To the Members of Varroc Engineering Limited
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the accompanying standalone financial statements of Varroc Engineering Limited ("the Company"), which comprise the Balance Sheet as at March 31,2024, the Statement of Profit and Loss, including the Statement of Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Equity for the year then ended and notes to the standalone financial statements, including a summary of material accounting policies and other explanatory information.
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, as amended ("the 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 March 31,2024, its profit including other comprehensive income, its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone financial statements in accordance with the Standards on Auditing (SAs), as specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the ‘Auditors 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 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 audit 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 for the financial 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. For each matter below, our description 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 be communicated in our report. We have fulfilled the responsibilities described in the Auditors responsibilities for the audit of the standalone financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the standalone financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying standalone financial statements.
| Key audit matters | How our audit addressed the key audit matter |
| Recoverability of investment in VarrocCorp Holding BV, Netherlands (as described in note 7(a) of the standalone financial statements) | |
| The Company has equity investment of H7,771.23 Million (net of impairment provision of Rs 1,894.35 Million) in its wholly owned subsidiary VarrocCorp Holding BV Netherlands (‘VCHBV) as at March 31,2024. | The audit procedures performed by us included the following: |
| As required by Ind AS 36 "Impairment of assets", at each reporting period end, management assesses the existence of impairment indicators for investments in subsidiaries. In case of existence of impairment indicators, the investment balances are subjected to impairment test. | • Obtained an understanding, evaluated the design and tested the operating effectiveness of controls the Company has in relation to impairment assessment process; |
| VCHBV holds equity investments in overseas subsidiaries - primarily in Italy, Vietnam, Romania and in China JV. Hence for impairment testing, the management has assessed the recoverability of the aforesaid underlying investments in overseas subsidiaries as at March 31,2024. | • Evaluated the competence and objectivity of Companys external specialist involved in the process; |
| The recoverable amount of investment in each of these overseas subsidiaries is determined based on the discounted cash flow model which has sensitivity around key assumptions such as revenue growth, operating margins, discount rate, terminal growth rate and also involves significant judgements and estimates. | • Involved valuation specialist where necessary to assist in assessing the appropriateness of the valuation model including the independent assessment of the underlying key assumptions; |
| We identified this as a key audit matter in our audit of the standalone financial statements considering the complexity in determining the recoverable amounts and the quantum of such equity investments as at March 31,2024. | • Performed sensitivity testing of key assumptions used; |
| • Tested the arithmetical accuracy of the models; | |
| • Assessed the adequacy of disclosures in the standalone financial statements. | |
| Allowability of deduction on write-off of loans to subsidiary under the Income Tax Act, 1961 (as described in note 24 of the standalone financial statements) | |
| During the year, the Company has derecognised (written- off) loans given to VCHBV and interest accrued on such loans aggregating to Rs 11,796.44 million. | The audit procedures performed by us included the following: |
| These loans pertained to funding of Varroc Lighting Systems (‘VLS) entities (erstwhile subsidiaries of VCHBV) and were fully provided for during the period ended Sep 30, 2022 when the VLS business was sold to Compagnie Plastic Omnium. | • Read the tax opinions obtained by the Company from two senior tax counsels supporting the allowability of tax deduction on write-off of the said loans; |
| During the current year, the management has considered the aforesaid write-off as an allowable business loss for computation of current tax provision, as it believes that these loans extended to VCHBV were in the nature of trade investments to advance the Companys business. | • Involved tax experts to assist in evaluating the allowability of deduction on write-off of loans to subsidiary; |
| Accordingly, the same has been considered as deduction for computation of current tax provision for the year ended March 31, 2024 and consequently a deferred tax asset of Rs 2,448.03 million (after adjusting other taxable income pertaining to current financial year) has been recognized as at March 31,2024. | • Assessed the forecast of future taxable income prepared by the management to test the recoverability of deferred tax asset as at March 31,2024; |
| We identified this as a key audit matter in our audit of the standalone financial statements considering quantum of the deduction and the significant judgement involved with respect to deductibility of such expenditure under Income tax Act, 1961. | • Assessed the adequacy of disclosures in the standalone financial statements. |
| Derecognition of trade receivables under factoring arrangements (as described in Note 2A of the standalone financial statements) | |
| 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, 2024, the Company derecognised trade receivables amounting to Rs 3,972.91 million. The Company derecognizes 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 assets under the factoring contracts; |
| The assessment of derecognition of trade receivables under the factoring arrangements is complex and requires judgement. | • Read samples of factoring contracts to understand the terms and assessed if they qualify as non-recourse agreements and further assessed the accounting treatment as per the requirements of Ind AS 109, "Financial Instruments"; |
| Accordingly, this has been identified as a key audit matter in our audit of the standalone financial statements. | • Assessed the adequacy of disclosures in the standalone financial statements for compliance with the relevant accounting standard requirements. |
| Testing of compliance with Debt covenants (as described in note 21 of the standalone financial statements) | |
