneFinancial Statements represent the underlying transactions and events in a manner thatachieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financialinformation of the Company and its Joint Operation to express an opinion on the StandaloneFinancial Statements. For the other entity included in the Standalone FinancialStatements which have been audited by the other auditors such other auditors remainresponsible for the direction supervision and performance of the audits carried out bythem. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with them allrelationships and other matters that may reasonably be thought to bear on our independenceand where applicable related safeguards. From the matters communicated with those chargedwith governance we determine those matters that were of most significance in the audit ofthe Standalone Financial Statements of the current period and are therefore the key auditmatters. We describe these matters in our auditors report unless law or regulationprecludes public disclosure about the matter or when in extremely rare circumstances wedetermine that a matter should not be communicated in our report because the adverseconsequences of doing so would reasonably be expected to outweigh the public interestbenefits of such communication.
We did not audit the financial statements of a Joint Operation included in theStandalone Financial Statements on proportionate basis as per Ind AS 111 JointOperations whose financial statements reflect total revenue of ` Nil totalcomprehensive income / loss of ` Nil for the year ended March 31 2021. The jointoperation has total assets of ` 235.46 Million as on March 31 2021 and net cash(outflow) of `(13.86) million for the year ended March 31 2021. These financialstatements have been audited by other auditor whose report has been furnished to us by theManagement and our opinion on the Standalone financial statements insofar as it relates tothe amounts and disclosures included in respect of this Joint Operation and our report interms of sub-section (3) of Section 143 of the Act insofar as it relates to the aforesaidjoint operation is based solely on the report of the other auditor.
Our opinion is not modified in respect to this matter.
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 sub-section (11) ofSection 143 of the Act we give in the Annexure A 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 based on our audit and on theconsideration of report of the other auditor on separate financial statements of JointOperation as noted in the Other Matters paragraph 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 purposes of our audit.
b) In our opinion proper books of account as required by law have been kept by theCompany and its Joint Operation so far as it appears from our examination of those books.
c) The Balance Sheet the Statement of Profit and Loss (including other comprehensiveincome) the Statement of Changes in Equity and the Statement of Cash Flows dealt with bythis Report are in agreement with the books of account.
d) In our opinion the aforesaid Standalone Financial Statements comply with the IndianAccounting Standards specified under Section 133 of the Act read with Companies (IndianAccounting Standards) Rules 2015 as amended.
e) On the basis of the written representations received from the Directors as on March31 2021 taken on record by the Board of Directors and the report of other auditor of theJoint Operation none of the Directors is disqualified as on March 31 2021 from beingappointed as a Director in terms of Section 164 (2) of the Act.
f) With respect to the adequacy of the internal financial controls with reference toStandalone Financial Statements of the Company and its Joint Operation and the operatingeffectiveness of such controls refer to our separate Report in Annexure B.
g) As required by Section 197 (16) of the Act in our opinion and according toinformation and explanation provided to us the remuneration paid by the Company to itsDirectors is in accordance with the provisions of Section 197 of the Act and remunerationpaid to Directors is not in excess of the limit laid down under this Section. As per thereport of the auditor of the Joint Operation no remuneration is provided / paid to theDirectors of the Joint Operation.
h) With respect to the other matters to be included in the Auditors Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us :
(i) The Company has disclosed the impact of pending litigations on its financialposition in its Standalone Financial Statements - Refer Note 37.
(ii) The Company did not have any long-term contracts including derivative contractsfor which there were any material foreseeable losses.
(iii) There is no amount required to be transferred to the Investor Education andProtection Fund by the Company and its Joint Operation.
Annexure A' to the Independent Auditor's Report
Referred to in paragraph 1 under the heading Report on Other legal andRegulatory Requirements of our report on even date :
(i) (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The fixed assets are physically verified by the Management according to a phasedprogramme designed to cover all the items over a period of four years which in ouropinion is reasonable having regard to the size of the Company and the nature of itsassets. Pursuant to the programme a portion of the fixed assets have been physicallyverified by the Management during the year and no material discrepancies have been noticedon such verification.
(c) The title deeds of immovable properties are held in the name of the Company.
(ii) Physical verification of inventory has been conducted by the management during thecurrent year. In our opinion the interval of such verification is reasonable.Discrepancies noticed on physical verification were not material and the same have beenproperly dealt with in the books of account.
