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Madras Fertilizers Ltd.

BSE: 590134 Sector: Agri and agri inputs
NSE: MADRASFERT ISIN Code: INE414A01015
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OPEN 51.15
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VOLUME 57103
52-Week high 61.80
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P/E 4.16
Mkt Cap.(Rs cr) 833
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OPEN 51.15
CLOSE 50.35
VOLUME 57103
52-Week high 61.80
52-Week low 25.45
P/E 4.16
Mkt Cap.(Rs cr) 833
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Madras Fertilizers Ltd. (MADRASFERT) - Auditors Report

Company auditors report

To

The Members of Madras Fertilizers Limited

Report on Audit of the Standalone Ind AS Financial Statements

Qualified Opinion

We have audited the accompanying Standalone Ind AS financial statementsof Madras Fertilizers Limited (referred to as the "Company") which comprises theBalance Sheet as at March 312021 the Statement of Profit and Loss (including othercomprehensive income) Statement of Cash Flow and Statement of changes in Equity for theyear then ended and notes to the standalone financial statements including a summary ofsignificant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to theexplanations given to us except for the effects of the matter described in the Basis forQualified Opinion section of our report the aforesaid standalone financial statementsgive the information in the manner so required and give a true and fair view inconformity with the Indian Accounting Standards prescribed under section 133 of theCompanies Act 2013 read with the Companies (Indian Accounting Standards) Rules 2015 asamended ("IND AS") and other accounting principles generally accepted in Indiaof the state of affairs of the company as at March 312021 the Profit including othercomprehensive income changes in equity and its cashflows for the year ended on that date.

Basis for Qualified Opinion

1. Goods and Service Tax (GST) Accounting:

Attention is drawn to the Note No.30.11 to the Standalone FinancialStatements wherein it is disclosed that the balance of Input Tax Credit ("ITC")available in the books of accounts is higher by 56.83 crores as compared to the balancereflected in the Electronic Credit Ledger maintained in GST portal as on March 312021.Pending completion of reconciliation process identification of entries requiringcorrection and its probable impact on the standalone financials' statements could not beascertained.

2. Confirmation of Balances:

Attention is drawn to Note No.30.38 to the Standalone FinancialsStatements which describes those outstanding balances reflected under Trade receivables(excl. Subsidy receivables from Government) Trade payables and Advance from Customers ason March 312021 are subject to confirmation from the parties. The probable impact of thisqualification on the standalone financials' statements could not be ascertained.

We conducted our audit in accordance with the Standards on Auditing(SAs) specified under section 143(10) of the Companies Act 2013. Our responsibilitiesunder those Standards are further described in the Auditor's Responsibilities for theAudit of the Financial Statements section of our report. We are independent of the Companyin accordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that are relevant to our audit of thefinancial statements under the provisions of the Companies Act 2013 and the Rules thereunder and we have fulfilled our other ethical responsibilities in accordance with theserequirements and the Code of Ethics. We believe that the audit evidence we have obtainedis sufficient and appropriate to provide a basis for our qualified opinion.

Emphasis of Matters:

1. Remote Audit:

The COVID-19 Pandemic has resulted in restriction on physical visit tothe client locations and the need for carrying out alternative audit procedures as per theStandards on Auditing prescribed by the Institute of Chartered Accountants of India(ICAI).

As a result of the above the entire statutory audit of the companycarried out based on the data as provided by the management. This has been carried outbased on the advisory on "Specific Considerations while conducting Distance Audit/Remote Audit/ Online Audit under current Covid-19 situation" issued by the Auditingand Assurance Standards Board of ICAI. We have been represented by the management that thedata provided for our audit purposes which we relied as correct complete reliable andare directly generated by the accounting system of the company without any further manualmodifications.

The financial statements of the company have been thus prepared andpresented by the company and audited by us in the aforesaid conditions.

