The Members of Madras Fertilizers Limited
Report on Audit of the Standalone Ind AS Financial
Statements
Qualified Opinion
We have audited the accompanying Standalone Ind AS financial statements of Madras Fertilizers Limited (referred to as the “Company”) which comprises the Balance Sheet as at March 31,2024, the Statement of Profit and Loss (including other comprehensive income), Statement of Cash Flows and Statement of changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanations given to us, except for the effects of matter described in the Basis for Qualified Opinion section of our report, the aforesaid standalone financial statements give the information, in the manner so required, and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Companies Act 2013 read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, (“IND AS”) and other accounting principles generally accepted in India, of the state of affairs of the company as at March 31,2024, the Profit including other comprehensive income, changes in equity and its cashflows for the year ended on that date.
Basis for Qualified Opinion
1. Attention is drawn to Note No 30.7 to the standalone financial statements. As stated in the said note, amount shown under Current Assets in the Balance Sheet includes Rs 13.78 Cr. The said sum represents amount considered as recoverable from suppliers / contractors by the company, being the amount of Input Tax Credit (ITC) becoming unavailable for set off against the GST liability on account of non-compliance with the GST regulations on the part of the said suppliers / contractors. The company has correspondingly reduced the said sum of Rs 13.78 Cr in the Input tax credit account in the accounts. The company could not
obtain confirmation from the said suppliers / contractors confirming their liability to the company for the payment of the said sum. We are of the opinion that for want of confirmation as stated above, the said sum of Rs 13.78 Cr ought to have been provided for in the statement of Profit & Loss. The non-provisioning of the said sum had resulted in the overstatement of profit by Rs 13.78 Cr with the corresponding overstatement of current assets in the balance sheet.
2. Attention is drawn to Note No 30.7 & 30.8 to the standalone financial statements. As stated in the said note, reconciliation of ITC figures between the books and the electronic credit ledger for the FY 2018-19 & 2019-20 are pending as on the date of balance sheet. Further, the reconciliation of the ITC figures between the books and the figures as appearing in electronic credit ledger (GST portal) for the FY 2017-18 had not been taken up for reconciliation by the company. As stated in the said note, company holds adhoc provision of Rs 37.57 Cr to meet any shortfall, if any, that may arise on the completion of the reconciliation for the years as stated above. We are unable to express our opinion as to the impact on the non-reconciliation of ITC on the financial results of the company and also on the adequacy or otherwise, of the provision held by the company to meet the shortfall that may arise.
3 Our examination of books of accounts and other relevant records has indicated that a sum of Rs 7.68 Cr has been utilised from the working capital facility availed by the company from the bank for the payment towards ammonia energy reduction project which is under development. The said project is included under capital-work-in-progress and is a qualifying asset as per the significant accounting policy laid down by the company for capitalisation of borrowing cost. The company has not complied with the requirements of Ind AS 23 and also the significant accounting policy “H” regarding capitalisation of borrowing cost on borrowed funds resulting in non-capitalisation of borrowing cost of Rs 0.13 Cr. Had the company capitalised the said sum the capital work in progress in the balance sheet would be higher by the said amount of Rs 0.13 Cr with the corresponding increase in the profit in the statement of Profit and Loss by similar amount for current year.
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Companies Act, 2013 and the Rules there under, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Emphasis of Matter:
a. Penal Interest on GOI Loans:
Attention is drawn to the Note “No.30.1 l” to the Standalone Financial Statements, wherein the company has made a request to Government of India for the waiver of the interest and penal interest payable on the GOI loans as part of the revival package. Pending the disposal of the revival package, the Company has considered the penal interest at 2.75%, amounting to Rs.351.68 crores upto the financial year ending 31.03.2024 as Contingent Liability only.
b. Exceptional items:
- Attention is drawn to the Note No.30.28 to the Standalone Financial Statements, regarding the award received Rs 6.32 Cr from Indian Oil
Corporation Ltd towards the right to use the said land for laying the pipelines which is considered as an exceptional item of Income.
- Attention is drawn to the Note No.30.28 to the Standalone Financial Statements, regarding the loss of inventory amounting to Rs 56.31 Cr due to floods in Chennai in the month of Dec-23 which is considered as an exceptional item of expenditure.
c. Attention is drawn to our remarks under the Qualified opinion on Internal Financials Controls over Financial Reporting (Annexure C to our report) regarding inadequate controls on the following:
- Reconciliation of GST Input Tax Credit eligible for set off under GST regulation
- Coverage, procedures and frequency of physical verification of inventories
Our opinion is not modified in respect of these matters.
Key Audit Matters:
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements for the year ended March 31,2024. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.