| The total borrowings of the Company as at March 31,2024 was Rs 12,469.47 million. | The audit procedures performed by us included the following: |
| The Company has availed various long-term borrowings. These borrowings have loan covenants with respect to debt-equity, debt service coverage, etc. non-compliance of which gives right to the lender to demand immediate repayment of the loan and/or penal interest. | • Evaluated the Companys assessment and workings for compliance with the relevant debt covenants as applicable to various borrowings of the Company; |
| We identified this as a key audit matter in our audit of the standalone financial statements considering the quantum of borrowings and the significant implications in case of non-compliance with debt covenants. | • Tested the underlying calculations used in the Companys assessment of debt covenants for a sample of loan contracts; |
| • In case of non-compliance with any of the debt covenants, we read the covenant waiver letters from lenders where available. In the absence of waiver letters, we assessed the consequent reclassification of the respective borrowing from non-current to current. | |
| • Assessed the adequacy of disclosures in the standalone financial statements for compliance with the relevant accounting standard requirements. |
Other Information
The Companys Board of Directors is responsible for the other information. The other information comprises the information included in the Annual report but does not include the standalone financial statements and our auditors report thereon. The Annual report is expected to be made available to us after the date of this auditors report.
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 identified above when it becomes available and, in doing so, consider whether such 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.
Responsibilities of Management for the Standalone Financial Statements
The Companys Board of Directors is 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 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 (Ind AS) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended. 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 the 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, 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 is also responsible for overseeing the Companys financial reporting process.
Auditors 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 auditors 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 management.
• Conclude on the appropriateness of managements 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 Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the 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 auditors 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.
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 for the financial year ended March 31, 2024 and are therefore the key audit matters. We describe these matters in our auditors 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.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditors Report) Order, 2020 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the "Annexure 1" a statement on the matters specified 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 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 matter stated in the paragraph (i)(vi) below on reporting under Rule 11(g);
(c) The Balance Sheet, the Statement of Profit and Loss including the Statement of Other Comprehensive Income, the Cash Flow Statement and Statement of Changes in Equity 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 Accounting Standards specified under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended;
(e) On the basis of the written representations received from the directors as on March 31,2024 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2024 from being appointed as a director in terms of Section 164 (2) of the Act;
(f) The modification relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph (b) above on reporting under Section 143(3)(b) and paragraph
(i)(vi) below on reporting under Rule 11(g);
(g) With respect to the adequacy of the internal financial controls with reference to these standalone financial statements and the operating effectiveness of such controls, refer to our separate Report in "Annexure 2" to this report;
(h) In our opinion, the managerial remuneration for the year ended March 31, 2024 has been paid / provided by the Company to its directors in accordance with the provisions of section 197 read with Schedule V to the Act;
(i) With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer Note 51 to the standalone financial statements;
ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Note 7 and 16 to the standalone financial statements;
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
iv. a) The management has represented that, to the best of its knowledge and belief, 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, whether, 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, 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, whether, 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 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 (a) and (b) contain any material misstatement.
v. No dividend has been declared or paid during the year by the Company.
vi. Based on our examination which included test checks, the Company has used SAP accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility in respect of the application and the same has operated throughout the year for all relevant transactions. We did not come across any instance of the audit trail feature being tampered with in respect of this accounting software. Normal/Regular users are not granted direct database or super user level access. However, changes to the database by a super user specifically does not carry the feature of a concurrent real time audit trail.
Further, in the absence of Service Organization Controls report in respect of payroll processing software which is operated by a third party service provider, we are unable to comment whether the audit trail feature was enabled and operated throughout the year for all relevant transactions recorded in the payroll processing software or whether there were any instances of the audit trail feature being tampered with.
Annexure 1
referred to in paragraph 1 under the heading "Report on Other Legal and Regulatory Requirements" of our report of even date
Re: Varroc Engineering Limited (the "Company")
In terms of the information and explanations sought by us and given by the Company and the books of account and records examined by us in the normal course of audit and to the best of our knowledge and belief, we state that:
(i) (a) (A) The Company has maintained proper records showing full particulars, including quantitative details and situation of Property, Plant and Equipment.