2. Reclassification of Naphtha:

Attention is drawn to Note No. 30.20 to the Standalone FinancialStatements on reclassification of the stock of Naphtha under ‘Assets Held forSale" as not required for the operation of the company due to conversion of feedstockto RLNG during the FY 2019-20. The stock of naphtha held since 2019 got reduced from 4104MT valued at Rs. 17.04 Crores to 3799 MT as confirmed by the Surveyor report and DailyPlant Report (DPR) report as on March 312021. The corresponding reduction in quantityvalued at Rs. 1.26 Crores is charged off to the statement of profit and loss account.

3. Rectification of Stores & Spares:

Attention is drawn to Foot Note No.1.b of Note No.29 to the StandaloneFinancial Statements wherein the Stores and Spares lying in the inventories consists ofnegative figures amounting to Rs. 13.07 Crores due to recognition of issue of items whichare not physically available. Further there is a variation of '7.18 Crores between thebalance as per the Stores Ledger and the Financial Ledger as on the March 312021.Themanagement of the company has rectified the above differences in accordance with Ind AS 8-"Accounting Policies Changes in Accounting Estimates and Errors".

4. Refurbishment of NPK A and B Trains:

Attention is drawn to the Note No.30.6 to the Standalone FinancialStatements wherein The NPK Train A and B are not in operation since 2005 whose Grossblock is '29.19 Cr and carrying value as on March 31 2020 is '2.22 Cr. During the yearthe management has derecognised the assets from Property Plant and Equipment's (PPE) andclassified under "Capital Work-in-progress" (CWIP) at its carrying value as nofuture economic benefits flow to the company until refurbishment is undertaken as proposedby the management.

5. Penal Interest on GOI Loans:

Attention is drawn to the Note No.30.1.C to the Standalone FinancialStatements wherein the company has request Government of India to waive the interestaccrued and penal interest on the GOI loans. However as per the office memorandum incase of the waiver of penal interest the company is under obligation to pay minimum penalinterest @ 0.25% p.a. which will arise in the year of waiver.

6. Going Concern:

The Company has accumulated losses amounting to Rs. 857.37 Cr (PYRs.891.78 Cr) with a negative net worth of '695.23 Cr (PYRs. 729.64 Cr). The currentliabilities exceed its current assets by 1078.60 Cr (PY 1056.13 Cr). However the companyhas reported a total comprehensive income of Rs. 34.41 Cr as against the loss of PY Rs.148.70 Cr. The company has submitted proposal for restructuring of the loans received fromGovernment of India. However considering the strategic importance of the industry inwhich the company operates and constitution of the equity shareholders and stakeholdersthe standalone financial statements of the company have been prepared on going concernbasis.

Our opinion is not modified in respect of these matters.

Key Audit Matters:

Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone financial statements for the yearended March 312021. These matters were addressed in the context of our audit of thestandalone financial statements as a whole and in forming our opinion thereon and we donot provide a separate opinion on these matte In addition to the matters described in theBasis for Qualified Opinion and Emphasis of Matter paragraphs we have determined thematters described below to be the key audit matters to be communicated in our report.

1. Recognition / de-recognition and measurement of Subsidy income:

(Refer to Note No.I.G and 17 To the standalone financial statements}

Subsidy income pertaining to the Urea and Complex Fertilizers (NPK) isrecognised on the basis of the rates notified by the Department of Fertilisers from timeto time in accordance with the New Price Scheme (NPS) and Nutrient Based Subsidy(‘NBS') policy on the quantity of fertilisers sold by the Company.

Concessions in respect of urea as notified under the New PricingScheme is recognized when there is a reasonable assurance that the Company will complywith all necessary conditions attached to Subsidy with adjustments for escalation/de-escalation in the prices of inputs and other adjustments as estimated by themanagement on every reporting date in accordance with the known policy parameters in thisregard.

During the current year ended March 312021 the company has recognisedsubsidy income of Rs. 1147.25 Crores which constitute significant portion of its totalrevenue. The recognition and realisation of subsidy income depends on the rates and theperiod for which approval is issued by the GOI.

Considering significant estimates involved as mentioned above revenueand profit may undergo on account of change in such judgements and estimates weconsider this to be area of significance.

