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AUDITOR'S REPORT

Hindustan Construction Company Ltd.

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Market Cap. (₹) 2110.67 Cr. P/BV -3.70 Book Value (₹) -3.77
52 Week High/Low (₹) 20/10 FV/ML 1/1 P/E(X) 0.00
Bookclosure 22/11/2018 EPS (₹) 0.00 Div Yield (%) 0.00
Year End :2018-03 

INDEPENDENT AUDITOR'S REPORT

To the Members of Hindustan Construction Company Limited

Report on the Standalone Financial Statements

1. We have audited the accompanying standalone financial statements of Hindustan Construction Company Limited ('the Company'), which comprise the Balance Sheet as at 31 March 2018, the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended and a summary of the significant accounting policies and other explanatory information.

Management's Responsibility for the Standalone Financial Statements

2. The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act,

2013 ('the Act') with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs (financial position), profit or loss (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. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and

for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

3. Our responsibility is to express an opinion on these standalone financial statements based on our audit.

4. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

5. We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether these standalone financial statements are free from material misstatement.

6. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial controls relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the financial statements.

7. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on these standalone financial statements.

Basis for Qualified Opinion

8. As stated in Note 33(a) to the standalone financial statements, the Company's non-current investments as at 31 March 2018 include investments aggregating Rs, 630.83 crore in two of its subsidiaries; and non-current loans, other non-current financial assets and other current financial assets as at that date include dues from such subsidiaries aggregating Rs, 580.75 crore, Rs, 43.42 crore and Rs, 6.63 crore, respectively, being considered good and recoverable by the management considering the factors stated in the aforesaid note including valuation report from an independent valuer. However, these subsidiaries have accumulated losses and their consolidated net worth is fully eroded. Further, these subsidiaries are facing liquidity constraints due to which they may not be able to realize projections made as per their respective business plans. In the absence of sufficient appropriate evidence, we are unable to comment upon

the carrying value of these non-current investments and recoverability of the aforesaid dues and the consequential impact, if any, on the accompanying standalone financial statements. Our audit opinion on the standalone financial statements for the year ended 31 March 2017 was also qualified in respect of this matter.

Qualified Opinion

9. 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 standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including Ind AS specified under Section 133 of the Act, of the state of affairs (financial position) of the Company as at 31 March 2018, and its profit (financial performance including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.

Emphasis of Matters

10. We draw attention to:

a) Note 33(b) to the standalone financial statements regarding the Company's non-current investment in a subsidiary company, non-current loans and other non-current financial assets due from such subsidiary aggregating Rs, 2.24 crore, Rs, 1,281.40 crore, Rs, 158.18 crore, respectively, as at 31 March 2018. The consolidated net-worth of the aforesaid subsidiary has been fully eroded; however, based on certain estimates and other factors, including subsidiary's future business plans, growth prospects and valuation report from an independent valuer, as described in the said note, management believes that the realizable amount is higher than the carrying value of the non-current investments, noncurrent loans and other non-current financial assets due to which these are considered as good and recoverable. Our opinion is not qualified in respect of this matter.

b) Note 34 to the standalone financial statements regarding uncertainties relating to recoverability of unbilled work-in-progress (other current financial assets), non-current trade receivables and current trade receivables aggregating

Rs, 686.24 crore, Rs, 123.29 crore and Rs, 214.38 crore, respectively, as at 31 March 2018, which represent various claims raised in the earlier years in respect of projects substantially closed or suspended and where the claims are currently under negotiations/discussions/arbitration/ litigation. Pending the ultimate outcome of these matters, which is presently unascertainable, no adjustments have been made in the accompanying standalone financial statements. Our opinion is not qualified in respect of this matter.

c) Note 26.1 and 26.3 to the standalone financial statements regarding remuneration of Rs, 10.66 crore paid for each of the financial years ended 31 March 2014 and 31 March 2016 to the Chairman and Managing Director (CMD), which is in excess of the limits prescribed under the provisions

of the erstwhile Companies Act, 1956/ Companies Act,

2013, respectively and for which the Company has filed an application for review / an application, respectively with the Central Government; however approval in this regard is pending till date. Our opinion is not qualified in respect of this matter.

Other Matters

11. We did not audit the separate financial statements of six joint operations, included in these standalone financial statements, whose financial statements reflect total assets of Rs, 29.73 crore and net liabilities of Rs, 38.57 crore as at 31 March 2018, and total revenues of Rs, 19.90 crore for the year ended on that date, as considered in these standalone financial statements. The Company had prepared separate set of statutory financial statements of these joint operations for the years ended 31 March 2018 in accordance with accounting principles generally accepted in India and which have been audited by other auditors under generally accepted auditing standards applicable in India. Our opinion in so far as it relates to the amounts and disclosures in respect of these joint operations is solely based on report of the other auditors and the conversion adjustments prepared by the management of the Company, which have been audited by us. Our opinion is not qualified in respect of this matter.

