To the Members of Varroc Engineering Limited
Report on the Audit of the Standalone Ind AS
We have audited the accompanying standalone Ind AS financial statements of VarrocEngineering Limited (the Company) which comprise the Balance sheet as atMarch 31 2020 the Statement of Profit and Loss including the statement of OtherComprehensive Income the Cash Flow Statement and the Statement of Changes in Equity forthe year then ended and notes to the 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 the explanationsgiven to us the aforesaid standalone Ind AS financial statements give the informationrequired by the Companies Act 2013 as amended (the Act) in the manner sorequired and give a true and fair view in conformity with the accounting principlesgenerally accepted in India of the state of affairs of the Company as at March 31 2020its profit including other comprehensive income its cash flows and the changes in equityfor the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone Ind AS financial statements in accordance withthe Standards on Auditing (SAs) as specified under Section 143(10) of the Act. Ourresponsibilities under those Standards are further described in the Rs Auditor'sResponsibilities for the Audit of the Standalone Ind AS Financial Statements Rs section ofour report. We are independent of the Company in accordance with the Rs Code of Ethics Rsissued by the Institute of Chartered Accountants of India together with the ethicalrequirements that are relevant to our audit of the financial statements under theprovisions of the Act and the Rules thereunder and we have fulfilled our other ethicalresponsibilities
in accordance with these requirements and the Code of Ethics. We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion on the standalone Ind AS financial statements.
Emphasis of Matter
We draw attention to Note 52 to the standalone Ind AS financial statements whichdescribes the effect of Corona Virus Disease (COVID-19) on the operations of the Company.Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgement were of mostsignificance in our audit of the standalone Ind AS financial statements for the financialyear ended March 31 2020. These matters were addressed in the context of our audit of thestandalone Ind AS financial statements as a whole and in forming our opinion thereon andwe do not provide a separate opinion on these matters. For each matter below ourdescription of how our audit addressed the matter is provided in that context.
We have determined the matters described below to be the key audit matters to becommunicated in our report. We have fulfilled the responsibilities described in theAuditor's responsibilities for the audit of the standalone Ind AS financial statementssection of our report including in relation to these matters. Accordingly our auditincluded the performance of procedures designed to respond to our assessment of the risksof material misstatement of the standalone Ind AS financial statements. The results of ouraudit procedures including the procedures performed to address the matters below providethe basis for our audit opinion on the accompanying standalone Ind AS financialstatements.
|Key audit matters ||How our audit addressed the key audit matter |
|Transition to Ind AS 116 - Leases (as described in note 2.1 and 5A of the standalone Ind AS financial statements) |
|The Company has applied Ind AS 116 "Leases from April 1 2019 using the modified retrospective method. Accordingly the cumulative effect of initially applying the standard retrospectively has been adjusted to the retained earnings as at April 1 2019 and the comparative figures for the previous year have not be restated. ||The audit procedures performed by us included the following: |
|The Company has recognised Right of Use assets (ROU) of Rs 518.92 million and Lease liabilities of Rs 165.03 million as at April 1 2019. || Assessed the evaluation done by the management for sample lease contracts where the Company is lessee with respect to determination of the lease term where lease contracts include extension/ termination options determination of the appropriate discount rates identification of short- term/low value asset leases and separation of lease components and non-lease components. |
|The application of Ind AS 116 involved significant judgements/ estimates with respect to determination of the lease term where lease contracts include extension/termination options determination of the appropriate discount rates identification of short-term/low value asset leases separation of lease components and non-lease components etc. || Enquired with senior management personnel the key terms of sample lease contracts to understand the respective rights and obligations of the lessor and lessee. |
|Accordingly the application of Ind AS 116 in respect of the lease contracts where the Company is a lessee was determined to be a key audit matter in our audit of the standalone Ind AS financial statements. || Tested the workings prepared by management for the application of Ind AS 116 under the modified retrospective method for accuracy and completeness of data with the underlying sample lease contracts and also checked the arithmetical calculations. |
|Derecognition of trade receivables under factoring arrangements (as described in note 12 of the standalone Ind AS financial statements) || Assessed the disclosures in the standalone Ind AS financial statements for compliance with the relevant accounting standards requirements. |
|The Company enters into non-recourse factoring arrangements for its trade receivables with various banks/ financial institutions. ||The audit procedures performed by us included the following: |
|As at March 31 2020 the Company derecognised trade receivables amounting to Rs 983.00 million. The Company derecognises the receivables from its books if it transfers substantially all the risks and rewards of ownership of the financial asset (i.e. receivables). || |