Our principal audit procedures in relation to subsidy incomerecognition include:

• We read the relevant notifications issued by the GOI anddiscussed with the management to understand the underlying matters and basis formanagement judgement and estimates including necessary changes made in estimates toaddress variations noted in past. Also ascertained the prevailing trade practice in thefertilisers industries;

• We have correlated the sales quantity considered for subsidyincome with the actual sales made by the Company. Further we have also agreed thequantities sold as per the Company books with the customer acknowledgements as per theiFMS portal of the Department of Fertilisers and tested the DBT claims made by theCompany;

• Further we reviewed the accuracy of the management estimate ofurea concession price in accordance with relevant New Pricing Scheme and tested theescalation/ de-escalation adjustments made;

• We have enquired from the Management and discussed with thosecharged with Governance the appropriateness of the subsidy rates applied to recognisesubsidy income;

• We assessed the disclosures in the standalone financialstatements in this regard;

Based on the above procedures performed the recognition of SubsidyIncome is in accordance with applicable financial reporting framework and relevantnotifications issued by the Department of Fertilizers GOI and fairly presented in thestandalone financial statements.

2. Fair Value assessment of subsidy receivables from Government:

(Refer to Note No.24 To the standalone financial statements.)

Government Subsidy Receivables forms a significant part of theCompany's current assets amounting to Rs. 268.36 Crores as at March 312021.

Due to the materiality in the context of size of the financial positionof the company the level of judgement and estimates required and its fair valueassessment we consider this to be as area of significance.

Our audit procedure includes:

• Review of subsidy receivable from Department of Fertilizer (i.e.Sovereign Authority) is backed by the approved claims generated from iFMS (IntegratedFertilizer Management System);

• Subsidy income recognised and remained outstanding oversignificant period are discussed /enquired with management based on follow-up withDepartment of Fertilizers Government of India including basis of management judgement andrealisation certainty thereof;

• We have relied on the management's assertion on therecoverability due to nonavailability of balance confirmations on record;

Based on the above procedures performed the management's assessment ofimplications of government notifications / policies on recognition of subsidy revenue andthe recoverability were considered to be reasonable.

3. Capital Spares:

As per the Accounting policies relating to Property Plant &equipment (PPE) the company has stated that "Spare parts procured along with Plant& Equipment or subsequently which meets the recognition criteria of PPE arecapitalized and added to the carrying amount of such items. The carrying amounts ofthose spare parts that are replaced are derecognized when no future economic benefits areexpected from their use or upon disposal."

We consider this as a key audit matter involving significant technicaljudgments in determination of classification and recognition.

As part of audit procedure we applied the concept of the accountingstandard Ind AS 16 on test check basis to ensure the compliance criteria as stated in thestandard in identifying the capital spares.

Also relied on the technical confirmation furnished by the company insupport of their classification of the spare parts valuing Rs. 26.78 Crores under PPE inaccordance with the Ind AS 16.

Information Other than the Standalone 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 Directors'Report and Management Discussion and Analysis but does not include the consolidatedfinancial statements standalone financial statements and our auditor's report thereon.

Our opinion on the standalone financial statements does not cover theother information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone financial statementsour responsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the standalone financial statements orour knowledge obtained during the course of our audit or otherwise appears to bematerially misstated.

When we read the Annual Report if we conclude that there is a materialmisstatement therein we are required to communicate the matter to those charged withgovernance.

However as discussed in the Basis of Qualified Opinion paragraphabove we were unable to obtain sufficient and appropriate audit evidence about the GSTInput Tax Credit(‘ITC') reconciliation and the balance confirmations from the Tradereceivables (excl. Subsidy receivables from Government) Trade payables and Advance fromCustomers as on March 312021. Accordingly we are unable to conclude whether or not theother information is materially misstated with respect to these matte Responsibility ofManagement for the Standalone Financial Statements:

The Company's Board of Directors is responsible for the matters statedin section 134(5) of the Companies Act 2013 ("the Act") with respect to thepreparation of these standalone financial statements that give a true and fair view of thefinancial position financial performance including other comprehensive income cash flowsand changes in equity of the Company in accordance with the accounting principlesgenerally accepted in India including the Indian Accounting Standards specified undersection 133 of the Act. This responsibility also includes maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding of theassets of the Company and for preventing and detecting frauds and other irregularities;selection and application of appropriate implementation and maintenance of accountingpolicies; making judgments and estimates that are reasonable and prudent; and designimplementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statement that givea true and fair view and are free from material misstatements whether due to fraud orerror.

