To the Members of Mafatlal Industries Limited
Report on the audit of the Standalone financial statements
1. We have audited the accompanying standalone financial statements of MafatlalIndustries Limited ("the Company") which comprise the balance sheet as at March31 2019 and the Statement of Profit and Loss (including Other Comprehensive Income)Statement of changes in equity and statement of cash flows for the year then ended andnotes to the financial statements including a summary of significant accounting policiesand other explanatory information.
2. In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ("the Act") in the manner so required and give a trueand fair view in conformity with the accounting principles generally accepted in India ofthe state of affairs of the Company as at March 31 2019 and loss (Comprising of loss andother comprehensive income) changes in equity and its cash flows for the year ended onthat date.
Basis for opinion
3. We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Companies Act 2013. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit of theFinancial Statements section of our report. We are independent of the Company inaccordance 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 Act and the Rules thereunder and we havefulfilled our other ethical responsibilities in accordance with these requirements and theCode of Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Emphasis of Matter
4. We draw attention to Note 34(c) regarding the net loss of Rs. 9645.24 Lakhs beforeexceptional items reported for the year ended March 31 2019. The Company has undertakencertain steps for scaling down one of its manufacturing operations for which the Companyhas recognised expenses aggregating Rs. 8361.80 Lakhs determined to be in the nature ofexceptional items in anticipation of improving the financial position of the Company. Ouropinion is not modified in respect of this matter.
Key audit matter
5. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters.
|Key audit matter ||How our audit addressed the key audit matter |
|Appropriateness of impairment assessment of Property Plant and Equipment (other than considered as Held for Sale) (Refer to Note 3 in the standalone financial statements) ||We have performed audit procedures including the following: |
| ||Assessed whether the Company's identification of CGUs which are the smallest identifiable groups of assets that can generate largely independent cash inflows was consistent with our knowledge of the Company's operations. |
| ||Understood and evaluated the design of management processes and controls for preparation of impairment assessment working and tested the operating effectiveness of the Company's internal controls surrounding the assessment. |
|The carrying value of the Property Plant and Equipment is Rs. 13210.21 Lakhs as at March 31 2019 which is significant to the balance sheet. The Company has incurred losses before taxes and exceptional items for the financial year 2018-19 which has been considered as trigger for impairment of Property Plant and Equipment (other than considered as Held for Sale) by the Company. ||We have reviewed th e cash flow forecasts of the previous years with the actual results to assess the accuracy of historical forecasts. |
|For the purposes of impairment testing the carrying value of the assets was compared to the recoverable amount (i.e. higher of value in use and fair value less costs to sell). While calculating the value in use judgement was involved in estimations of the cash flow determining the appropriate discount rate and the terminal growth rate. The Management engaged a valuation expert to determine the fair value of Property Plant and Equipment. ||Engaged with auditors' valuation experts to determine a range of acceptable discount rates and terminal growth rates with reference to valuations of similar companies and other relevant external data. |
| ||Performed sensitivity analysis over the future cash flows to assess the potential impact of changes in discount rate and terminal growth rate. |
|The Management has concluded that no impairment was required as of March 31 2019. ||Performed test of details to assess the completeness and accuracy of the management's fair valuation report. We also examined the management's comparison of the value in use and fair value to determine recoverable amount. |
| ||As a result of the above procedures the Management's assessment of carrying value of Property Plant and Equipment (other than considered as Held for Sale) was considered to be appropriate. |
|Assessment of recoverability of deferred tax assets ||Our audit procedures included the following: |
|(Refer Note 35(d)) ||Evaluation of the design and testing operating effectiveness of Company's controls relating to the assessment of carrying amount of deferred tax assets the preparation of the forecast and its related inputs/ assumptions. |
|The Carrying value of Deferred Tax Assets is Rs. 1227.96 Lakhs as at March 31 2019. Deferred tax assets are recognised on temporary differences and unabsorbed depreciation as it is considered to be recoverable based on the Company's projected taxable profits in the forecast period. ||Obtained Management's approved forecast of taxable profit of next five years and understanding of process followed /assumptions used in such preparation. |
|We considered this a key audit matter because significant judgement is required by the Company in determining the recoverability of deferred tax assets arising from Unabsorbed Depreciation as the realisation of tax benefits is dependent on future taxable profits and there are inherent uncertainties involved in forecasting such profits within the recoupment period. ||Assessing the appropriateness of tax rate applied to the taxable profit forecasts; |
| ||Considering whether the tax losses on which deferred tax asset is recognised have been assessed by the tax authorities and are available for utilisation. |
| ||Based on the above procedures the Management's assessment of recoverability of deferred tax assets was considered to be reasonable. |
6. The Company's Board of Directors is responsible for the other information. The otherinformation comprises the Management Discussion and Analysis report and Secretarial Auditreport (but does not include the standalone financial statements and our auditor's reportthereon) which we obtained prior to the date of this auditor's report and the CorporateInformation summarised financial information and Director's report which is expected tobe made available to us after that date. Our opinion on the standalone financialstatements does not cover the other information and we do not express any form ofassurance conclusion thereon. In connection with our audit of the standalone financialstatements our responsibility is to read the other information identified above and indoing so consider whether the other information is materially inconsistent with thefinancial statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated.
