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Electrosteel Castings Ltd. Auditor Report
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You can view full text of the latest Auditor's Report for the company.
Market Cap. (Rs.) 11016.05 Cr. P/BV 2.53 Book Value (Rs.) 70.53
52 Week High/Low (Rs.) 204/32 FV/ML 1/1 P/E(X) 34.88
Bookclosure 21/02/2024 EPS (Rs.) 5.11 Div Yield (%) 0.51
Year End :2023-03 

Electrosteel Castings Limited

Report on the Audit of the Standalone Financial Statements

Qualified Opinion

We have audited the standalone financial statements of Electrosteel Castings Limited ("the Company”), which comprise the balance sheet as at March 31, 2023, and the statement of Profit and Loss (including other Comprehensive Income), the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other notes for the year ended on that date (hereinafter referred to as "financial statements”).

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion Paragraph, the aforesaid 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 and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2023, and it's profit including other comprehensive income, changes in equity and its cash flows for the year ended on that date.

Basis for Qualified Opinion

Attention is invited to the following notes of the accompanying financial statements:

a) Note no. 48 regarding cancellation of coal block allotted to the company in earlier year and adjustments required to be carried out in respect of the claim received so far and carrying value of the property, plant and equipment, capital work in progress, inventory and balance lying under other heads of account for the reasons stated therein; and

b) Note No. 9.1 in respect of company's investment in ESL Steel Limited (ESL), the pledge of which was invoked by the lenders of ESL and the same was set aside by Hon'ble High court at Calcutta and mortgage of Land at Elavur plant in favour of one of the lenders of ESL who had assigned their rights to another party and symbolic possession of the land had been taken by the said party. The matter has been disputed by the company and is currently pending before DRAT and Hon'ble High Court at Madras.

c) Pending finalization of the matters dealt with in (a) and (b), impacts thereof are presently not ascertainable and as such cannot be commented upon by us.

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 Auditors' Responsibilities for the Audit of the financial statements section of our report. We are independent of the Company in accordance with the

Code of Ethics issued by the Institute of Chartered Accountants of India ('ICAI') 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 ICAI's Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matters described in the basis for qualified opinion section, we have determined the matters described below to be the Key Audit Matters to be communicated in our report:

Key Audit Matters

Addressing the key audit matters

Claims, Litigations and disclosure of contingent liabilities (as described in

note 28, 48, 49 and 53(I) of the financial statements)

The company is exposed to number of significant claims and litigations including taxation and related provisions of relevant laws and regulation and interpretations. This includes income tax refund of Rs. 62,10.24 lakhs carried forward as liabilities as on March 31, 2023 as dealt with in Note no. 28 and contingent liabilities as disclosed in Note no. 53(I). The assessment of the likelihood and quantum of any liability with respect to these matters are matter of judgmental due to the uncertainty.

We considered this to be a key audit matter, since the accounting and disclosure of claims and litigations is complex and judgmental, and the amount involved are or can be material to the financial statements.

Our Audit procedures based on which we arrived at the conclusion regarding reasonableness of provision/ disclosure made include the following:

• Understood, assessed and tested the design and operating effectiveness of key controls surrounding assessment of litigations relating to the relevant laws and regulations.

• Understood, assessed and tested the design and operating effectiveness of key controls surrounding assessment of tax litigations relating to the relevant laws and regulations and the internal control environment relating to the identification, recognition and measurement of provisions for disputes, potential claims and litigations and contingent liabilities;

• Testing the internal control environment relating to the identification, recognition and measurement of provisions for disputes, potential claims and litigations and contingent liabilities;

• Analysed significant changes/ updates from previous periods and obtained a detailed understanding of such items. Assessed recent judgements passed by the court authorities affecting such change;

Key Audit Matters

Addressing the key audit matters

• Discussed the status of significant known actual and potential litigations with the management and noted material information placed before the board for such cases;

• Evaluated management's assessments by understanding precedents set in similar cases and assessed the reliability of the management's past estimates/judgements;

• Reliance has been placed on such legal interpretation and opinion provided on the matter;

• Assessment of the adequacy of management's assumptions and estimates related to the recognized provision for disputes and disclosure of contingent liabilities in the financial statements or otherwise references made in the Auditors'Report wherever relevant and appropriate; and

• Examined external legal opinions and other evidence to corroborate management's assessment of the risk profile in respect of legal claims.

Verification of Inventory and Valuation thereof (as described in note 13

and 3.8 of the financial statements)

The total inventory of the Company amounts to Rs. 16,93,72.62 lakhs (as on March 31,2023) which forms about 21.00% of the total assets of the Company.

This includes bulk materials such as coal, coke, iron ore etc., which are susceptible to handling loss, moisture loss/gain, spillage etc. and determination of the same requires estimation based on experience and technical expertise.

We determined this to be a matter of significance to our audit due to quantum of the amount and estimation involved.

Our Audit procedures based on which we arrived at the conclusion regarding reasonableness of determination of year-end inventory and valuation thereof include the following:

• The Company deployed an Independent agency for verification of Bulk Materials during which we were present to oversee the process of the verification;

• We reviewed the report submitted by external agency and obtained reasons/explanation for variations observed by them with respect to book stock;

• The materiality for variations after considering the reasonable allowance for volumetric measurement were duly considered; and

• We examined the valuation process/ methodology and checks being performed at multiple levels to ensure that the valuation is consistent as per the policy followed in this respect.