In preparing the Standalone 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 Responsibility for the Audit of the Standalone FinancialStatements:

Our objectives are to obtain reasonable assurance about whether thestandalone financial statements as a whole are free from material misstatements whetherdue 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 financial statements.

As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional scepticism throughout the audit. We also:

a. Identify and assess the risks of material misstatements of thestandalone financial statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate 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;

b. 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 Companies Act 2013 we are also responsible for expressing our opinionon whether company has adequate internal financial controls system in place and theoperating effectiveness of such controls;

c. Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management;

d. 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 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 auditor's report. However future events or conditions maycause the Company to cease to continue as a going concern;

e. 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;

Materiality is the magnitude of misstatements in the standalonefinancial statements that individually or in aggregate makes it probable that theeconomic decisions of a reasonably knowledgeable user of the standalone financialstatements may be influenced. We consider quantitative materiality at Rs. 17.50 crores andqualitative factors as in

(i) planning the scope of our audit work and in evaluating the resultsof our work; and

(ii) to evaluate the effect of any identified misstatements in thestandalone financial statements.

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 standalonefinancial statements of the current period and are therefore the key audit matte Wedescribe these matters in our auditor's report unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.

Other Matters:

1. The comparative financial information of the company for the yearended March 312020 and opening balance sheet as at April 12019 included in theseStandalone financial statements are audited by the predecessor auditor of the company andtheir report dated Oct 092020 and May 272019 respectively expressed a modified opinionfor the year ended March 312020 and an unmodified opinion for the year ended March312019 on those standalone financial statements as adjusted for the differences inadoption and changing in accounting policies and correction of prior period errors by thecompany during the period which have been audited by us.

Further we would like to draw the inference on the qualification madeby the predecessor auditor on the standalone financial statements for the year ended March312020 that was on adoption of Comparable Company Market Multiple Method (CMM) for fairvaluation of unquoted equity instruments of Indian Potash Limited. In view of thequalification the management had adopted the Cost approach (ie. Net Book Value Method)with effect from the FY 2019-20 in line with the practices adopted by the peers in theindustry. Accordingly the standalone financial statements for the year ended March312020 have been restated. Consequently the impact due to change in the said fairvaluation technique had resulted in increase of Net Loss (incl. Other ComprehensiveIncome) and the other equity and reduction in the Non-Current Investments for the yearended March 312020 by Rs. 102.70 Cr.

2. The company has eleven (11) Marketing Offices (ie. named asregional offices (RO's) across India wherein all the dealers and sales related mattersare being undertaken. As a part of our audit we have visited and reviewed the operationsof four (4) of the ROs and the operations of the ROs are satisfactory in nature.

3. At the conclusion of 54th Annual General Meeting of the company heldthrough virtual mode on December 292020 the company has distributed SBI gift cards worthof 2000 each in lieu of sweet boxes to all the minority shareholders who have attendedthe meeting. The same is prohibited as per clause 14 of Secretarial Standard-2 read withSec.118(1) of the Companies Act 2013.In these regards the Ministry of Corporate Affairs(MCA) has issued a show cause notice against the company and its office

4. During the audit we observed that most of charges already satisfiedare still appearing in the records of ‘Index of charges' under Ministry of CorporateAffairs (MCA) portal. The company has to take appropriate measures in order to clear thecharges which are not live as on the date.

5. Due to COVID-19 pandemic we are unable to attend the physicalverification of inventories as a part of our audit procedures. Based on the further auditprocedures we have relied upon the internal auditor's report for stores and spares andSurveyor's report for finished goods work-in progress raw materials and packingmaterials. Regarding the stock lying in warehouses we relied on the managementcertificate and the same were duly confirmed through the iFMS portal maintained by theDept. of Fertilizers.

Our opinion is not qualified in respect of these matters.