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S No
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Key Audit Matter
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How our Audit procedures addressed the key audit matter
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1
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Recognition / de-recognition and measurement of Subsidy income and recoverability of subsidy receivables
(Referto Note No.I.G and 18 to the standalone financial statements)
Subsidy income pertaining to Urea is recognised on the basis of the rates notified by the Department of Fertilisers from time to time in accordance with the New Pricing Scheme (NPS) and Nutrient Based Subsidy ('NBS') policy on the quantity of fertilisers sold by the Company.
Concessions in respect of urea, as notified under the New Pricing Scheme, is recognized when there is a reasonable assurance that the Company will comply with all necessary conditions attached to Subsidy with adjustments for escalation/de-escalation in the prices of inputs and other adjustments, as estimated by the management on every reporting date in accordance with the known policy parameters in this regard.
During the current year ended March 31,2024, the company has recognised subsidy income of Rs.1,982.95 Crores which constitute significant portion of its revenue from operations. The recognition and realisation of subsidy income depends on the rates and the period for which approval is issued by the GOI.
Government Subsidy Receivables forms a significant part of the Company's current assets, amounting to Rs.321.20 Crores as at March 31,2024
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Our principal audit procedures adopted in relation to recognition of subsidy income in the accounts for the Financial Year 2023-24 were as under:
• We have read the relevant notifications issued by the GOI and discussed with the management, to understand the underlying matters and basis for management judgement and estimates including necessary changes made in estimates to address variations noted in past. Also ascertained the prevailing trade practice in the fertilisers industries for the recognition of Subsidy income;
• We examined the statement showing the sales quantity considered for subsidy income to ensure the quantity were correlated with the actual sales made by the Company. We also verified the quantities sold as reflected in the records of the company were in agreement with the quantities reflected in customer acknowledgements as appeared in the IFMS portal of the Department of Fertilisers on a selective sampling basis keeping in view with the concept of materiality and tested the DBT claims (subsidy claim) made by the Company;
• We reviewed the accuracy of the management estimate of urea concession price in accordance with relevant New Pricing Scheme and tested the escalation/de-escalation adjustments made;
• We assessed the disclosures in the standalone financial statements in this regard;
• Review of subsidy receivable from Department of Fertilizer (i.e. Sovereign Authority) is supported by the approved claims generated from IFMS (Integrated Fertilizer Management System);
• Subsidy income remaining outstanding over significant period are discussed /enquired with management based on follow-up with Department of Fertilizers, Government of India including basis of management judgement and realisation certainty thereof;
Based on the above procedures performed, we ensured that the recognition of Subsidy Income and recoverability of subsidy receivable is in accordance with applicable financial reporting framework and relevant notifications issued by the Department of Fertilizers, GOI and fairly presented in the standalone financial statements.
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2.
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Estimation of Provision & Contingent Liabilities
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Our audit procedure included, but was not limited to the
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In the recognition and measurement of provisions,
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following :
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there is uncertainty about the timing or amount of
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Analysing the managements internal instructions, process
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the future expenditure required to settle the liability.
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and control for determining and estimating the tax litigations,
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In respect of contingent liabilities, there are estimates
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other litigations and claims and its appropriate accounting
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and assumptions made to determine the amount to
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and / or disclosure.
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be disclosed.
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Discussed the pending matters with the Company's
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As at the year ended 31 March 2024, the amounts
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personnel with respect to status of cases of litigation and
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involved are significant. There is a high degree
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claims.
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of judgement required for the recognition and
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Assessed management's conclusions through placing
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measurement of provisions and disclosure of
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reliance upon the expert legal opinions, wherever obtained
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contingent liabilities.
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by the management.
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There is a risk of material misstatement that the
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We have assessed the adequacy and appropriateness of
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estimates are incorrect and that the provisions or
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presentation and disclosure of the Contingent liabilities in
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contingent liabilities are materially misstated.
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the standalone financial statements.
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Information Other than the Standalone Financial Statements and Auditor’s Report Thereon:
The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Directors' Report and Management Discussion and Analysis, but does not include the standalone financial statements and our auditor's report thereon.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibility of Management for the Standalone Financial Statements:
The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone financial statements that give a true and fair view
of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate implementation and maintenance of accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statement that give a true and fair view and are free from material misstatements, whether due to fraud or error.
In preparing the Standalone financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors are also responsible for overseeing the company's financial reporting process.
Auditor’s Responsibility for the Audit of the Standalone Financial Statements:
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
a. Identify and assess the risks of material misstatements of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
b. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3) (i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether company has adequate internal financial controls system in place and the operating effectiveness of such controls;
c. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
d. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the standalone 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's report. However, future events or conditions may cause the Company to cease to continue as a going concern;
e. Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone financial statements may be influenced. We consider quantitative materiality and qualitative factors as in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the standalone financial statements.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Other Matters:
1. The company has eleven (11) Marketing Offices (ie., named as regional offices (RO's) across India, wherein all the sales related matters are being undertaken. As part of our audit, we have visited and reviewed the operations of three (3) of the RO's and the operations of the RO are satisfactory in nature.