(iii) The Company has granted unsecured loan [inter corporate deposit (ICD)] tocompanies firms Limited Liability Partnerships or other parties covered in the registermaintained under Section 189 of the Act.
|Number of parties ||Opening Balance ( Rs. in Million) ||Year End Balance ( Rs. in Million) ||Maximum Balance ( Rs. in Million) |
|1 ||Nil ||700.00 ||700.00 |
(a) According to the information and explanations provided to us the rate of interestcharged on these ICDs is at arms length. The Company has taken corporate guarantee fromthe holding company of the loanee Company. Therefore we can conclude that the terms andconditions of the grant of such ICDs is not prejudicial to the interest of the Company.
(b) According to the information and explanations provided to us the repaymentschedule of the principal and interest are stipulated. The repayments are as per theschedule.
(c) According to the information and explanations provided to us no amount is overdue.
(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Sections 185 and 186 of the Act with respectto loans investments guarantees and security as applicable.
(v) According to information and explanation provided to us the Company has notaccepted deposits hence the directives issued by the Reserve Bank of India and theprovisions of Sections 73 to 76 or any other relevant provisions of the Act and the rulesframed there under are not applicable to it. According to information and explanationprovided to us no order has been passed by Company Law Board or National Company LawTribunal or Reserve Bank of India or any court or any other tribunal.
(vi) We have broadly reviewed the books of account relating to materials labour andother items of cost maintained by the Company pursuant to the rules made by the CentralGovernment for the maintenance of cost records under sub-section (l) of Section 148 of theAct and we are of the opinion that prima facie the prescribed accounts and records havebeen made and maintained. We have not however made a detailed examination of records witha view to determine whether they are accurate and complete.
(vii) (a) The Company is generally regular in depositing undisputed statutory duesincluding provident fund employees state insurance income tax duty of customs goodsand service tax cess and any other statutory dues with the appropriate authorities.According to the information and explanation provided to us no undisputed amounts payablein respect of statutory dues were in arrears as at March 31 2021 for a period more thansix months from the date they became payable.
(b) According to the information and explanation provided to us there are no dues ofincome tax sales tax service tax duty of customs duty of excise goods and servicetax value added tax or cess which have not been deposited on account of any disputeexcept those mentioned below :
|Name of the statute ||Nature of dues ||Amount ( Rs. in Million) ||Period to which the amount relates ||Forum where the dispute is pending |
|Central Excise Act 1944 ||Excise Duty ||9.43 ||August 2008 to February 2011 ||Customs Excise and Service Tax Appellate Tribunal (CESTAT) |
|Central Excise Act 1944 ||Excise Duty ||20.39 ||2012-13 to 2014-15 ||Commissioner |
|Income Tax Act 1961 ||Income Tax ||6.72 ||Assessment Years 2016-17 & 2017-18 ||Commissioner of Income Tax Appeals |
|Income Tax Act 1961 ||Income Tax ||6.29 ||Assessment Year 2018-19 ||Assessing Officer |
|KVAT 2003 ||VAT ||0.64 ||FY 2011-12 ||Karnataka Appellate Tribunal |
|KVAT 2003 ||VAT ||1.01 ||FY 2012-13 ||Forum JC-Appeals |
(viii) Based on our audit procedures and according to the information and explanationprovided to us the Company has not defaulted in repayment of loans or borrowings to afinancial institution bank or government. The Company did not have debenture holders.
(ix) According to information and explanation provided to us the Company has notraised moneys by way of initial public offer or further public offer (including debtinstruments) in the current year. According to the information and explanations given tous term loans availed by the Company in the current year were prima facie applied forthe purpose for which the loans were obtained.
(x) Based upon the audit procedures performed by us and according to the informationand explanation provided to us by the management no fraud by the Company or any fraud onthe Company by its officers or employees has been noticed or reported to us during theyear.
(xi) According to the information and explanation provided to us the managerialremuneration has been paid and provided in accordance with the requisite approvalsmandated by the provisions of Section 197 read with Schedule V to the Act.
(xii) The Company is not a Nidhi Company and accordingly Clause (xii) of the Order isnot applicable to the Company.
(xiii) According to the information and explanation provided to us all transactionswith the related parties are in compliance with Sections 177 and 188 of the Act whereverapplicable and the details of the transactions have been disclosed in the StandaloneFinancial Statements as required by Ind AS 24 Related Party Disclosures. Refer Note39.
(xiv) The Company has not made any preferential allotment or private placement ofshares or fully or partly convertible debentures during the year under review.Accordingly the provisions of Clause 3(xiv) of the Order are not applicable to theCompany.