Report on Other Legal and Regulatory Requirements:

1. As required under the directions and sub-directions issued by theComptroller and Auditor General of India in terms of Sub-section (5) of Section 143 of theCompanies Act 2013 we are enclosing our report in "Annexure A".

2. As required by the Companies (Auditor's Report) Order 2016("the Ordeh') issued by the Central Government of India in terms of sub-section (11)of section 143 of the Companies Act 2013 we give in the Annexure a statement on thematters specified in paragraphs 3 and 4 of the Order to the extent applicable our reportthereon is enclosed as "Annexure B".

3. 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 our auditexcept as stated in Basis for Qualified Opinion;

b. Except for the effects of matters described in Basis of QualifiedOpinion paragraph above 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 andproper adequate returns have been received from all the regional offices of the company;

c. The Company's Balance Sheet the Statement of Profit and Loss (incl.Other Comprehensive income) the Statement of Cash Flows and the Statement of Changes inEquity dealt with by this report are in agreement with the books of accounts;

d. Except for the effects of matters described in Basis of QualifiedOpinion paragraph above in our opinion the aforesaid standalone financial statementscomply with the Indian Accounting Standards specified under Section 133 of the Act readwith The Companies (Indian Accounting Standards) Rules 2015 as amended thereon;

e. The provisions of Section 164(2) of the Act in respect ofdisqualification of directors are not applicable to the Company being a GovernmentCompany in terms of notification no. G.S.R.463 (E) dated 5th June 2015 issued by Ministryof Corporate Affairs Government of India;

f. With respect to the adequacy of the internal financial controls overfinancial reporting of the company and the operating effectiveness of such controls referto our separate Report in "Annexure C". Our report expresses a Qualified opinionon the adequacy and operating effectiveness of the Company's internal financial controlsover financial reporting;

g. The matters described in the Basis for Qualified Opinion paragraphabove in our opinion may have an adverse effect on the functioning of the Company;

h. The qualification relating to the maintenance of accounts and othermatters connected therewith are as stated in the Basis for Qualified Opinion paragraphabove;

i. With respect to the other matters to be included in the Auditors'Report in accordance with the requirements of section 197(16) of the Act as amended:

The provisions of Section 197 read with Schedule V of the Act relatingto managerial remuneration are not applicable to the Company being a Government Companyin terms of Ministry of Corporate Affairs Notification no. G.S.R. 463 (E) dated 5th June2015;

j. 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 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 itsfinancial position in its standalone financial statements - Refer Note No.30 to thestandalone 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;

ANNEXURE - A TO THE AUDITORS' REPORT

Referred to in Paragraph 1 under "Report on Other Legal andRegulatory Requirements" section of our report to the Members of the Company of evendated

Report on Directions issued by the Comptroller and Auditor General ofIndia under section 143(5) of the Companies Act 2013)

PART-I- DIRECTIONS

1. Whether the company has system in place to process all theaccounting transactions through IT systemRs. If yes the implications of processing ofaccounting transactions outside IT system on the integrity of the accounts along with thefinancial implications if any may be stated

The company has a system in place to process all the accountingtransactions through IT system. Transactions relating to ROs occurred through RO-OLIS arenot integrated with the corporate accounting module (ie.OLIS) which requires an elementof human intervention. Based on our audit procedures on test check basis whereveraccounting transactions arises outside the IT system no instances of lack of integrity ofthe accounts along with the financial implications has been noted except Point No.3referred under Emphasis of Matters paragraph above where the financialimplication is Rs. 7.18 Crores.

Further observed certain internal control weakness as given in pointno.(b) & (c) of Qualified Opinion to our report on ‘Internal Financial Controlsover Financial Reporting' which is annexed as Annexure-C to our Independent Auditors'Report.

2. Whether there is any restructuring of an existing loan or cases ofwaiver/write off of debts/loans/interest etc. made by a lender to the company due to thecompany's inability to repay the loanRs. If yes the financial impact may be stated.

Whether such cases are properly accounted forRs. (In case lender is agovernment company then this direction is also applicable for statutory auditor of LenderCompany).

According to the information & explanations given to us there isno restructuring of an existing loan or cases of waiver/write off of debts/loans/interestetc. made by a lender. As such there is no financial implication involved.