Key Audit Matters

Addressing the key audit matters

Recoverability of Government Grant (as described in note 19.4 of the

financial statements)

The Company has been entitled for various sales tax incentives under industrial promotion scheme issued by the State Government. The company had complied with the condition of the Scheme and incentives were accounted for in the books in earlier years. A sum of Rs. 58,83.07 lakhs are outstanding as on March 31, 2023. Further such incentive for the period from July 01, 2017 to March 31, 2019 for reasons stated in Note no. 53(ii)(a) has not been recognised.

We determined this to be a matter of significance to our audit due to quantum of the government grant outstanding, compliance requirement of the scheme and also because of recovery pattern of the same.

Our Audit procedures based on which we arrived at the conclusion regarding reasonableness of accounting and disclosure include the following:

• Evaluating eligibility requirement of the schemes and compliances by the company;

• Understanding and testing the design and operating effectiveness of controls as established by the management in recognition and assessment of the recoverability of the grant; and

• Considering the relevant notification to ascertain the basis for determination, completion of performance obligation and assessing the appropriateness of the government grant and timing of recognition and past receipts of the grants.

Information Other than the Financial Statements and Auditors' Report Thereon

The Company's Board of Directors is responsible for the other information. The other information comprises the Report of the Directors and the annexures thereto (namely Management Discussion and Analysis, Report on performance and financial position of the subsidiaries and joint ventures, Report on Corporate Governance, Annual Report on CSR Activities, Business Responsibility and Sustainability Report, Conservation of energy, technology absorption, foreign exchange earnings and outgo and remuneration and other specified particulars of employees) but does not include the financial statements and our auditors' report thereon.

Our opinion on the 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 financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we have performed on the other information that we have obtained prior to the date of this auditors' report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Management and those charged with governance for the Financial Statements

The Company's Board of Directors is responsible for the matters stated

in section 134(5) of the Companies Act, 2013 ("the Act”) with respect to the preparation of these financial statements that give a true and fair view of the state of affairs (financial position), Loss (financial performance including 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 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 financial statement that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the 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.

Those Board of Directors are also responsible for overseeing the Company's financial reporting process.

Auditors' Responsibility for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the 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 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 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 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 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 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; and

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period 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.

Other Matters

The comparative financial information of the Company for the year ended March 31, 2022 have been taken from the standalone financial statements for the year ended on that date which were audited by the predecessor auditor who expressed a qualified opinion on these financial statements. We have placed reliance on the report dated May 10, 2022 given by the predecessor auditor for the purpose of these standalone financial statement and our report thereupon.

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 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. Further to our comments in the annexure referred to in the paragraph above, 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 relevant books of account;

d) Except for the possible effects of the matter described in the Basis for Qualified Opinion Paragraph, in our opinion, the aforesaid financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

e) The matter described in the Basis for Qualified Opinion Paragraph, in the event of being decided unfavorable, in our opinion, may have an adverse effect on the functioning of the company;

f) On the basis of the written representations received from the directors as on March 31, 2023 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2023 from being appointed as a director in terms of Section 164 (2) of the Act;

g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the

Basis for Qualified Opinion paragraph above; and

h) With respect to the adequacy of the internal financial controls with reference to financial statements in place 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 control with reference to financial statements.

3. 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, in our opinion and to the best of our information and according to the explanations given to us:

i. Except for the matters dealt with in the Basis for Qualified Opinion paragraph impact whereof are presently not ascertainable, the Company has disclosed the impact of pending litigations (other than those already recognized in the financial statements) on its financial position as required in terms of the Ind AS and provisions of the Companies Act, 2013 - Refer Note no. 53(i) to the 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 no. 46 to the financial statements;

iii. There has been no delay in transferring amounts, 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 (which are material either individually or in the aggregate) 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 or entity, including foreign entity ("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 (which are material either individually or in the aggregate) have been received by the Company from any person or entity, including foreign entity ("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 the audit procedures and generally accepted auditing practices followed in terms of SAs 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 (a) and (b) above, contain any material misstatement; and

v. The dividend declared or paid during the year by the company is in compliance with Section 123 of the Companies Act, 2013.

vi. As stated in Note no. 22.8 of the financial statements, the Board of Directors of the company has proposed dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend proposed is in accordance with Section 123 of the Companies Act, 2013, as applicable.

vii. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of account using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company with effect from April 1,2023, and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 is not applicable for the financial year ended March 31, 2023.

4. With respect to the reporting under section 197(16) of the Act to be included in the Auditors' Report, In our opinion and according to the information and explanations given to us, the remuneration (including sitting fees) paid by the Company to its Directors during the current year is in accordance with the provisions of section 197 of the Act and is not in excess of the limit laid down therein.

For Lodha & Co, Chartered Accountants Firm's ICAI Registration No.:301051E

R. P. Singh Partner

Place : Kolkata Membership No. : 52438

Date : May 17, 2023 UDIN: 23052438BGXSCC8585


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