| Evaluated the assessment made by management in respect of transfer of substantially all risks and rewards of ownership of the financial asset under the factoring contracts; || Read a sample of factoring contracts to understand the terms and if they qualify as non-recourse agreements and if the accounting is in-line with Ind AS 109 "Financial Instruments; |
|The assessment of de-recognition of trade receivables under the factoring arrangements is complex and requires judgement. || Assessed the disclosures in the Ind AS financial statements for compliance with the relevant accounting standards requirements. |
|Accordingly this has been identified as a key audit matter in our audit of the standalone Ind AS financial statements. || |
|Testing of compliance with Debt covenants (as described in note 20 of the standalone Ind AS financial statements) |
|The total borrowings of the Company as at March 31 2020 was Rs 5047.99 million. Borrowings are the primary source of funding used by the Company to finance new plants/projects and for capacity expansion at existing plants and represent the largest liability on the balance sheet. ||The audit procedures performed by us included the following: |
| || Verified the Company's assessment and workings for compliance with the relevant loan covenants as applicable to various borrowings in the Company. |
|The Company has availed various long-term borrowings. These borrowings have attached loan covenants with respect to debt-equity debt service coverage etc. non-compliance of which could lead to the lender demanding immediate repayment and/or penal interest. || Tested the underlying calculations used in the Company's assessment of debt covenants for a sample of loan contracts. |
| || In case of non-compliance with any of the debt covenants reviewed the covenants waiver letters from lenders. |
|We identified this as a key audit matter in our audit of the standalone Ind AS financial statements considering the quantum of borrowings and the significant implications in case of non-compliance with loan covenants. || Assessed the disclosures in the Ind AS financial statements for compliance with the relevant accounting standards requirements. |
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the Board Rs s Report (including the Annexures) CorporateGovernance Report and Management Discussions and Analysis (but does not include thestandalone Ind AS financial statements and our Auditor's report thereon) which weobtained prior to the date of this Auditor's report and Corporate overview and otherdetails to be included in the annual report which is expected to be made available to usafter that date.
Our opinion on the standalone Ind AS financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone Ind AS financial statements ourresponsibility is to read the other information identified above and in doing soconsider whether such other information is materially inconsistent with the standalone IndAS financial statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated. If based on the work we have performed on the other informationthat we obtained prior to the date of this Auditor's report we conclude that there is amaterial misstatement of this other information we are required to report that fact. Wehave nothing to report in this regard.
When we read the Corporate overview and other details included in the annual report ifwe conclude that there is a material misstatement therein we are required to communicatethe matter to those charged with governance
Responsibilities of Management for the standalone Ind AS Financial Statements
The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Act with respect to the preparation of these standalone Ind AS financialstatements that give a true and fair view of the financial position financial performanceincluding other comprehensive income cash flows and changes in equity of the Company inaccordance with the accounting principles generally accepted in India including theIndian Accounting Standards (Ind AS) specified under Section 133 of the Act read with theCompanies (Indian Accounting Standards) Rules 2015 as amended. 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 accountingpolicies; making judgements and estimates that are reasonable and prudent; and the 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 standalone
Ind AS financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the standalone Ind AS financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the standalone Ind AS Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone Ind ASfinancial 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 standalone Ind AS financial statements.
As part of an audit in accordance with SAs we exercise professional judgement andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the standalone Ind ASfinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal control relevant to the audit 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 Rs s use of the going concernbasis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on 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.
Evaluate the overall presentation structure and content of the standalone IndAS financial statements including the disclosures and whether the standalone Ind ASfinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone Ind AS financialstatements for the financial year ended March 31 2020 and are therefore the key auditmatters. We describe these matters in our Auditor's report unless law or regulationprecludes public disclosure about the matter or when in extremely rare circumstances wedetermine that a matter should not be communicated in our report because the adverseconsequences of doing so would reasonably be expected to outweigh the public interestbenefits of such communication.
Report on Other Legal and Regulatory Requirements
1. 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 Act we give in the Annexure 1 a statement on the mattersspecified in paragraphs 3 and 4 of the Order.