3. Whether funds (grants/subsidy etc.) received/ receivable forspecific schemes from Central/ State Government or its agencies were properly accountedfor/utilized as per its term and conditionsRs. List the cases of deviation.

Based on our examination of Books of Accounts of the company and as perthe information & explanations given to us the company has not received any funds forspecific schemes from Central/State Government or its agencies.

PART-II- SUB-DIRECTIONS

1. Whether Subsidy was recognized as per the provisions of the DirectBenefit Transfer Scheme of GOIRs.

Under Direct Benefit Transfer (DBT) Scheme of GOI the company isentitled to receive subsidy only upon sale of fertilizers by the dealer to ultimatebeneficiaries (ie. farmers) through Point of Sales (POS) devices.

However as an accrual basis of accounting being followed by thecompany the point of recognition of subsidy income will done at time of sale offertilizers to dealers considering the reasonable assurance and suitable disclosures weremade in the standalone financial statements with regard to subsidy income for unsoldfertilizers lying with dealers at the reporting date.

Based on the audit procedures performed by us the same were in linewith the accounting practices prevailing in the fertilizers industry.

2. State the area of land under encroachment if any and brieflyexplain the steps taken by the Company to remove the same.

The company holds '337.45 acres of land in aggregate in its name.Depending on its usage and intention of management the same has been classified either asProperty Plant and Equipment or Investment Property in the standalone financialstatements.

There is no survey report made available in support of carrying outperiodical measurement of the land area for ascertaining the correctness. However we havenot come across any cases of encroachment on lands of the company.

3. Whether subsidy received/recoverable from Government of India hasbeen properly accounted for as per claims admittedRs.

Based on Audit Procedures performed by us and as per the informationand explanation given to us Price and Freight Subsidy receivable is measured and claimedbased on policy issued by Dept. of Fertilizers /principle/ notifications received fromFertilizer Industry Coordination Committee (FICC) an office of the Government of Indiawhich regulates such subsidy.

Escalation/De-escalation in notified rates is estimated taking intoaccount the effect of guidelines policies instructions and clarifications given by theGovernment further adjusted by management estimates. The difference if any based on finalnotification received from FICC is accounted for in relevant year of receipt of finalnotification.

4. State the impact of revision of subsidies for fertilizer products invaluation of fertilizers product closing stock.

The closing stock of Urea and Complex Fertilizers (NPK) as on March312021 has been valued at cost. There is no impact of revision of subsidy in valuation ofclosing stock.

ANNEXURE - B TO THE AUDITORS' REPORT

Referred to in Paragraph 2 under "Report on Other Legal andRegulatory Requirements' section of our report to the Members of the Company of evendated

We report that:

i. In respect of the Company's fixed assets

a. The company has maintained proper records showing full particularsincluding quantitative details and situation of fixed assets;

b. The company has policy of physical verification of movable fixedassets is being conducted in a phased manner by the management under a programme designedto cover all the movable fixed assets once in three years which in our opinion is notreasonable having regard to the size and the magnitude of the organization. During theyear the company has not conducted any physical verification as the latest verificationhas been concluded in preceding financial year;

c. The company has clear tittle deeds of Lands held in its namemeasuring Rs. 337.45 acres in aggregate. For the land at Gujarat measuring 0.47 acresamounting to Rs. 175800/- the company has not produced the original tittle deed forverification;

ii. Physical verification of inventories inside factory premises and atChennai Port has been carried out by an independent surveyor at year end and whereas forstores and spares an internal auditor of the company on an ongoing basis so as tocomplete the verification of all items over the period of one year. Regarding the stocklying at warehouses are taken as per certification given by the management and same wereduly confirmed through the iFMS portal maintained by Dept. of Fertilizers.

Based on documents and reports made available to us the physicalverification conducted by the management and policies adopted thereon are reasonable andadequate. As discussed in Point No.3 of Emphasis of Matters Paragraph in our audit reportwe have come across negative stores and spares worth of Rs. 13.07 Crores and a variationof Rs. 7.18 Crores between the balance as per the Stores Ledger and the Financial Ledgeras on the March 312021 which were duly addressed by the management in the standalonefinancial statements.

iii. Based on audit of books of accounts and the information &explanations given to us the company has not granted any loans secured or unsecured tocompanies firms and limited liability partnerships or other parties covered under theregister maintained under section 189 of the Companies Act 2013.

