I have gone through qualified opinion given by the auditors in the current Annual Report. The auditors have given 3 qualifying opinions. The company has given satisfactory clarifications on all the three qualified opinion given by the auditors.
In my opinion the qualified opinion given by the auditors do not have any material impact on the operations or profitability of the company due to the following reasons.
(i) The fist qualified opinion given by the auditors will have an impact of Rs 2.36 in profitability which is materially insignificant.
(ii) The second opinion is with regard to the classification of liability only i.e as per auditor’s opinion, the outstanding FCCB liability, which the company has shown as long term should be shown as short term/current liability. The classification of liability generally has a direct impact the liquidity of the company. In the given case, the classification of liability done by the company will not have material impact because of following reasons
(a) The company is generating sufficient amount of surplus cash and there is no liquidity problem in the company.
(b) As on date the all outstanding FCCB have either been paid or restructured till 2002.
(iii) The third qualified opinion pertains to availing of MAT Credit, which has been suitably clarified by the company. The same qualified opinion is being given by the auditors every year since past several years and the same clarification is being repeated by the company every year.
All the accounting done by the company are as per Indian Accounting Standards and there is nothing wrong as per the law. However qualified opinion are given by the auditors as a prudent measure to give an insight to the shareholders so that they can assess the impact of transaction done by the company and take a conscious decision.
Now it is up to the investors to assess what maximum impact these qualified opinion made by the auditors will have on the performance o the company.
The qualified opinion given by the auditors and the clarification of the company in this regard are as under (both taken from Annual report for 31/03/2017)
Qualified Opinion given by Auditors :
a. Note 40 to the Ind AS financial statements, wherein in terms of a court order, the deferred tax liability of Rs 236 lakhs for the year ended on March 31, 2017 has been adjusted against Securities Premium reserve. Had the deferred tax liability been accounted for pursuant to Ind AS-12 _Income Taxes’, total comprehensive income after tax for the year ended on March 31, 2017 would have been higher by Rs 236 lakhs.
b. Note 41 to the Ind AS financial statements, wherein no provision for interest aggregating to Rs 1,126 lakhs for the year and Rs 2,178 lakhs as at March 31, 2017 has been made in respect of restructured Foreign Currency Bonds/Convertible Bonds. Also, no provision of interest (amount not ascertained) has been made in respect of other matured Foreign Currency Convertible Bonds as at March 31, 2017. Had such provision for interest been made, Capital work in progress and Other Current financial liabilities would have been higher to that extent. Further, the Company has classified matured Foreign Currency Convertible Bonds of Rs 15,756 lakhs as borrowings under the head “Non-Current Financial liabilities” instead of “Current Financial liabilities”.
c. Note 42 to the Ind AS financial statements, wherein MAT credit entitlement expired during the year amounting to Rs1709 lakhs has been adjusted against the retained earnings. Had this been adjusted in the Statement of Profit & Loss, profit for the year would have been lower by such amount.
The Auditors in their Report to the members, have given three qualified opinions and the explanations of Board with respect to it in pursuant to section 134( 3) (f) of Companies Act 2013 are as follows:
Explanations response to Point (a) of Independent Auditors Report
The net deferred tax liability computed in terms of Ind AS-12 “Income Tax” amounting to _ 236 Lakhs has been adjusted against Securities Premium Account. This has been in terms of Hon’ble Punjab & Haryana High Court order dated 23rd August, 2007. Explanations response to Point
(b) of Independent Auditors Report The Company had restructured Foreign Currency Convertible Bonds (FCCB) of US $ 35.70 mn as per terms accepted by FCCB holders. The Company has partly paid interest on the same upto 30th September, 2015. The Company has initiated discussions with the bondholders for waiver of the interest and restructuring of these FCCB for further period of five years, which is in advanced stage. Accordingly, no provision of interest has been made in the books of accounts on these FCCB towards unpaid interest dues and matured FCCB of Rs 15756 Lakhs are continued to be shown as “Non-CurrentLiabilities” Explanations response to Point.
© of Independent Auditors Report Considering the future profitability and taxable position in the subsequent years, the Company has recognized Minimum Alternate Tax (MAT) credit as an asset by crediting the Statement of Profit & Loss and including the same under "Other Non-Current Assets. In case the Company is not able to utilize this credit within the time limit prescribed under the Income Tax Act, the same is set off against the retained earnings as tax credit pertains to an earlier year.
Observations other than above made by the Statutory Auditors in their report for the Financial year ended
31st March, 2017 read with the explanatory notes therein are self-explanatory and therefore, do not call for any further explanation or comments from the Board under section 134(3) of the Companies Act, 2013.
Regarding CWIP to Net block between Apr 17 to Sept 17, i had already requested other members and existing/proposed investors to write E mail to the Investor relation of the company for conducting an investor con call.
I would like to have more negatives on the company so that we can asses over all risk in our investment.
Regarding Indian Steel Industry growth opportunity, I will try to post my findings in this weekend