(a) (B) The Company has maintained proper records showing full particulars of intangible assets.
(b) Property, Plant and Equipment were physically verified by management in accordance with a planned program of verifying them once in three years which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification.
(c) The title deeds of all the immovable properties (other than properties where the Company is the lessee and the lease agreements are duly executed in favour of the lessee) are held in the name of the Company.
(d) The Company has not revalued its Property, Plant and Equipment (including Right of use assets) or intangible assets during the year ended March 31, 2024 since the Company follows cost model for measurement after recognition for Property, Plant and Equipment and Intangible Assets.
(e) There are no proceedings initiated or pending against the Company for holding any benami property under the Prohibition of Benami Property Transactions Act, 1988 and rules made thereunder.
(ii) (a) The inventory has been physically verified by management during the year except for inventories lying with third parties. In our opinion, the frequency of verification by management is reasonable and the coverage and procedure for such verification is appropriate. Discrepancies of 10% or more in aggregate for each class of inventory were not noticed in respect of such physical verification except for ‘Packing material which have been properly dealt with in the books of account. Inventories lying with third parties have been confirmed by them as at or near year end and discrepancies of 10% or more in aggregate for each class of inventory were not noticed in respect of such confirmations.
(b) As disclosed in note 22 to the financial statements, the Company has been sanctioned working capital limits in excess of H five crore in aggregate from banks and/or financial institutions during the year on the basis of security of current assets of the Company. The quarterly returns/statements filed by the Company with such banks and financial institutions are in agreement with the books of account of the Company except for cases disclosed in Appendix A.
(iii) (a) During the year, the Company has provided loans to companies as disclosed below. According to the information and explanations given to us and audit procedures performed by us, the Company has not provided advances in the nature of loans or security or guarantee to companies, firms, Limited Liability Partnerships or any other parties
(Rs in Million)
| Subsidiaries/ Joint Ventures/ Associates/ Others | Loans | |
| Aggregate amount granted/ provided during the year | Subsidiaries | 54.93 |
| Balance outstanding as at balance sheet date pertaining to parties to whom loan provided during the year as above | Subsidiaries | 30 |
(b) During the year the investments made and the terms and conditions of the grant of all loans to companies, firms, Limited Liability Partnerships or any other parties are not prejudicial to the Companys interest. The Company has not provided security and advances in the nature of loans or guarantee to companies, firms, Limited Liability Partnerships or any other parties during the year.
(c) In respect of loans where schedule of repayment of principal has been specified, there was no amount which was due during the year. Further, in respect of loans repayable on demand, no principal amounts were demanded during the year. In respect of payment of interest where due dates are stipulated, the delays in receipt of interest as of balance sheet date are mentioned below:
1. The above does not include Loans to Varroc Corp Holding B.V. Netherlands aggregating H11,388.30 million and interest aggregating H284.64 million which has been written off during the year.
2. * This interest on loans given to VEH B.V. Netherlands ("VEHBV") aggregating H16.55 Million has not been accrued in books of account post impairment of the underlying loans. The Loan amount granted to VEH BV, Netherlands aggregating H199.80 Million outstanding as at March 31,2024 has been impaired.
(d) The following amounts are overdue for more than ninety days as at the balance sheet date from subsidiaries to whom loans have been granted, and reasonable steps have been taken by the Company for recovery of the overdue amount of interest.
| Number of Cases | Principal Amount Overdue | Interest Overdue (Amount J in million) | Total Overdue (Amount J in million) |
| 11 | Nil | 23.51* | 23.51* |
*Out of INR 23.51 Million of outstanding interest from subsidiaries, interest amount aggregating H12.94 Million has not been accrued in the books of account. Further, H3.49 Million has been impaired.
(e) During the year, the Company had extended repayment dates of loans to companies prior to those falling due.
| Name of the Parties | Aggregate amount of overdues of existing loans renewed or extended or settled by fresh loans (J in million) | Aggregate overdue amount settled by extension of inter- corporate deposit to the same parties (J in million) | Percentage of the aggregate to the total loans or advances in the nature of loans granted during the year |
| CarIQ Technologies Private Limited | 25 | 5 | 83% |
Other than the above, there were no loans or advance in the nature of loan granted to companies, firms, Limited Liability Partnerships or any other parties which had fallen due during the year, that have been renewed or extended or fresh loans granted to settle the overdues of existing loans given to the same parties.
