To the Members of
SANGHVI BRANDS LTD
Report on the Financial Statements
1. We have audited the accompanying standalone financial statements ofSanghvi Brands Limited ("the Company") which comprise the Balance Sheet as atMarch 31 2021 the Statement of Profit and Loss and the Cash Flow Statement for the yearthen ended and notes to the financial statements and a summary of significant accountingpolicies and other explanatory information.
2. In our opinion and to the best of our information and according tothe explanations given to us the aforesaid financial statements give the informationrequired by the Act in the manner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India of the state of affairs of theCompany as at March 31 2021 and its loss and cash flows for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditingspecified under section 143(10) of the Act. Our responsibilities under those standards arefurther described in the Auditor's Responsibilities for the Audit of the 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 ("theICAI") 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.
Material uncertainty relating to Going concern
4. We draw attention to Note- 34 to the financial statement whichdescribes the actual and potential impact of outbreak of Covid 19 on the businessoperation of the Company and its future prospects. The Company has incurred a net loss/netcash loss during the current and previous years. These conditions along with other mattersset forth in Note 34 indicate the existence of a material uncertainty that may castsignificant doubt about the Company's ability to continue as a going concern. Thefinancial statements of the Company have however been prepared on a going concern basisbased on an evaluation of the above facts in the light of the representation by themanagement and various mitigating factors as detailed in the said note to the financialstatements.
Emphasis of Matter
5. We draw attention to following matters in notes to the financialstatement
a. Note 35 on management's assessment of the carrying value ofinvestments in its subsidiary Sanghvi Beauty and Salons Private Ltd. According to themanagement no provision is presently considered for diminution in value of theinvestments and the carrying value of loans and advances granted to the subsidiary for thereasons stated therein despite significant accumulated losses negative net-worth as ofthe balance sheet date and its operations having been impacted by the Covid 19 pandemic asin the view of the management this is a temporary disruption
b. Note 36 on management's assessment of the carrying value ofinvestments in its subsidiary Sanghvi Fitness Private Ltd. According to the managementno provision is presently considered for diminution in value of the investments and thecarrying value of loans and advances granted to the subsidiary for the reasons statedtherein despite significant accumulated losses negative net-worth as of the balancesheet date and its operations having been impacted by the Covid 19 pandemic as in the viewof the management this is a temporary disruption.
Key Audit Matters
6. Key audit matters are those matters that in our professionaljudgment were of most significance in our audit of the financial statements of thecurrent period. These matters were addressed in the context of our audit of the financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. We have determined the matters below to be the keyaudit matters to be communicated in our report.
|Key audit matter ||Response to Key audit matter |
|Testing of carrying value of Investment in Subsidiaries and Joint ventures was considered as key audit matter as it involved significant management judgement and reliance on future projections. ||Our audit approach was a combination of test of controls and substantive procedures which included the following: |
| ||Tested the management oversight and controls over valuation of investments. |
|The Company has three wholly owned subsidiaries Sanghvi Beauty Sanghvi US Holding and Sanghvi Sri Lanka. It also holds 97.5% in Sanghvi Fitness. These entities are engaged in the business of providing beauty fitness and spa treatment. ||Obtained future projections and business plans for the subject entities prepared by the management and tested them for reasonableness of assumptions and arithmetic accuracy. |
|At 31st March 21 the net worth of above-mentioned subsidiaries has completely eroded. ||Based on our audit procedures we noted no reportable matters regarding investments and its valuation except for Sanghvi Fitness and Sanghvi Beauty and Salons. For those entities company will require to take impairment provision in the books. |
|The existence of the above impairment indicator required management to estimate the recoverable amount of the Company's investment in subsidiary along with loans and advances provided to subsidiaries. || |
| ||For investment in overseas subsidiaries company had taken 100% provision for impairment of investment during March 20. |
|Impact of Covid 19 pandemic on going concern ||Our audit procedures included the following |
|Refer Note 34 on impact of Covid 19 pandemic on going concern of the standalone financial statement. ||Obtained an understanding of the key controls relating to Company's forecasts |
|During the year business of the company has been severally impacted due to Covid 19. ||Obtained future projections and business plans for all locations prepared by the management and tested them for reasonableness of assumptions and arithmetic accuracy. |
|The company witnessed significant reduction in revenues due to lockdown also many locations were temporarily closed for first six months of the year. || |
|After unlock of restrictions all the company's locations have been opened and business is expected to gradually improve across all location. With onset of second wave of the Covid 19 in last few months many of the spa and salon have been closed again with fall out impact on operation. ||Obtained an understanding of key assumptions adopted by the Company in preparing the forecasted statement of profit and loss and cash flow and tested them for reasonableness |
| ||Assessed disclosure made in standalone financial statements with regard to the above. Refer Note N0 34 |
|The company has assessed the impact of Covid 19 on the future cash flow projections. || |
|In view of the above we identified impact of Covid 19 on going concern as a key audit matter. || |
7. The Company's Board of Directors is responsible for the otherinformation. The other information obtained at the date of this auditor's report isincluded in the Director's report but does not include the financial statements and ourauditor's report thereon.