7. If based on the work we have performed on the other information that we obtainedprior to the date of this auditor's report we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
8. When we read the Corporate Information summarised financial information andDirectors' report if we conclude that there is a material misstatement therein we arerequired to communicate the matter to those charged with governance and take appropriateactions as applicable under the relevant laws and regulations.
Responsibilities of management and those charged with governance for the financialstatements
9. The Company's Board of Directors is responsible for the matters stated in section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance changes in equity and cash flows of the Company inaccordance with the accounting principles generally accepted in India including theaccounting Standards specified under section 133 of the Act. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding of the assets of the Company and for preventing and detectingfrauds and other irregularities; selection and application of appropriate implementationand maintenance of accounting policies; making judgments and estimates that are reasonableand prudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the financialstatement that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
10. In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so. The Board of Directors are also responsible for overseeing theCompany's financial reporting process.
Auditor's responsibilities for the audit of the financial statements
11. Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance with SAswill always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if individually or in the aggregate theycould reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.
12. 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 financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under Section 143(3)(i)of the Act we are also responsible for expressing our opinion on whether the company hasadequate internal financial controls with reference to financial statements in place andthe operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Company to cease to continue asa going concern.
Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
13. We communicate with those charged with governance regarding among other mattersthe planned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
14. We also provide those charged with governance with a statement that we havecomplied with relevant ethical requirements regarding independence and to communicatewith them all relationships and other matters that may reasonably be thought to bear onour independence and where applicable related safeguards.
15. From the matters communicated with those charged with governance we determinethose matters that were of most significance in the audit of the financial statements ofthe current period and are therefore the key audit matters. We describe these matters inour auditor's report unless law or regulation precludes public disclosure about the matteror when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
16. As required by the Companies (Auditor's Report) Order 2016 ("theOrder") issued by the Central Government of India in terms of sub-section (11) ofsection 143 of the Companies Act 2013 we give in the Annexure B statement on the mattersspecified in paragraphs 3 and 4 of the Order to the extent applicable.
17. As required by Section 143(3) of the Act 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 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 Cash Flow Statement dealt with by thisReport are in agreement with the books of account.
(d) In our opinion the aforesaid standalone financial statements comply with theAccounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014.
(e) On the basis of the written representations received from the directors as on March31 2019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2019 from being appointed as a director in terms of Section 164 (2) of theAct.
(f) With respect to the adequacy of the internal financial controls over financialstatement of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure A".
(g) With respect to the other matters to be included in the Auditor's 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 financial statements Refer Note 42 48 and 49 to the financialstatements.
ii. The Company has long-term contracts as at March 31 2019 for which there were nomaterial foreseeable losses. The Company did not have any long term derivative contractsas at March 31 2019.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company. iv. The reporting ondisclosures relating to Specified Bank Notes is not applicable to the Company for the yearended March 31 2019.
Annexure A to Independent Auditors' Report
Referred to in paragraph 17 (f) of the Independent Auditors' Report of even date to themembers of Mafatlal Industries Limited on the standalone financial statements for the yearended March 31 2019
Report on the Internal Financial Controls with reference to financial statements underClause (i) of Sub-section 3 of Section 143 of the Act
1. We have audited the internal financial controls with reference to financialstatements of Mafatlal Industries Limited ("the Company") as of March 31 2019in conjunction with our audit of the standalone financial statements of the Company forthe year ended on that date.