(f) As disclosed in note 16 to the financial statements, the company has granted loans which are repayable on demand or without specifying terms of payment.
(Rs in Million)
| Subsidiaries | |
| Aggregate amount of loans - | |
| Repayable on demand | 49.93* |
| Percentage of loans repayable on demand to the total loans | 91% |
*This excludes H199.80 million outstanding from VEH BV (100% subsidiary and hence a related party under section 2(76) of the Companies Act 2013) which has been impaired.
(iv) In our opinion and according to the information and explanations given to us, there are no loans, investments, guarantees, and securities given in respect of which provisions of section 185 of the Companies Act 2013 are applicable and hence not commented upon. In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of Section 186 of the Act in respect of loans and advances given, investments made and guarantees and securities given.
(v) The Company has neither accepted any deposits from the public nor accepted any amounts which are deemed to be deposits within the meaning of sections 73 to 76 of the Companies Act and the rules made thereunder, to the extent applicable. Accordingly, the requirement to report on clause 3(v) of the Order is not applicable to the Company.
(vi) We have broadly reviewed the books of account maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under section 148(1) of the Companies Act, 2013, related to the manufacture of its products and generation of electricity and are of the opinion that prima facie, the specified accounts and records have been made and maintained. We have not, however, made a detailed examination of the same.
(vii) (a) Undisputed statutory dues including goods and services tax, provident fund, employees state insurance, income-tax, sales tax, service tax, duty of customs, duty of excise, value added tax cess and other statutory dues applicable to it have generally been regularly deposited with the appropriate authorities though there has been a slight delay in a few cases. According to the information and explanations given to us and based on audit procedures performed by us, no undisputed amounts payable in respect of these statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.
(b) The dues of goods and services tax, provident fund, employees state insurance, income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax, cess, and other statutory dues where applicable, which have not been deposited on account of any dispute, are as follows:
| Name of the statute | Nature of the dues | Amount* (Rs In Million) | Period to which the amount relates | Forum where the dispute is pending |
| Income Tax Act, 1961 | Income Tax | 116.90 | AY 2008-09 & AY 2013-14 | Bombay High Court, Aurangabad Branch |
| Income Tax Act, 1961 | Income Tax | 93.64 | AY 2015-16 to AY 2020-21 | Commissioner of Income Tax (Appeals), Pune |
| The Central Excise Act, 1944 | Excise Duty | 118.23 | FY 2011-16 | Commissioner of Central Excise, Aurangabad |
| The Central Excise Act, 1944 & The Finance Act, 1994 | Excise Duty and Service Tax | 10.69 | FY 2012-20 | Various Tax authorities |
| Customs Act, 1962 | Custom Duty | 37.59 | FY 2021-22 | Commissioner of Customs Mumbai |
| Goods and Service Act, 2017 | Goods and Service Tax | 6.73 | FY 2017 -18 and FY 2018 -19 | Commissioner (Appeals)/ Sales tax Officer |
* Against the litigation amounts as mentioned above, H38.64 Million have been deposited with the respective authorities. The amounts in the above table are excluding interest/penalties.
(viii) The Company has not surrendered or disclosed any transaction, previously unrecorded in the books of account, in the tax assessments under the Income Tax Act, 1961 as income during the year. Accordingly, the requirement to report on clause 3(viii) of the Order is not applicable to the Company.
(ix) (a) The Company has not defaulted in repayment of loans or other borrowings or in the payment of interest thereon to any lender.
(b) The Company has not been declared wilful defaulter by any bank or financial institution or government or any government authority.
(c) Term loans including non-convertible debentures issued on private placement basis were applied for the purpose for which the loans were obtained.
(d) On an overall examination of the financial statements of the Company, the Company has used funds raised on short-term basis in the form of current borrowings/payables aggregating to Rs 4,754.66 million for loans to overseas subsidiaries which have been written off (hence considered as long-term utilisation).
(e) On an overall examination of the financial statements of the Company, the Company has not taken any funds from any entity or person on account of or to meet the obligations of its subsidiaries, associates or joint ventures.
(f) The Company has not raised loans during the year on the pledge of securities held in its subsidiaries and joint ventures. Hence, the requirement to report on clause (ix)(f) of the Order is not applicable to the Company.
(x) (a) The Company has not raised any money during the year by way of initial public offer / further public offer (including debt instruments). Hence, the requirement to report on clause 3(x)(a) of the Order is not applicable to the Company.