2. 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 the Statement of OtherComprehensive Income the Cash Flow Statement and Statement of Changes in Equity dealtwith by this Report are in agreement with the books of account;
d) In our opinion the aforesaid standalone Ind AS financial statements comply with theAccounting Standards specified under Section 133 of the Act read with Companies (IndianAccounting Standards) Rules 2015 as amended;
e) The matters described in Emphasis of Matter paragraph above in our opinion mayhave an adverse effect on the functioning of the Company;
f) On the basis of the written representations received from the directors as on March31 2020 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2020 from being appointed as a director in terms of Section 164 (2) of theAct;
g With respect to the adequacy of the internal financial controls over financialreporting of the Company with reference to these standalone Ind AS financial statementsand the operating effectiveness of such controls refer to our separate Report inAnnexure 2 to this report;
h) In our opinion the managerial remuneration for the year ended March 31 2020 hasbeen paid/provided by the Company to its directors in accordance with the provisions ofSection 197 read with Schedule V to the Act;
i) 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 as amended 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 its financialposition in its standalone Ind AS financial statements - Refer Note 51 to the standaloneInd AS financial statements;
ii) The Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts - Refer Note 16 to the standalone Ind AS financial statements;
iii) There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.
For S R B C & CO LLP
ICAI Firm Registration Number: 324982E/E300003
per Paul Alvares
Membership Number: 105754
Place of Signature: Pune
Date: June 25 2020
Annexure 1 referred to in paragraph 1 under the heading Report on Other Legal andRegulatory Requirements of our report of even date
Re: Varroc Engineering Limited (the Company)
(i) (a) The Company has maintained proper records
showing full particulars including quantitative details and situation of fixed assets.
(b) Fixed assets were physically verified by the management in the previous year inaccordance with a planned programme of verifying them once in three years which in ouropinion is reasonable having regard to the size of the Company and the nature of itsassets. No material discrepancies were noticed on such verification.
(c) According to the information and explanations given by management the title deedsof immovable properties included in property plant and equipment are held in the name ofthe Company.
(ii) The inventory has been physically verified by management during the year. In ouropinion the frequency of verification is reasonable. No material discrepancies werenoticed on such physical verification. Inventories lying with third parties have beenconfirmed by them and no material discrepancies were noticed in respect of suchconfirmations.
(iii) According to the information and explanations given to us the Company has notgranted any loans secured or unsecured to companies firms Limited LiabilityPartnerships or other parties covered in the register maintained under section 189 of theCompanies Act 2013. Accordingly the provisions of clause 3(iii) (a) (b) and (c) of theOrder are not applicable to the Company and hence not commented upon.
(iv) In our opinion and according to the information and explanations given to us theCompany has not advanced loans to directors / to a company in which the director isinterested to which provisions of Section 185 of the Companies Act 2013 apply and hencenot commented upon. In our opinion and according to the information and explanations givento us provisions of Section 186 of the Companies Act 2013 in respect of loans andadvances given investments made and guarantees and securities given have been compliedwith by the Company.
(v) The Company has not accepted any deposits within the meaning of Sections 73 to 76of the Act and the Companies (Acceptance of Deposits) Rules 2014 (as amended).Accordingly the provisions of clause 3(v) of the Order are not applicable and hence notcommented upon.
(vi) We have broadly reviewed the books of account maintained by the Company pursuantto the rules made by the Central Government for the maintenance of cost records underSection 148(1) of the Companies Act 2013 related to the manufacture of its products andare of the opinion that prima facie the specified accounts and records have been made andmaintained. We have not however made a detailed examination of the same.
(vii) (a) Undisputed statutory dues including provident fund employees Rs stateinsurance income tax duty of customs goods and service tax cess and other statutorydues have generally been regularly deposited with the appropriate authorities though therehas been a slight delay in a few cases in respect of payment of income taxes (TDS)provident fund professional tax and employees Rs state insurance.
(b) According to the information and explanations given to us no undisputed amountspayable in respect of provident fund employees Rs state insurance income tax goods andservices tax customs duty cess and other statutory dues were outstanding at the yearend for a period of more than six months from the date they became payable.
(c) According to the records of the Company the dues of income tax sales-tax servicetax duty of customs duty of excise value added tax and cess which have not beendeposited on account of any dispute are as follows:
|Name of the statute ||Nature of the dues ||Amount* < Rs in ) ||Period to which the amount relates ||Forum where the dispute is pending |
|Income Tax Act 1961 ||Income Tax ||12.70 ||AY 2008-09 ||Bombay High Court Aurangabad bench |
|Income Tax Act 1961 ||Income Tax ||11.06 ||AY 2015-16 ||CIT (A) Pune |
|The Central Excise Act 1944 ||Excise Duty ||118.06 ||FY 2011-16 ||Commissioner of Central Excise Aurangabad |
|The Finance Act 1994 ||Service tax ||3.42 ||FY 2016-17 ||Deputy Commissioner Aurangabad |
|The Central Excise Act 1944 & The Finance Act 1994 ||Excise duty and Service Tax ||3.01 ||FY 2011-16 ||Various Tax authorities. |
* Against the litigation amount as mentioned above Rs 0.15 million have been depositedwith the respective authorities.
