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Setco Automotive Ltd. Auditor Report
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You can view full text of the latest Auditor's Report for the company.
Market Cap. (Rs.) 82.27 Cr. P/BV -0.23 Book Value (Rs.) -26.72
52 Week High/Low (Rs.) 10/5 FV/ML 2/1 P/E(X) 0.00
Bookclosure 27/09/2023 EPS (Rs.) 0.00 Div Yield (%) 0.00
Year End :2021-03 

REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTSOPINION

We have audited the Standalone Financial Statements of Setco Automotive Limited (“the Company”), which comprise the Standalone Balance Sheet as at 31st March 2021, and the Standalone Statement of Profit and Loss (including Other Comprehensive Income), Standalone Statement of Changes in Equity, Standalone Statement of Cash Flows 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 the aforesaid standalone financial statements give the information required by the Companies Act, 2013 (“the Act') 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 Act read with the Companies (Indian Accounting Standards) Rule 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, 2021, and Loss and total comprehensive income, 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 Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor's Responsibilities for the Audit of the Standalone Ind AS 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 (ICAI) 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 made 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 statement.

EMPHASIS OF MATTER

We draw attention to the following matters in the Notes to the Standalone Ind AS financial statements:

a) The management's assessment of the impact of COVID -19 pandemic on its liquidity position and the recoverability of its assets comprising property, plant and equipment, inventories, receivables and other current assets as at the balance sheet date and on the basis of evaluation, has concluded that no material adjustments are required in the financial statements. (Refer Note No. 53 of Standalone Ind AS Financial

Statements).

b) The Company's subsidiary Lava Cast Private Limited has eroded entire net worth due to losses. However, no impairment is provided on value of investment, based on the valuation report of Independent Valuer, as per DCF method. (Refer Note no. 3(b) of Standalone Ind AS Financial Statements).

c) The company has not charged interest on unsecured loan to the subsidiaries. (Refer Note no. 12(a) of Standalone Ind AS Financial Statements).

d) The Company has made investment of Rs. 5860 Lakhs in 9% cumulative compulsorily redeemable preference shares of Setco Engineering Private Limited, a company in which directors have interest. SEPL, being an investment company, derives its major income from Setco Automotive Limited in form of dividend and sales commission. SEPL has incurred loss in current year and hence, the Company has made impairment provision for loss of dividend. (Refer Note No. 33(c) of Standalone Ind AS Financial Statements)

e) The Company has invested Rs. 1,535.00 lakhs in 30,70,000 equity shares of SE Transstadia Private Limited, a company in which directors have interest. The investee Company has eroded entire net worth due to losses. Due to non-payment of interest and instalments, company's accounts with bank have become NPA in December 2018. The investee company has submitted restructuring proposal to bank on 17.06.2020 and the same is under consideration. Based on the future projected profitable operations and report of Independent valuer as per DCF Method, the Company has provided impairment on this investment. (Refer Note No. 33(h) of Standalone Ind AS Financial Statements).

f) Amount receivable of Rs. 426 Lakhs towards sharing of common expenses from SE Transstadia Pvt. Ltd. (SETPL), a company in which directors are interested. Considering current financial position of SETPL, the said amount has remained outstanding. The company has made ECL provision of 20% of the outstanding amount. (Refer Note No. 33(g) of Standalone Ind AS Financial Statements)

g) The Company's wholly owned ultimate foreign subsidiary Setco Automotive UK Ltd. has eroded net worth due to losses. Based on the report of Independent Valuer as per DCF method, provision for impairment has been made on the Investment and loans receivables from the subsidiary Company. (Refer Note No. 33 (b) of Standalone Ind As Financial Statements).

h) The Company's wholly owned foreign subsidiary Setco MEA, DMCC has eroded net worth due to loss. The Company has provided impairment loss against trade receivable equal to the net assets deficit reported by the company. Pending compliance of Bank conditions, the Company could not remit share application money to this foreign subsidiary, since inception and hence, allotment of share and issue of share certificate is

pending. The Company has recognized it as investment in the subsidiary company and consolidated the said subsidiary based on 100% control. The Company has decided to close this subsidiary vide Board Resolution dated 09.02.2021. (Refer Note No. 33(d) of Standalone Ind AS Financial Statements)

i) Trade receivables, Trade Payables and other debit/ credit balances are subject to reconciliation and confirmation. (Refer Note No. 44 of Standalone Ind AS Financial Statements).

j) In earlier year, the Company has recognized Rs. 398 Lakhs as income being reimbursement of Central Goods & Service Tax (CGST)/Integrated Goods & Service Tax (IGST) share of State for the Uttarakhand unit pending notification of incentives by the State Government. In absence of any notification in the said matter, the Company has filed writ petition in High Court. Pending any further progress in this matter, the Company has provided for impairment at 100%. (Refer Note No. 33(e) of Standalone Ind AS Financial Statements)

k) An amount of Rs. 1834.99 lakhs (Rs. 3260.97 lakhs) is pending against export receivables as on 31 March 2021, beyond the timelines stipulated under the Foreign Exchange Management Act, 1999. The management of the Company has submitted necessary application with the appropriate authority for condonation of delays to regularize the default. Impact thereof if any, will be considered when such application is disposed off. (Refer Note No. 9 of Standalone Ind AS Financial Statements)

l) The company has provided ECL on investments in Equity and preference shares in WEW Holdings Limited (Mauritius) in respect of its holding in Setco Automotive (UK) Ltd. (Refer Note No. 3(c) of Standalone Ind AS Financial Statements).