(b) The Company has not made any preferential allotment or private placement of shares or fully, partially or optionally convertible debentures during the year under audit and hence, the requirement to report on clause 3(x)(b) of the Order is not applicable to the Company.
(xi) (a) No material fraud by the Company or no material fraud on the Company has been noticed or reported during the year.
(b) During the year, no report under sub-section (12) of section 143 of the Companies Act, 2013 has been filed by cost auditor / secretarial auditor or by us in Form ADT-4 as prescribed under Rule 13 of Companies (Audit and Auditors) Rules, 2014 with the Central Government.
(c) As represented to us by the management, there are no whistle blower complaints received by the Company during the year.
(xii) The Company is not a Nidhi Company as per the provisions of the Companies Act, 2013. Therefore, the requirement to report on clause 3(xii)(a), (b) and (c) of the Order is not applicable to the Company.
(xiii) Transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the notes to the financial statements, as required by the applicable accounting standards.
(xiv) (a) The Company has an internal audit system commensurate with the size and nature of its business.
(b) The internal audit reports of the Company issued till the date of the audit report, for the period under audit have been considered by us.
(xv) The Company has not entered into any non-cash transactions with its directors or persons connected with its directors and hence requirement to report on clause 3(xv) of the Order is not applicable to the Company.
(xvi) (a) The provisions of section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934) are not applicable to the Company.
Accordingly, the requirement to report on clause (xvi)(a) of the Order is not applicable to the Company.
(b) The Company is not engaged in any Non-Banking Financial or Housing Finance activities. Accordingly, the requirement to report on clause (xvi)(b) of the Order is not applicable to the Company.
(c) The Company is not a Core Investment Company as defined in the regulations made by Reserve Bank of India. Accordingly, the requirement to report on clause 3(xvi)(c) of the Order is not applicable to the Company.
(d) There is no Core Investment Company as part of the Group, hence, the requirement to report on clause 3(xvi)
(d) of the Order is not applicable to the Company.
(xvii) The Company has not incurred cash losses in the current financial year and immediately preceding financial year.
(xviii) There has been no resignation of the statutory auditors during the year and accordingly requirement to report on Clause 3(xviii) of the Order is not applicable to the Company.
(xix) On the basis of the financial ratios disclosed in note 53 to the financial statements, ageing and expected dates of realization of financial assets and payment of financial liabilities, other information accompanying the financial statements, our knowledge of the Board of Directors and management plans and based on our examination of the evidence supporting the assumptions, nothing has come to our attention, which causes us to believe that any material uncertainty exists as on the date of the audit report that Company is not capable of meeting its liabilities existing at the date of balance sheet as and when they fall due within a period of one year from the balance sheet date. We, however, state that this is not an assurance as to the future viability of the Company. We further state that our reporting is based on the facts up to the date of the audit report and we neither give any guarantee nor any assurance that all liabilities falling due within a period of one year from the balance sheet date, will get discharged by the Company as and when they fall due.
(xx) (a) In respect of other than ongoing projects, there are no unspent amounts that are required to be transferred to a fund specified in Schedule VII of the Companies Act (the Act), in compliance with second proviso to sub section 5 of section 135 of the Act. This matter has been disclosed in note 37(b) to the financial statements.
(b) There are no unspent amounts in respect of ongoing projects, that are required to be transferred to a special account in compliance of provision of sub section (6) of section 135 of Companies Act. This matter has been disclosed in note 37(b) to the financial statements.
