PIDILITE INDUSTRIES LIMITED
REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
Opinion
We have audited the standalone financial statements of Pidilite Industries Limited (the "Company”), which comprise the standalone balance sheet as at 31st March 2024, and the standalone statement of profit and loss (including other comprehensive income), standalone statement of changes in equity and standalone statement of cash flows for the year then ended 31st March 2024, and notes to the standalone financial statements, including material accounting policies and other explanatory information, which includes financial information of five branches in Egypt, Sri Lanka, Bangladesh, Dubai and Tanzania (hereafter referred as "Financial Statements").
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 ("Act”) In the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March 2024, and Its profit and other comprehensive loss, changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under Section 143(10) of the Act. Our responsibilities under those SAs are further described in the Auditor’s Responsibilities for the Audit of the Standalone 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 standalone financial statements under the provisions of the Act and the Rules thereunder, 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 opinion on the standalone financial statements.
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 of the current period.
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.
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Impairment assessment of Consumer and Bazaar Cash Generating Unit (C&B CGU)
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See Note 6 to standalone financial statements
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The key audit matter
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How the matter was addressed in our audit
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The C&B CGU includes ? 1,127.23 crores of
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Our audit procedures included:
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goodwill and ? 1,314.39
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a) Understanding the process followed
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crores of indefinite
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by the Company in respect of the
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life intangible assets
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annual impairment analysis for
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(Trademark and
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C&B CGU.
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Copyrights) which
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b) Evaluating the design and
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together represents
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implementation and testing of
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22% of total assets of
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operating effectiveness of key
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the Company as at
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internal controls related to the
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31st March 2024.
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Company’s process relating to annual impairment analysis and
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The recoverable value
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determination of discount rate, near
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of the C&B CGU which is
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and long-term growth rate, revenue
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based on the value in use
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growth rate and estimated operating
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model, has been derived from discounted cash
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margins.
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flow model. This model
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c) Challenging the rationality of the
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requires the Company
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assumptions, particularly estimated
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to make significant
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near and long-term growth rate,
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assumptions such as
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revenue growth rate and operating
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discount rate, estimated
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margins based on our knowledge
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near and long-term growth
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of the Company and market.
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rate, estimated revenue
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Assessing historical accuracy by
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growth rate and estimated
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comparing past forecasts to actual
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operating margins which involves inherent
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results achieved.
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uncertainty since they are based on future business
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d) Involving the valuation
professionals with specialised
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prospects and economic
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skills and knowledge to assist in
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outlook.
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evaluating the impairment model
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and assumptions used (including
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Due to the significance of
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discount rate, near and long-term
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above assets in context of
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growth rate and revenue growth
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the standalone financial
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rate applied by the Company. These
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statements and sensitivity
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assumptions were challenged by
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of discount rate, near
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comparing it to a range of rates
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and long-term growth
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from publicly available industry
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rate and revenue growth rate assumptions where
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indices and industry data for comparable entities). Applying
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a minor change could have a significant impact
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additional sensitivities to assess
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the rationality of the above key
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on the recoverable value,
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assumptions.
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we have considered the
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e) Testing data used to develop
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impairment assessment
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the estimate for completeness
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of C&B CGU to be a key audit matter.
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and accuracy.
f) Performing a sensitivity analysis to evaluate the impact of change in key assumptions individually or collectively to the recoverable value.
g) Evaluating the adequacy of the Company’s disclosures in the standalone financial statements in respect of its impairment testing.
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Impairment of Investment in subsidiaries
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See Note 7 to standalone financial statements
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The key audit matter
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How the matter was addressed in our audit
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The Company has
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Our audit procedures included:
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significant investments in subsidiaries. The carrying amount of the investments in subsidiaries held at cost less impairment as at 31st March 2024 is ? 988.68 crores, net
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a)
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We have evaluated the design and implementation and tested the operating effectiveness of key controls placed around the impairment assessment process of the recoverability of the investments made, including the estimation of future cash flows forecasts,
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of impairment of ? 71.29 crores.
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the process by which they were produced and discount rates used.
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The Company has
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b)
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We have examined the key controls
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investments in
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in place for making investments
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subsidiaries which
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in subsidiaries and evidenced
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are considered to be
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the Board of Directors approval
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associated with significant risk in respect of valuation of such investments. Changes in business environment could also
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c)
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obtained.
We assessed the net worth of subsidiaries on the basis of latest available financial statements.
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have a significant impact
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d)
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We focused on the sensitivity
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on the valuation of these
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in the difference between the
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investments. These
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estimated value and book values
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investments are carried at
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of the subsidiaries, where change
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cost less any accumulated
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in assumptions could cause the
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impairment losses.