m) Capital advances for purchase of machinery to the supplier was unrecoverable and thus 100% impairment provision is made. (Refer Note No. 33(f) of Standalone Ind AS Financial Statements).

n) On physical verification of stocks, stock costing Rs. 1863.92 lakhs were found to be rusty, damaged and unfit for consumption and unretrievable without compromising the quality of finished products. Therefore, such items of stocks are written down in the accounts net of the existing provision and valued at NIL and the net effect is disclosed under the head “Exceptional Items”. (Refer Note No. 33(i) of Standalone Ind AS Financial Statements).

o) The company has obtained consent of members to transfer the clutch manufacturing business to a wholly owned subsidiary in EGM held on 22nd May 2021.

Further the company has obtained member's consent to purchase trademark/ Brand “LIPE” owned by foreign subsidiaries (SAUL & SANAI) based on valuations done by approved valuers.

In absence of binding agreements/ documents till date in this regard, no effect relating to said proposals are given or recognised in accounts for the year. (Refer to note no. 35 of the accompanying standalone Ind AS financial statement.)

Our opinion is not modified in respect of these matters.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, 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 Ind AS Financial Statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1. Product Development:

Kev Audit Matters

How the matter was addressed in the audit

Intangible Assets: Product development

1. Testing management's controls over capitalization

The Company conducts significant level of development activities and has to apply judgements

of Product development costs.

2. Evaluating the nature of development expenses

in identifying product development expenses meeting

incurred that are capitalized into product

the criteria for capitalization under the requirements

development expense.

of Ind AS. . Expenditure Identifiable and reliably measurable, incurred on product development yielding future economic benefits is capitalized as

3. Assessing the reasonableness of the capitalization based on success of the product,

Product Development Expenses. We identified the

4. Verifying amortization of capitalization after

capitalization of Product development costs as

commercial production commences as per

a key audit matter due to significant management

consistent policy of Company to amortise over

judgements about the future performance and

10 years.

viability of the products. 62

5. Obtaining fair valuation of product development capitalised from independent valuer.

6. Checking reasonableness of disclosure relating to research and development in financial statements.

Refer to note no. 2 (iii) of the accompanying standalone Ind AS financial statement.

2. Impairment assessment of long-term investments

in,

oans receivables and trade receivables from

subsidiaries, ioint. venture and associates.

Kev Audit Matters

How the matter was addressed in the audit

The assessment of recoverable amount of the

1

Evaluated and tested the design and

Company's investment in and loans receivable

implementation of operating effectiveness

and trade receivables from its subsidiaries and

of controls over the management review

joint venture and other related entity involves

process of impairment assessment.

significant iudgement. The investments are carried at cost less any diminution in value of such investments and tested for impairment at each reporting date. These includes assumptions

2

Compared the carrying amount of investment with the expected value of the business based on the discounted cash flow method.

such as projected cash flows, discount rates,

3

Assessed the key assumptions including

current work on hand, future contract future

discount rate and estimated future growth, of

business plan, claims, recoverability of certain

independent valuation report obtained by the

receivables as well as economic assumption

Company. Compared the previous forecast

such as growth rate.

to actual results to assess the Company's

We focused on these areas as key audit matter

ability to forecast accurately.

due to judgement involved in forecasting future

4

We checked the loans advanced / repaid

cash flows and selection of assumptions.

in relation to these loans during the year through bank statements.

5

. Evaluated accuracy of disclosure in the financial statements.

Refer Note no. 3 & 33 of accompanying Standalone Ind AS financial statements.

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 Company's annual report i. e. Corporate Information, Board of Directors, Management Discussion and Analysis, Directors Report and Corporate Governance Report but does not include the standalone financial statements and our auditors' report thereon. The above information is yet to be provided to us.

MANAGEMENT'S RESPONSIBILITIES FOR THE STANDALONE FINANCIAL STATEMENTS

The Company's 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, total comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. 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 judgements 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, 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 Company's financial reporting process.

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 judgement 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 Companies Act, 2013, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls system 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 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.

• 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 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.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1. As required by the Companies (Auditor's Report) Order, 2016 (“the Order”), issued by the Central Government of India in terms of section 143 (11) of the Act, we give in “Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

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

c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Changes in Equity and the Cash Flow Statement 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 31st March, 2021 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2021 from being appointed as a director in terms of Section 164 (2) of the Act.

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 B”. Our report expresses an unmodified 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 Auditor's Report in accordance with the requirements of section 197(16) of the Act, as amended, in our opinion and to the best of our information and according to the explanations given to us, the remuneration paid by the Company to its directors during the year is in accordance with the provisions of section 197 of the Act.

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 43 B to 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.

For V. Parekh & Associates Chartered Accountants (Firm Registration No. 107488W)

(Rasesh V. Parekh)

Partner

Membership No. 38615 UDIN: 21038615AAAAKL5714

Place : Nathdwara

Date : 8th August 2021



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