(xv) According to the information and explanation provided to us the Company has notentered into any non-cash transactions with Directors or persons connected with him.
(xvi) According to the information and explanation provided to us the Company is notrequired to be registered under Section 45-IA of the Reserve Bank of India Act 1934.
Annexure B' to the Independent Auditor's Report
Referred to in paragraph 2 (f) under the heading Report on Other legal andRegulatory Requirements of our report on even date
Report on the Internal Financial Controls with reference to Standalone FinancialStatements under Clause (i) of sub-section 3 of Section 143 of the Companies Act 2013("the Act")
We have audited the internal financial controls with reference to the StandaloneFinancial Statements of Kalyani Steels Limited (the Company) as of March 312021 in conjunction with our audit of the Standalone Financial Statements of the Companyfor the year ended on that date which includes internal financial controls over financialreporting of one of the Companys Joint Operation which is a company incorporated inIndia.
Management's Responsibility for Internal Financial Controls
The respective Companys management is responsible for establishing and maintaininginternal financial controls based on the internal controls over financial reportingcriteria established by the respective Company considering the essential components ofinternal controls stated in the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting issued by the Institute of Chartered Accountants of India. Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Companys policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Act.
Our responsibility is to express an opinion on the Companys internal financialcontrols with reference to the Standalone Financial Statements based on our audit. Weconducted our audit in accordance with the Guidance Note on Audit of Internal FinancialControls over Financial Reporting (the Guidance Note) and the Standards onAuditing to the extent applicable to an audit of internal financial controls both issuedby the Institute of Chartered Accountants of India. Those Standards and the Guidance Noterequire that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether adequate internal financial controls over financialreporting was established and maintained and if such controls operated effectively in allmaterial respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls with reference to the Standalone Financial Statements andtheir operating effectiveness. Our audit of internal financial controls with reference tothe Standalone Financial Statements included obtaining an understanding of internalfinancial controls with reference to the Standalone Financial Statements assessing therisk that a material weakness exists and testing and evaluating the design and operatingeffectiveness of internal controls based on the assessed risk. The procedures selecteddepend on the auditors judgement including the assessment of the risks of materialmisstatement of the Standalone Financial Statements whether due to fraud or error.
We believe that the audit evidence we have obtained and by the other auditor referredto in the Other Matter paragraph is sufficient and appropriate to provide abasis for our audit opinion on the Companys internal financial controls with referenceto the Standalone Financial Statements.
Meaning of Internal Financial controls with reference to the Standalone FinancialStatements
A Companys internal financial controls with reference to the Standalone FinancialStatements is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of Standalone Financial Statements for externalpurposes in accordance with generally accepted accounting principles. A Companysinternal financial controls with reference to the Standalone Financial Statements includesthose policies and procedures that (1) pertain to the maintenance of records that inreasonable detail accurately and fairly reflect the transactions and dispositions of theassets of the Company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of Standalone Financial Statements in accordance withgenerally accepted accounting principles and that receipts and expenditures of the Companyare being made only in accordance with authorizations of management and Directors of theCompany; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the Companys assets that could have amaterial effect on the Standalone Financial Statements.
Inherent Limitations of Internal Financial Controls with reference to the StandaloneFinancial Statements
Because of the inherent limitations of internal financial controls with reference tothe Standalone Financial Statements including the possibility of collusion or impropermanagement override of controls material misstatements due to error or fraud may occurand not be detected. Also projections of any evaluation of the internal financialcontrols with reference to the Standalone Financial Statements to future periods aresubject to the risk that the internal financial controls with reference to the StandaloneFinancial Statements may become inadequate because of changes in conditions or that thedegree of compliance with the policies or procedures may deteriorate.
In our opinion and based on report of other auditor the Company and its JointOperation have in all material respects adequate internal financial controls withreference to the Standalone Financial Statements and such internal financial controls withreference to the Standalone Financial Statements were operating effectively as at March31 2021 based on the internal controls over financial reporting criteria established bythe Company and its Joint Operation considering the essential components of internalcontrols stated in the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting issued by the Institute of Chartered Accountants of India.
Our aforesaid reports under Section 143(3)(i) of the Act on the adequacy and operatingeffectiveness of the internal financial controls with reference to financial statementsinsofar as it relates to a Joint Operation is based on the corresponding report of theauditor of such Company. Our opinion is not modified in respect of this matter.
For P G BHAGWAT LLP
Firm Registration No.101118W/W100682
UDIN : 21136835AAAABG2227
May 18 2021