Management's Responsibility for Internal Financial Controls
2. The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India (ICAI). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Act.
3. Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (the "Guidance Note") and the Standards on Auditing deemedto be prescribed under section 143(10) of the Act to the extent applicable to an audit ofinternal financial controls both applicable to an audit of internal financial controlsand both issued by the ICAI. Those Standards and the Guidance Note require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether adequate internal financial controls with reference to financial statementswas established and maintained and if such controls operated effectively in all materialrespects.
4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the internal financial controls system with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. The procedures selected depend on the auditor'sjudgement including the assessment of the risks of material misstatement of the financialstatements whether due to fraud or error.
5. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemwith reference to financial statements.
Meaning of Internal Financial Controls with reference to financial statements
6. A company's internal financial controls with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial controlswith reference to financial statements includes those policies and procedures that (1)pertain to the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the company are being made only in accordance withauthorisations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorised acquisition use ordisposition of the company's assets that could have a material effect on the financialstatements.
Inherent Limitations of Internal Financial Controls with reference to financialstatements
7. Because of the inherent limitations of internal financial controls with reference tofinancial statements 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 withreference to financial statements to future periods are subject to the risk that theinternal financial controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
8. In our opinion the Company has in all material respects an adequate internalfinancial controls system with reference to financial statements and such internalfinancial controls with reference to financial statements were operating effectively as atMarch 31 2019 based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India.
Annexure B to Independent Auditors' Report
Referred to in paragraph 16 of the Independent Auditors' Report of even date to themembers of Mafatlal Industries Limited on the standalone financial statements as of andfor the year ended March 31 2019 i. (a) The Company is maintaining proper records showingfull particulars including quantitative 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 three 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 has been physicallyverified by the Management during the year and no material discrepancies have been noticedon such verification.
(c) The title deeds of immovable properties other than self-constructed properties asdisclosed in Note 3 4 and 17 on Property Plant and Equipment Investment Property andAssets held for sale respectively to the standalone financial statements are held in thename of the Company except for a leasehold land of gross and net book value of Rs. 0.08Lakhs where the Company is in process of getting expired lease renewed.
ii. The physical verification of inventory excluding stocks with third parties havebeen conducted at reasonable intervals by the Management during the year. In respect ofinventory lying with third parties these have substantially been confirmed by them.
The discrepancies noticed on physical verification of inventory as compared to bookrecords were not material.
iii The Company has not granted any loans secured or unsecured to companies firmsLimited Liability Partnerships or other parties covered in the register maintained underSection 189 of the Act. Therefore the provisions of Clause 3(iii) 3(iii)(a) (iii)(b)and (iii)(c) of the said Order are not applicable to the Company.
iv. In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Section 185 and 186 of the Companies Act 2013in respect of the loans and investments made and guarantees and security provided by it.
v. The Company has not accepted any deposits from the public within the meaning ofSections 73 74 75 and 76 of the Act and the Rules framed there under to the extentnotified.
vi. Pursuant to the rules made by the Central Government of India the Company isrequired to maintain cost records as specified under Section 148(1) of the Act in respectof its products. We have broadly reviewed the same and are of the opinion that primafacie the prescribed accounts and records have been made and maintained. We have nothowever made a detailed examination of the records with a view to determine whether theyare accurate or complete.