Appendix A referred to in Annexure 1 of our report clause 2b of even date
1. Inventories:
(Rs in Million)
| Reconciliation item | Net difference | |||||
| Sr No. Quarter | Amount as per books of accounts | Amount as per stock statement | Difference | Components not considered for the purpose of reporting (Refer Note 1 of Note 22(a) of the standalone financial statement) | Post closure adjustments | |
| 1 Q1 | 4,248.51 | 4,367.81 | (119.30) | (119.30) | - | - |
| 2 Q2 | 4,250.42 | 4,443.58 | (193.16) | (193.16) | - | - |
| 3 Q3 | 4,255.13 | 4,424.75 | (169.62) | (169.62) | - | - |
| 4 Q4 | 3,892.65 | 4,190.13 | (297.48) | (297.48) | - | - |
2. Trade Receivable:
| Reconciliation item | ||||||
| Sr No. Quarter | Amount as per books of accounts | Amount as per stock statement | Difference | Components not considered for the purpose of reporting (Refer Note 2 of Note 22(a) of the standalone financial statement) | Post closure adjustments (Refer Note 4 of Note 22(a) of the standalone financial statement) | Net difference (Refer Note 3 of Note 22(a) of the standalone financial statement) |
| 1 Q1 | 3,295.97 | 5,713.00 | (2,417.03) | (2,284.62) | - | (132.41) |
| 2 Q2 | 2,707.11 | 6,041.15 | (3,334.04) | (3,153.38) | - | (180.66) |
| 3 Q3 | 2,231.92 | 5,748.93 | (3,517.01) | (3,373.22) | - | (143.79) |
| 4 Q4 | 2,262.89 | 5,565.23 | (3,302.34) | (3,244.12) | (50.67) | (7.55) |
3. Trade payables:
| Reconciliation item | ||||||
| Sr No. Quarter | Amount as per books of accounts | Amount as per stock statement | Difference | Components not considered for the purpose of reporting (Refer Note 5 of Note 22(a) of the standalone financial statement) | Post closure adjustments (Refer Note 6 of Note 22(a) of the standalone financial statement) | Net
difference |
| 1 Q1 | 7,686.14 | 6,218.92 | 1,467.22 | 1,472.59 | (5.37) | - |
| 2 Q2 | 7,803.17 | 6,570.61 | 1,232.56 | 1,246.39 | (13.83) | - |
| 3 Q3 | 7,602.29 | 6,365.43 | 1,236.86 | 1,249.39 | (12.53) | - |
| 4 Q4 | 7,274.22 | 6,465.45 | 808.77 | 808.77 | - | - |
Annexure 2 to the Independent Auditors Report of even date on the standalone financial statements of Varroc Engineering Limited
Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")
We have audited the internal financial controls with reference to standalone financial statements of Varroc Engineering Limited ("the Company") as of March 31,2024 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.
Managements Responsibility for Internal Financial Controls
The Companys Management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India ("ICAI"). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to the Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.
Auditors Responsibility
Our responsibility is to express an opinion on the Companys internal financial controls with reference to these standalone financial statements based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the "Guidance Note") and the Standards on Auditing, as specified under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both issued by ICAI. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls with reference to these standalone financial statements was established and maintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls with reference to these standalone financial statements and their operating effectiveness. Our audit of internal financial controls with reference to standalone financial statements included obtaining an understanding of internal financial controls with reference to these standalone financial statements, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the Companys internal financial controls with reference to these standalone financial statements.
Meaning of Internal Financial Controls With Reference to these Standalone Financial Statements
A companys internal financial controls with reference to standalone financial statements is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal financial controls with reference to standalone financial statements includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls With Reference to Standalone Financial Statements
Because of the inherent limitations of internal financial controls with reference to standalone financial statements, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls with reference to standalone financial statements to future periods are subject to the risk that the internal financial control with reference to standalone financial statements may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Qualified Opinion
According to the information and explanations given to us and based on our audit, the following material weakness has been identified as at March 31,2024:
• The Company has not received the Service Organization Controls report in respect of payroll processing which is managed by a third-party service organization. Hence, we are unable to obtain sufficient appropriate audit evidence whether there were adequate internal financial controls with respect to payroll processing at the service organisation and whether such internal financial controls at the service organisation were operating effectively.
A ‘material weakness is a deficiency, or a combination of deficiencies, in internal financial control with reference to standalone financial statements, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis.
In our opinion, except for the possible effects of the material weakness described above on the achievement of the objectives of the control criteria, the Company has maintained, in all material respects, adequate internal financial controls with reference to standalone financial statements and such internal financial controls with reference to standalone financial statements were operating effectively as at March 31, 2024, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note issued by the ICAI.
Explanatory paragraph
We also have audited, in accordance with the Standards on Auditing issued by ICAI, as specified under Section 143(10) of the Act, the standalone financial statements of the Company, which comprise the Balance Sheet as at March 31, 2024, and the related Statement of Profit and Loss, including the statement of Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of material accounting policies and other explanatory information. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the March 31, 2024 standalone financial statements of the Company and this report does not affect our report dated May 17, 2024, which expressed an unqualified opinion on those financial statements.
| For S R B C & CO LLP |
| Chartered Accountants |
| ICAI Firm Registration Number: 324982E/E300003 |
| per Paul Alvares |
| Partner |
| Membership Number: 105754 |
| UDIN: 24105754BKBZNK3214 |
| Place of Signature: Pune |
| Date: May 17, 2024 |
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