8. Our opinion on the financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.
9. In connection with our audit of the financial statements ourresponsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the financial statements or ourknowledge obtained in the audit or otherwise appears to be materially misstated.
10. If based on the work we have performed on the other informationobtained prior 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.
Responsibility of Management for Financial Statements
11. The Company's Board of Directors is responsible for the matters insection 134(5) of the Act with respect to the preparation of these financial statementsthat give a true and fair view of the financial position financial performance and cashflows of the Company in accordance with the accounting principles generally accepted inIndia including the Indian Accounting Standards specified under Section 133 of the Act.
12. This responsibility also includes the maintenance of adequateaccounting records in accordance with the provision of the Act for safeguarding of theassets of the Company and for preventing and detecting the frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of internal financial control that were operating effectively for ensuringthe accuracy and completeness of the accounting records relevant to the preparation andpresentation of the financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.
13. In preparing the financial statements management is responsiblefor assessing the Company's 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.
14. Those Board of Directors are also responsible for overseeing theCompany's financial reporting process.
15. Our objectives are to obtain reasonable assurance about whether thefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's 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 financial statements.
16. As part of an audit in accordance with SAs we exerciseprofessional judgment and maintain professional skepticism throughout the audit. We also:
a. Identify and assess the risks of material misstatement of thefinancial 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.
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 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.
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 financial statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.
e. Evaluate the overall presentation structure and content of thefinancial statements including the disclosures and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.
17. 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.
18. We also provide those charged with governance with a statement thatwe have 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.
Report on other Legal and Regulatory Requirements
19. As required by the Companies (Auditor's Report) Order2016 issuedby the Central Government of India in term of sub-section (11) of section 143 of the Act(the "Order") and on the basis of such checks of the books and records of theCompany as we considered appropriate and according to the information and explanationsgiven to us we give in the Annexure A a statement on the matters specified in theparagraphs 3 and 4 of the Order to the extent applicable.
20. As required by section 143(3) of the Act we report that:
a) we have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of ouraudit;
b) In our opinion proper books of account as required by law have beenkept by the Company so far as appears from our examination of those books;
c) the Balance Sheet the Statement of Profit and Loss and the CashFlow Statement dealt with by this Report are in agreement with the books of account;
d) In our opinion the aforesaid 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 written representations received from the directorsas on March 31 2021 taken on record by the Board of Directors none of the directors isdisqualified as on March 31 2021 from being appointed as a director in terms of Section164(2) of the Act.
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 B.
g) With respect to the other matters to be included in the Auditor'sReport in accordance with the requirements of section 197(16) of the Act as amended:
In our opinion and to the best of our information and according to theexplanations given to us the remuneration paid by the Company to its directors during theyear is in accordance with the provisions of section 197 of the Act.
h) With respect to the other matters included in the Auditor's Reportin accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 (as amended)in our opinion and to the best of our information and according to the explanations givento us:
i. The Company does not have any pending litigations which would impactits financial position.
ii. The Company did not have any long-term contracts includingderivative contracts for which there were any material foreseeable losses.
iii. There were no amounts which were required to be transferred to theInvestor Education and Protection Fund by the Company.
|For B. K. Khare and Co. |
|Chartered Accountants' |
|Firm Registration No.: 105102W |
|Shirish Rahalkar |
|Membership No.: 111212 |
|UDIN: 21111212AAAASD4350 |
|Mumbai June 14 2021 |
ANNEXURE "A" TO THE AUDITOR'S REPORT
Referred to in paragraph 16 of our report of even date on the accountsof Members of Sanghvi Brands Limited for the year ended March 31 2021
1) i) The Company has maintained proper records showing fullparticulars including quantitative details and situation of fixed assets.
ii) According to the information and explanation given to us theCompany has phased programme for verification of fixed assets over a period of threeyears which in our opinion is reasonable having regard to the size of the Company andnature of assets. During the year the Company did not verify any of the fixed assets.
iii) According to the information and explanation given to us noimmovable property is held by the Company in its own name.
2) Inventories were physically verified during the year by themanagement at reasonable intervals and no material discrepancies were noticed on physicalverification. In our opinion the frequency of verification is reasonable.
3) The Company has granted unsecured loan to four wholly ownedsubsidiary and one partly owned subsidiary company covered in the register maintainedunder section 189 of the Act.
a. In our opinion rate of interest and other terms granted toconditions on which the loans had been granted to the wholly owned subsidiary companylisted in the register maintained under Section 189 of the Act were not prima facieprejudicial to the interest of the Company
b. In respect of the aforesaid loan the parties are repaying theprincipal amount as stipulated and are also regular in payment of interest asapplicable.
c. In respect of the aforesaid loan there is no overdue amount.