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carrying amount to exceed its
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The investments are
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estimated present value. Further,
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examined for impairment
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we have:
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at each reporting date.
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- Compared the carrying amount
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These investments are
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of investments with the relevant
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unquoted and hence it is
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subsidiaries balance sheet to
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difficult to measure the
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identify their net assets, being an
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realisable amount of these
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approximation of their minimum
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investments.
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recoverable amount. Where
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The Company performs
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the net assets are in excess of their carrying amount, we also
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an annual assessment of it investments in subsidiaries, to identify any indicators
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assessed that those subsidiaries have historically been profitmaking.
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of impairment. The
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- For the investments where the
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recoverable amount of
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carrying amount exceeded the
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these investments which
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net asset value, comparing
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is based on the higher
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the carrying amount of the
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of the value in use or fair
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investment with the expected
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value less costs to sell,
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value of the business based
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has been derived from
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discounted cash flow analysis.
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discounted forecast cash
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e)
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We focused on key assumptions
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flow models.
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such as estimated revenue growth,
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These models use
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near and long-term growth rate, and operating margins. We also
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several key assumptions, concerning estimates of revenue growth, near and
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f)
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assessed the historical accuracy of Company’s estimates.
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long-term growth rate, operating margins and the discount rate.
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We challenged and assessed the work performed by management’s external valuation expert, including the valuation methodology and
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The Company’s
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the key assumptions used. We
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assessment of the
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also assessed the competence,
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remaining 'value in use’ is
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capabilities and objectivity of the
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judgmental because it is
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expert used by the management
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based on forecast results
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in the process of evaluating
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and uncertain outcomes.
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impairment models.
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Further, determining
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g)
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Involved our internal valuation
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these estimates may be
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specialist, where appropriate,
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subject to a degree of
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to evaluate the reasonability of
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management bias.
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the methodology, approach and assumptions used in the valuation carried out for determining the carrying amount of investments.
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h)
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We checked that the disclosures
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made in the Company’s standalone financial statements in respect of the investment in the subsidiaries are adequate.
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Revenue Recognition - Variable Considerations
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See Note 31 to standalone financial statements
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The key audit matter
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How the matter was addressed in our audit
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Revenue is measured
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Our audit procedures included:
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net of any trade discounts and schemes to customers ("variable consideration"). Certain variable consideration
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a)
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Understanding the process followed by the Company to determine the amount of accrual for variable consideration.
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for goods sold during the
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b)
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Evaluating on sample basis, the
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year are only finalised
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design and implementation and
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when the precise amounts
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testing of operating effectiveness
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are known, and revenue
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of Company’s general IT controls
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therefore includes an
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and key manual controls for scheme
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estimate of variable
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computations, scheme payments/
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consideration.
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settlements and Company’s examination over the scheme
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The variable consideration represents the portion of discounts and schemes
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c)
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accruals.
Performing substantive testing by
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which are not directly
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selecting samples, using statistical
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deducted on the invoice
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sampling approach, of variable
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and involves estimation
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consideration transactions recorded
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by the Company
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during the year and as at period
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in recognition and
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end accruals to reconcile the
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measurement of such
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parameters used in the computation
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discounts and schemes.
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with the relevant source documents.
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In addition, the value and
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d)
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Examining historical scheme
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timing of promotions
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accrual together with our
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for products varies from
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understanding of current year
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period to period, and
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developments to form an
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the activity can span
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expectation of the scheme accrual
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beyond the year end. The
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as at year end. Comparing this
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unsettled portion of the
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expectation against the actual
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variable consideration
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scheme accrual, completing further
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results in discounts
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inquiries and obtaining underlying
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and schemes due to
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documentation, on a sample basis.
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customers as at year end.
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Further, we have also performed
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Therefore, there is a risk of
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retrospective examination to
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revenue being overstated due to fraud through estimation of variable
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evaluate the precision with which Company makes estimates.
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consideration accruals
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e)
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Ensuring completeness of scheme
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recognised, resulting from
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accrual by checking subsequent
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pressure the Company
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settlement (i.e. payments and credit
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may feel to achieve
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notes) made after year end which
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performance targets at
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affect Financial Year 2023-24 and
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the year end.
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accuracy of the data used by the Company for scheme accruals
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We identified the
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using debit notes received from
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evaluation of accrual for
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customers.
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variable consideration as a key audit matter.
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f)
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Testing actualisation of estimated scheme accruals using statistical sampling approach.
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g)
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Testing a selection of discount and scheme accruals recorded after
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31st March 2024 and assessing accrual in correct period.
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h)
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Testing a selection of payments made after 31st March 2024 and where relevant, comparing the payment to the related scheme accrual.