2. During the audit, we observed that most of charges already satisfied are still appearing in the records of 'Index of charges' under Ministry of Corporate Affairs (MCA) portal. The company has to take appropriate measures in order to clear the charges which are not live as on date.
3. The company makes provident fund contribution to the trust set up by the company under the name and style “MFL Employees Contributory Provident FundTrust”.
As per the audit report of the Trust, Auditor has qualified his opinion stating that the investment portfolio of the trust includes investments in IL&FS Transportation Network Limited, and SREI Infrastructure amounting to Rs 5.45 Cr and Interest accrued thereon amounting to Rs 1.72 Cr, and the said entities are under the process of insolvency, and no provision is made in the accounts of the Provident Fund Trust for the diminution in the value of the said Investments.
Our opinion is not modified in respect of these matters.
Report on Other Legal and Regulatory Requirements:
1. As required under the directions and sub-directions issued by the Comptroller and Auditor General of India in terms of Sub-section (5) of Section 143 of the Companies Act 2013, we are enclosing our report in “Annexure A”.
2. As required by the Companies (Auditor's Report) Order, 2020 (“the Ordeh’) as amended, issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable. Our report thereon is enclosed as “Annexure B”.
3. Non-Compliance of Composition of Board-SEBI Listing
Obligation and Disclosure Requirements (LODR) Regulations, 2015: The Company is not having the required number of Independent Directors on its Board due to vacancy arising out of expiry of term from 6th June,2019 onwards. (Refer Note No. 30.31 to the Standalone Financial Statements)
4. The company has not complied with mandatory requirement of section 203 of the Companies Act 2013, regarding appointment of whole time Company secretary for the entire financial year. Company had the whole time company secretary only till 12.12.2023.
5. 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 best of 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 the company so far as it appears from our examination of those books and proper adequate returns have been received from all the regional offices of the company;
c. The Company's Balance Sheet, the Statement of Profit and Loss (incl. Other Comprehensive income), the Statement of Cash Flows and the Statement of Changes in Equitydealt with by this report are in agreement with the books of accounts;
d. In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act, read with The Companies (Indian Accounting Standards) Rules, 2015, as amended thereon.
e. The provisions of Section 164(2) of the Act in respect of disqualification of directors are not applicable to the Company, being a Government Company in terms of notification no. G.S.R.463 (E) dated 5thJune, 2015 issued by Ministry of Corporate Affairs, Government of India;
f. With respect to the adequacy of the internal financial controls over financial reporting of the company and the operating effectiveness of such controls, refer to our separate Report in “Annexure C”. Our report expresses a Qualified opinion on the adequacy and operating effectiveness of the Company's internal financial controls over financial reporting;
g. With respect to the other matters to be included in the Auditors' Report in accordance with the requirements of section 197(16) of the Act, as amended:
The provisions of Section 197 read with Schedule V of the Act, relating to managerial remuneration are not applicable to the Company, being a Government Company, in terms of Ministry of Corporate Affairs Notification no. G.S.R. 463 (E) dated 5th June, 2015;
h. With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and 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 financial position in its standalone financial statements - Refer Note No.30.1to the standalone financial statements;
ii. The company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses;
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company except the following:
The company is in the possession of the three deposits amounting to Rs.54,000/-, having maturity value of Rs.60,198/- which were seized by the Income Tax department in the course of search and seizure operations carried at the premises of the depositor. The said deposits had matured during 2001, however due to the intimation received from the department, these are neither been en-cashed nor transferred
to the fund in accordance with Companies Act,2013.
iv.
a. The management has represented that, to the best of it's knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall,
> directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (“Ultimate Beneficiaries”) or
> provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
b. The management has represented, that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the company shall,
> directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or
> on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
c. Based on such audit procedures as considered reasonable and appropriate in these circumstances, nothing has come to our notice that has caused them to believe that the representations under sub-clause (i) and (ii) contain any material misstatement.
v. The company has not declared and/or paid any dividend during the year in accordance with Sec.123 of the Companies Act, 2013;
vi. The software used by the company, for maintaining its books of account does not have a feature of recording audit trail (edit log) facility. Hence, we are unable to express our opinion on the further requirements as required to be reported under rule 11(g) of companies (Audit and Auditors) Rules, 2014.
For Chandran and Raman Chartered Accountants Firm Registration No: 000571S
Place: Chennai (S Pattabiraman)
Date: 28.05.2024 Partner
Membership No: 014309 UDIN: 24014309BKELAC7392
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