(viii) In our opinion and according to the information and explanations given by themanagement the Company has not defaulted in repayment of loans or borrowing to afinancial institution bank or government or dues to debenture holders.
(ix) In our opinion and according to information and explanations given by themanagement monies raised by the Company by way of term loans were applied for the purposefor which they were raised. According to the information and explanations given by themanagement the Company has not raised any money way of initial public offer/ furtherpublic offer/ debt instruments.
(x) Based upon the audit procedures performed for the purpose of reporting the true andfair view of the financial statements and according to the information and explanationsgiven by management we report that no fraud by the Company or no fraud on the Company bythe officers and employees of the Company has been noticed or reported during the year.
(xi) According to the information and explanations given by the management themanagerial remuneration has been paid/provided in accordance with the requisite approvalsmandated by the provisions of Section 197 read with Schedule V to the Companies Act 2013.
(xii) In our opinion the Company is not a nidhi company. Therefore the provisions ofclause 3(xii) of the order are not applicable to the Company and hence not commented upon.
(xiii) According to the information and explanations given by the managementtransactions with the related parties are in compliance with Sections
177 and 188 of Companies Act 2013 where applicable and the details have been disclosedin the notes to the financial statements as required by the applicable accountingstandards.
(xiv) According to the information and explanations given to us and on an overallexamination of the balance sheet the Company has not made any preferential allotment orprivate placement of shares or fully or partly convertible debentures during the yearunder review and hence reporting requirements under clause 3(xiv) are not applicable tothe Company and not commented upon.
(xv) According to the information and explanations given by management the Company hasnot entered into any non-cash transactions with directors or persons connected with him asreferred to in Section 192 of Companies Act 2013.
(xvi) According to the information and explanations given to us the provisions ofSection 45-IA of the Reserve Bank of India Act 1934 are not applicable to the Company andhence not commented upon.
For S R B C & CO LLP
ICAI Firm Registration Number: 324982E/E300003
per Paul Alvares
Membership Number: 105754
Place of Signature: Pune
Date: June 25 2020
To The Independent Auditor's Report of even date on the Standalone Ind As FinancialStatements of Varroc Engineering Limited
Report on the Internal Financial Controls under Clause (i) of sub-section 3 of Section143 of the Companies Act 2013 (the Act)
We have audited the internal financial controls over financial reporting of VarrocEngineering Limited (the Company) as of March 31 2020 in conjunction with ouraudit of the standalone Ind AS financial statements of the Company for the year ended onthat date.
Management Rs s Responsibility for Internal Financial Controls
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. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to the 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 Companies Act 2013.
Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting(the Guidance Note) and the Standards on Auditing as specified under section143(10) of the Companies Act 2013 to the extent applicable to an audit of internalfinancial controls both applicable to an audit of Internal Financial Controls and bothissued 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 about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the Auditor's judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the internal financial controls system overfinancial reporting with reference to these standalone Ind AS financial statements.
Meaning of Internal Financial Controls Over Financial Reporting
A Company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A Company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the Company are being made only in accordance with authorisations ofmanagement and directors of the Company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of theCompany's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls Over Financial Reporting withreference to these standalone financial statements
Because of the inherent limitations of internal financial controls over financialreporting with reference to these standalone financial statements including thepossibility of collusion or improper management override of controls materialmisstatements due to error or fraud may occur and not be detected. Also projections ofany evaluation of the internal financial controls over financial reporting with referenceto these standalone financial statements to future periods are subject to the risk thatthe internal financial control over financial reporting with reference to these standalonefinancial statements may become inadequate because of changes in conditions or that thedegree of compliance with the policies or procedures may deteriorate.
In our opinion the Company has in all material respects adequate internal financialcontrols over financial reporting with reference to these standalone financial statementsand such internal financial controls over financial reporting with reference to thesestandalone financial statements were operating effectively as at March 31 2020 based onthe internal
control over financial reporting criteria established by the Company considering theessential components of internal control stated in the Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.
For S R B C & CO LLP
ICAI Firm Registration Number: 324982E/E300003
per Paul Alvares
Membership Number: 105754
Place of Signature: Pune
Date: June 25 2020