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i)
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Examination of journal entries posted to revenue, on a sample basis using statistical sampling approach, to identify unusual items and examined the underlying documentation.
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Auditor's Responsibilities 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 misstatement, 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 skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement 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.
• 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 Act, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management and Board of Directors.
• Conclude on the appropriateness of the Management and Board of Directors use of the going concern basis of accounting in preparation of standalone financial statements 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.
• 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.
Other Information
The Company’s Management and Board of Directors are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and auditor’s report thereon. The annual report is expected to be made available to us after the date of this auditor’s report.
Our opinion on the standalone financial statements does not cover the other information and we will 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 identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the 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 and take necessary actions, as applicable under the relevant laws and regulations.
Management's and Board of Directors' Responsibilities for the Standalone Financial Statements
The Company’s Management and Board of Directors are responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs, profit/ loss and other comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) 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 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 standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the Management and Board of Directors are 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 the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors is also responsible for overseeing the Company’s financial reporting process.
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 Matter
a. The standalone financial statements of the Company for the year ended 31st March 2023 were audited by the predecessor auditor who had expressed an unmodified opinion on 8th May 2023.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor’s Report) Order, 2020 ("the Order”) issued by the Central Government of India in terms of Section 143(11) of the Act, we give in the "Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2 A. 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 except for the matters stated in the paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
c. The standalone balance sheet, the standalone statement of profit and loss (including other comprehensive income), the standalone statement of changes in equity and the standalone statement of cash flows dealt with by this Report are in agreement with the books of account.
d. In our opinion, the aforesaid standalone financial statements comply with the Ind AS specified under Section 133 of the Act.
e. On the basis of the written representations received from the directors as on 1st April 2024 to 6th May 2024 taken on record by the Board
of Directors, none of the directors is disqualified as on 31st March 2024 from being appointed as a director in terms of Section 164(2) of the Act.
f. The modifications relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2A(b) above on reporting under Section 143(3)(b) and paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
' g With respect to the adequacy of the internal financial controls with reference to financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B”.
B. 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:
a. The Company has disclosed the impact of pending litigations as at 31st March 2024 on its financial position in its standalone financial statements - refer Note 40 to the standalone financial statements.
b. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
c. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company - refer note 25 to the standalone financial statements.
d (i) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the Note 54(a) to the standalone financial statements, 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.
(ii) The management has represented that, to the best of its knowledge and belief, as disclosed In the Note 55(h) to the standalone financial statements, 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 Parties ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(iii) Based on the audit procedures performed that have been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (I) and (II) of Rule 11(e), as provided under (i) and (ii) above, contain any material misstatement.
' e. The final dividend paid by the Company during the year, in respect of the same declared for the previous year, Is In accordance with Section 123 of the Act to the extent it applies to payment of dividend.
As stated In Note 21 to the standalone fInancIal statements, the Board of Directors of the Company have proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with SectIon 123 of the Act to the extent It applIes to declaration of dividend.
f. Based on our examination which included test checks and in accordance with requirements of the Implementation Guide on Reporting on AudIt TraIl under Rule 11(g) of the CompanIes (AudIt and AudItors) Rules, 2014, except for the instances mentioned below, the Company has used accounting softwares for maintaining its books of account, which have a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the softwares:
i. In the absence of an independent auditor’s report in relation to controls at service organisation for accounting software used for maintaining the books of account relating to scheme master, which is operated by third-party software service provider, we are unable to comment whether audit trail feature at the database level of the said
software was enabled to log any direct data changes and operated throughout the year for all relevant transactions recorded in the software.
ii. In the absence of sufficient and appropriate reporting on compliance with the audit trail requirements in the independent auditor’s report of a service organization for an accounting software used for consolidation, we are unable to comment whether audit trail feature for the said software was enabled and operated through out the year for all relevant transactions recorded in the software.
Further, where audit trail (edit log) facility was enabled and operated throughout the year, we did not come across any instance of audit trail feature being tampered with during the course of our audit.
C. With respect to the matter to be included in the AudItor’s Report under SectIon 197(16) of the Act:
In our opinion and according to the information and explanations given to us, the remuneration paid by the Company to its directors during the current year Is In accordance wIth the provIsIons of SectIon 197 of the Act. The remuneration paid to any director is not In excess of the lImIt laId down under SectIon 197 of the Act. The Ministry of Corporate Affairs has not prescrIbed other detaIls under SectIon 197(16) of the Act which are required to be commented upon by us.
For B S R & Co. LLP
Chartered Accountants FIrm’s RegIstratIon No.:101248W/W-100022
Sudhir Soni
(Partner) MembershIp No.: 041870 ICAI UDIN:24041870BKGDKQ3799
Place: Mumbai Date: 7th May 2024
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