Hence the reporting under the provisions of clause (iii) (a) (b) and(c) of the order are not applicable.

iv. In our opinion and according to the information and explanationsgiven to us the company has complied with the provisions of section 185 and 186 of thecompanies Act 2013 in respect of grant of loans making investments and providingguarantees and securities as applicable.

v. Based on audit of books of accounts and the information &explanations given to us the company has not accepted any deposits from the public hencethe directives issued by the Reserve Bank of India and the provisions of Section 73 to 76of the Companies Act 2013 and the rules framed there under are not applicable.

vi. The company is maintaining the cost records as specified by theCentral Government under subsection (1) of section 148 of the Companies Act for itsfertilizer's products.

We have broadly reviewed the cost records maintained by the Companypursuant to the Companies (Cost Records and Audit) Rules 2014 as amended prescribed bythe Central Government under subsection (1) of Section 148 of the Companies Act 2013 andare of the opinion that prima facie the prescribed cost records have been made andmaintained.

We have however not made a detailed examination of the cost recordswith a view to determine whether they are accurate or complete.

vii. According to the information and explanations given to us inrespect of statutory dues:

a. The company is generally been regular in depositing undisputedapplicable statutory dues including provident fund employees' state insuranceincome-tax sales tax and service tax duty of customs duty of excise GST cess and anyother statutory dues applicable to it with the appropriate authorities;

b. There were no outstanding of aforesaid statutory dues as on March312021 for a period of more than six months from the date they became payable except forthe following:

Nature of Dues Amount (in Crores)
Entry Tax (Tamil Nadu) 2.53
Value Added Tax (Tamil Nadu) 2.51
Sales Tax under TNGST Act 7.79
Service Tax 0.29
Total 13.12

Further the company withheld an amount of Rs. 1.40 crores fromcontractors' payments towards Provident Fund and Employee State Insurance of the employeesemployed by the contractors;

c. There were no dues of GST Income Tax duty of customs duty ofexcise and cess which have not been deposited on account of any disputes; viii. Based onour audit procedures and according to the information and explanations given to us theCompany has not defaulted in repayment of loans or borrowings to a financial institutionbank or dues to debenture holders except in respect of the default of repayment of thefollowing Government of India (GOI) Loans:

Nature of Loan Amount of Default (in Crores) Period of Default
Plan Loans 359.89 Instalments due from FY 2004-05 to till the date
Non-Plan Loans 20.77
Revamp Loans 122.30
Total 502.96

ix. The Company has not raised money by way of initial public offer orfurther public offer (including debt instrument) during the period under audit. Howeverthe company has raised term loans from bank and the same has been utilised for intendedpurpose.

x. Based upon the audit procedures performed for the purpose ofreporting the true and fair view of the standalone financial statements and as per theinformation and explanations given by the management no fraud by the company or nomaterial fraud on the company by its officers or employees has been noticed or reportedduring the year.

xi. Being a Government Company pursuant to Notification No.-GSR 453(E)dated 05.06.2015 issued by the Ministry of Corporate affairs; the provisions ofSection-197 of the act are not applicable to the company. Hence reporting under thisclause is not applicable.

xii. The company is not a Nidhi company and accordingly reporting underthis clause is not applicable.

xiii. In our opinion and according to the information and explanationsgive to us all the related party transactions during the financial year are in compliancewith Section 177 and 188 of Companies Act 2013 and the details of the said transactionshave been disclosed appropriately in the standalone financial statements in accordancewith applicable Ind AS.

xiv. During the year company has not made any preferential allotmentor private placement of shares or fully or partly convertible debentures. Thereforereporting under this clause is not applicable to the company.

xv. In our opinion and based on the information and explanations givento us the company has not entered into any non-cash transactions with directors orpersons connected with him during the financial year under Section 192 of the CompaniesAct 2013.

xvi. The Company is not required to be registered under Section 45-IAof the Reserve Bank of India Act 1935.