4) In our opinion and according to the information and explanationsgiven to us provisions of section 185 and 186 of the Act in respect of loans giveninvestment made and guarantees given to parties covered under the respective sections havebeen complied with by the Company.
5) The Company has not accepted any deposits from the public within themeaning of Sections 73 74 75 and 76 of the Act and the Rules framed there under to theextent notified. Therefore the provisions of Clause 3(v) of the Order are not applicableto the company.
6) According to the information and explanation given to us theprovisions of the paragraph 3 (vi) of the Order are not applicable to the Company as theCompany is not covered by the Companies (Cost Records and Audit) Rules 2014.
7) i) According to the information and explanations given to us and therecords of the Company examined by us in our opinion the Company is generally regular indepositing undisputed statutory dues including provident fund employees' stateinsurance income tax goods and service tax sales tax wealth tax service tax duty ofcustoms duty of excise value added tax and other material statutory dues as applicablewith the appropriate authorities.
ii) According to the information and explanations given to us andrecords of the Company examined by us there are no dues of income tax sales tax wealthtax service tax goods and service tax duty of custom and excise or value added tax orcess which have not been deposited on account of any dispute.
8) The Company has not taken any loans or borrowings from financialinstitution banks and government or has not issued any debentures. Hence reporting underclause (viii) of the order is not applicable to company.
9) According to the information and explanations given by themanagement the Company has utilized the money raised by way of initial public offer forthe purposes mentioned in the prospectus of IPO. The unutilized portion of the IPO isdeployed in fixed term deposit.
10) During the course of our examination of the books and records ofthe Company carried out in accordance with the generally accepted auditing practices inIndia and according to the information and explanations given to us we have neither comeacross any instance of fraud by the Company or no material fraud on the Company by itsofficers or employees noticed or reported during the year nor have we been informed ofsuch case by the Management.
11) Based on the records examined by us and according to informationand explanations given to us the Company has paid/provided for managerial remuneration inaccordance with the requisite approvals mandated by provisions of section 197 read withschedule V of the Act.
12) As the Company is not a Nidhi Company and the Nidhi Rules 2014 arenot applicable to it the provisions of Clause 3(xii) of the Order are not applicable tothe Company
13) The Company has entered into transactions with related parties incompliance with the provisions of Sections 177 and 188 of the Act. The details of suchrelated party transactions have been disclosed in the standalone financial statements asrequired by applicable accounting standard.
14) 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 (xiv) of the Order are not applicable to theCompany.
15) The Company has not entered into any non-cash transactions with itsdirectors or persons connected with him. Accordingly the provisions of clause (xv) of theOrder are not applicable to the Company.
16) The Company is not required to be registered under Section 45-IA ofthe Reserve Bank of India Act 1934. Accordingly the provisions of clause (xvi) of theOrder are not applicable to the Company.
|For B. K. Khare and Co. |
|Chartered Accountants |
|Firm's Registration No.: 105102W |
|Shirish Rahalkar |
|Membership No.: 111212 |
|UDIN: 21111212AAAASD4350 |
ANNEXURE "B" TO THE INDEPENDENT AUDITOR'S REPORT OF EVEN DATEON THE FINANCIAL STATEMENTS OF SANGHVI BRANDS LTD
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 financial controls over financialreporting of Sanghvi Brands Limited ("the Company") as of March 31 2021 inconjunction with our audit of the standalone financial statements of the Company for theyear ended on that date.
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 ("theICAI"). These responsibilities include the design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theorderly and efficient conduct of its business including adherence to company's policiesthe safeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information as required under the Act.
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") and the Standards on Auditing issued by ICAIand deemed to be prescribed under section 143(10) of the Act to the extent applicable toan audit of internal financial controls both applicable to an audit of Internal FinancialControls and both issued by the ICAI. Those Standards and the Guidance Note require thatwe comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether adequate internal financial controls over financial reporting wasestablished and maintained and if such controls operated effectively in all materialrespects.
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 financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis 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 financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that
(1) Pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany;
(2) Provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of thecompany; and
(3) 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 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.
According to the information and explanations given to us and based onour audit procedure the following material weakness has been identified in Company'sinternal financial controls as at March 31 2021. The company needs to improve internalfinancial controls in accrual and recording of administrative and other expenses.
In our opinion except for the effects of material weakness describedabove the Company has maintained in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at March 31 2021 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the ICAI.
|For B. K. Khare & Co. |
|Chartered Accountants |
|Firm Registration No. 105102W |
|Shirish Rahalkar |
|Membership No. 111212 |
|UDIN: 21111212AAAASD4350 |
|Mumbai June 14 2021 |