vii. (a) According to the information and explanations given to us and the records ofthe Company examined by us in our opinion except for dues in respect of interest onemployees' state insurance and duty of excise the Company is generally regular indepositing income tax and is regular in depositing undisputed statutory dues includingprovident fund employees' state insurance sales tax service tax duty of customs dutyof excise value added tax goods and service tax and other material statutory dues asapplicable with the appropriate authorities. Also Refer Note 48 to the standalonefinancial statements regarding management's assessment on certain matters relating toprovident fund. The extent of the arrears of statutory dues outstanding as at March 312019 for a period of more than six months from the date they became payable are asfollows:
|Name of the statute ||Nature of dues ||Amount (Rs. in Lakhs) ||Period to which the amount relates ||Due date ||Date of Payment |
|Employee's State Insurance Act 1948 ||Interest on ESIC ||40.85 ||2000-2007 and April 2008 to May 2010 ||2000 to 2007 and 2008 to 2010 ||Not paid |
|Central Excise Act 1944 ||Central Excise ||3.44 ||April 1986 to October 1986 May 1995 to December 1995 ||1986 and 1995 ||Not paid |
(b) According to the information and explanations given to us and the records of theCompany examined by us there are no dues of goods and service tax which have not beendeposited on account of any dispute. The particulars of dues of income tax sales taxservice tax duty of customs duty of excise duty and value added tax as at March 31 2019which have not been deposited on account of a dispute are as follows:
|Name of the statute ||Nature of dues ||Amount unpaid (Rs. In Lakhs) # ||Period to which the amount relates ||Forum where the dispute is pending |
|Central Excise Act 1944 ||Central Excise ||13.41 ||1998-2000 2002-03 ||Supreme Court |
|Central Excise Act 1944 ||Central Excise ||57.67 ||2003-2004 ||High Court |
|Central Excise Act 1944 ||Central Excise ||196.72 ||1989-1990 to 2003-2004 ||Commissioner of Central Excise (Appeals) |
|Central Excise Act 1944 ||Central Excise ||8.11 ||1999-2000 ||Commissioner of Central Excise |
|Central Excise Act 1944 ||Central Excise ||2820.83 ||1997-1999 2007-2008 to 2009-2010 ||Appellate Tribunal |
|Central Excise Act 1944 ||Central Excise ||1.41 ||2006-2011 ||Assistant Commissioner of Central Excise |
|Customs Act 1944 ||Customs Duty ||4.79 ||1989-1990 to 1999-2000 ||Joint Director General of Foreign Trade |
|Maharashtra Value Added Tax ||Sales Tax ||23.22 ||1989-1990 to 1999-2000 ||Joint Commissioner of Sales Tax (Appeals) II |
|Central Sales Tax Act 1956 ||Sales Tax ||0.92 ||1989-1990 to 1999-2000 ||Joint Commissioner of Sales Tax (Appeals) II |
|Finance Act 1994 ||Service Tax ||0.70 ||1997-1999 ||Appellate Tribunal |
|Income Tax Act 1961 ||Income Tax ||278.02 ||Assessment Year 2004-2005 ||Income tax Appellate Tribunal |
|Income Tax Act 1961 ||Income Tax ||1666.29 ||Assessment Years 1997- 1998 1998-99 and 2012- 2013 ||Commissioner of Income Tax |
# Net of amount paid under protest.
viii. According to the records of the Company examined by us and the information andexplanation given to us the Company has not defaulted in repayment of loans or borrowingsto any financial institution or bank or Government. The Company has not issued anydebentures. ix. The Company has not raised any moneys by way of initial public offerfurther public offer (including debt instruments) and term loans. Accordingly theprovisions of Clause 3(ix) of the Order are not applicable to the Company.
x. During the course of our examination of the books and records of the Companycarried out in accordance with the generally accepted auditing practices in India andaccording to the information and explanations given to us we have neither come across anyinstance of material fraud by the Company or on the Company by its officers or employeesnoticed or reported during the year nor have we been informed of any such case by theManagement.
xi. The Company has paid/ provided for managerial remuneration in accordance with therequisite approvals mandated by the provisions of Section 197 read with Schedule V to theAct.
xii. As the Company is not a Nidhi Company and the Nidhi Rules 2014 are not applicableto it the provisions of Clause 3(xii) of the Order are not applicable to the Company.
xiii. The Company has entered into transactions with related parties in compliance withthe provisions of Sections 177 and 188 of the Act. The details of such related partytransactions have been disclosed in the standalone financial statements as required underIndian Accounting Standard (Ind AS) 24 Related Party Disclosures specified under Section133 of the Act. xiv. The Company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures during the year underreview. Accordingly the provisions of Clause 3(xiv) of the Order are not applicable tothe Company.
xv. The Company has not entered into any non-cash transactions with its directors orpersons connected with him as prescribed under section 192 of the Act. Accordingly theprovisions of Clause 3(xv) of the Order are not applicable to the Company.
xvi. The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934. Accordingly the provisions of Clause 3(xvi) of the Order are notapplicable to the Company.
| ||For Price Waterhouse Chartered Accountants LLP |
| ||Firm Registration Number: 012754N/ N-500016 |
| ||Priyanshu Gundana |
|Mumbai ||Partner |
|May 16 2019 ||Membership Number: 109553 |