ANNEXURE - C TO THE AUDITORS' REPORT

Referred to in Paragraph 3 (f) under "Report on Other Legal andRegulatory Requirements' section of our report to the Members of the Company of evendated.

Report on the Internal Financial Controls under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act")

We have audited the Internal Financials Controls over FinancialReporting of Madras Fertilizers Limited (referred to as the "Company") for theyear ended March 312021 in conjunction with our audit of the Standalone Ind AS financialstatements of the company.

Management's Responsibility for Internal Financial Controls

The Company's management is responsible for establishing andmaintaining internal financial controls based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control 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 company's 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 Companies Act 2013.

Auditor's Responsibility

Our responsibility is to express an opinion on the company's internalfinancial controls over financial reporting based on our audit. We conducted our audit inaccordance with the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting (the "Guidance Note") issued by the ICAI and the Standards onAuditing issued by ICAI and deemed to be prescribed under section 143(10) of theCompanies Act 2013 to the extent applicable to an audit of internal financial controlsboth issued by the Institute of Chartered Accountants of India. Those Standards and theGuidance Note require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether adequate internal financial controlsover financial reporting was established and maintained and if such controls operatedeffectively in all material respects.

Our audit involves performing procedures to obtain audit evidence aboutthe adequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgment including the assessment of therisks of material misstatement of the standalone financial statements whether due tofraud or error.

We believe that the audit evidence we have obtained is sufficient andappropriate to provide us for our audit opinion on the company's internal financialcontrols system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company's internal financial control over financial reporting is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of standalone financial statements for external purposes inaccordance with generally accepted accounting principles.

A company's internal financial control over financial reportingincludes those policies and procedures that:

a. pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany;

b. 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 thecompany are being made only in accordance with authorizations of management and directorsof the company; and

c. provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition use or disposition of the company's assets thatcould have a material effect on the standalone financial statements.

Inherent Limitations of Internal Financial Controls over FinancialReporting

Because of the inherent limitations of internal financial controls overfinancial reporting including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls overfinancial reporting to future periods are subject to the risk that the internal financialcontrol over financial reporting may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based onour audit the following material weaknesses has been identified in the operatingeffectiveness of the Company's internal financial controls over financial reporting as atMarch 312021:

a. The company's internal financial control over GST Input Tax Creditavailment claim and reconciliation were not operating effectively which could materiallyaffect the financial performance and also possible effects on the liquidity position ofthe company;

b. The Company's internal control system for inventory-Stores andSpares with regard to receipts issue for production and physical verification were notoperating effectively. These could potentially result in material misstatements in theCompany's consumption inventory and expense account balances; and

c. We observed a few differences in the state-wise receivable balancesreflected in the HO-OLIS (Corporate Accounts) and ROs OLIS (Marketing) on the reportingdate. This is due to absence of periodical reconciliation between the two-accountingsystem which are not integrated. These may lead to material misstatements in the Company'sTrade receivables (excl. Subsidy Receivable from Government) and consequential impact onthe liquidity position;

A 'material weakness' is a deficiency or a combination ofdeficiencies in internal financial control over financial reporting such that there is areasonable possibility that a material misstatement of the company's annual or interimstandalone financial statements will not be prevented or detected on a timely basis.

In our opinion except for the possible effects of the materialweaknesses described above on the achievement of the objectives of the control criteriathe company has in all material respects maintains adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as at March 312021 based on the internal controlover financial reporting criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls Over Financial Reporting issued by the Institute of Chartered Accountants ofIndia.

We have considered the material weaknesses identified and reportedabove in determining the nature timing and extent of audit tests applied in our audit ofthe March 312021 standalone financial statements of the Company and one of thesematerial weaknesses have affect our opinion on the standalone financial statements of theCompany and we have issued a qualified opinion on the standalone financial statements.

For Anand & Ponnappan
Chartered Accountants FRN000111S
Sd/-
R.Ponnappan
Partner
Place : Chennai MRN 021695
Date : 23.06.2021 UDIN: 21021695AAAADE1065

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