Report on Other Legal and Regulatory Requirements

12. 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 the Annexure I, a statement on the matters specified in paragraphs 3 and 4 of the Order.

13. Further to our comments in Annexure I, as required by Section 143(3) of the Act, we report that:

a) We have sought and except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

b) Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, 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 standalone financial statements dealt with by this report are in agreement with the 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 standalone financial statements comply with Ind AS specified under Section 133 of the Act;

e) The matters described in paragraphs 8, 10(a) and 10(b) under the Basis for Qualified Opinion/Emphasis of Matters paragraphs, 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 and taken on record by the Board of Directors, none of the directors is disqualified as at 31 March 2018 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;

h) We have also audited the internal financial controls over financial reporting (IFCoFR) of the Company as at 31 March 2018 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date and our report dated May 3, 2018 as per Annexure

II expressed a qualified opinion;

i) 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 (as amended), in our opinion and to the best of our information and according to the explanations given to us:

i. The Company, as detailed in Notes 6.1, 32 A(i) to

(iii) and 34 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position;

ii. Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the Company, as detailed in Note 18.1 to the standalone financial statements, has made provision, as required under the applicable law or Ind AS, for material foreseeable losses, if any, on long-term contracts including derivative contracts;

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company;

iv. The disclosure requirements relating to holdings as well as dealings in specified bank notes were applicable for the period from 8 November 2016 to 30 December 2016 which are not relevant to these standalone financial statements. Hence, reporting under this clause is not applicable.

Based on the audit procedures performed for the purpose of reporting a true and fair view on the financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit, and to the best of our knowledge and belief, we report that:

i. a) The Company has maintained proper records showing full particulars, including quantitative details and situation of its fixed assets.

b) The fixed assets have been physically verified by the management during the year and no material discrepancies were noticed on such verification. In our opinion, the frequency of verification of the fixed assets is reasonable having regard to the size of the Company and the nature of its assets.

c) The title deeds of all the immovable properties (which are included under the head 'Property, plant and equipment') are held in the name of the Company.

ii. In our opinion, the management has conducted physical verification of inventory at reasonable intervals during the year and no material discrepancies between physical inventory and book records were noticed on physical verification.

iii. The Company has granted unsecured loans to four companies covered in the register maintained under Section 189 of the Act; and with respect to the same:

a) In our opinion the terms and conditions of such loans are not, prima facie, prejudicial to the Company's interest;

b) The schedule of repayment of the principal and the payment of the interest has not been stipulated and hence we are unable to comment as to whether repayments/receipts of the principal amount and the interest are regular;

c) In the absence of stipulated schedule of repayment of principal and payment of interest, we are unable to comment as to whether there is any amount which is overdue for more than 90 days and whether reasonable steps have been taken by the Company for recovery of the principal amount and interest.

iv. In our opinion, the Company has complied with the provisions of Sections 185 and 186 of the Act, to the extent applicable, in respect of loans, investments, guarantees and security.

v. In our opinion, the Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Accordingly, the provisions of clause 3(v) of the Order are not applicable.

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 sub-section (1) of Section 148 of the Act in respect of Company's products/services and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

vii. a) Undisputed statutory dues including provident fund,

employees' state insurance, income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax, goods and service tax (GST), cess and other material statutory dues, as applicable, have not been regularly deposited with the appropriate authorities and there have been significant delays in a large number of cases. Undisputed amounts payable in respect thereof, which were outstanding at the year-end for a period of more than six months from the date they became payable are as follows:

Statement of arrears of statutory dues outstanding for more than six months

Name of the statute

Nature of dues

Amount Rs, crore

Period to which the

amount

relates

Due

Date

Date of Payment

The Sales Tax Act

Sales Tax/

Value

Added

Tax/Entry

Tax

0.17

April 2016 to August 2016

Various

due

dates

Not paid till date

Name of the statute

Nature of dues

Amount Rs, crore

Period to

which the

amount

relates

Due

Date

Date of Payment

Employees' Provident Funds & Miscellaneous Provisions Act, 1952

Provident

Fund

1.44

April 2017 to August 2017

Various

due

dates

Not paid till date

(b) There are no dues in respect of duty of customs and duty of excise that have not been deposited with the appropriate authorities on account of any dispute. The dues outstanding in respect of income-tax, sales-tax, service-tax and value added tax on account of disputes, are as follows:

Statement of Disputed Dues

Name

Nature of

Amount

Amount

Period to

Forum where

of the

dues

Rs, crore

Paid

which the

dispute is

statute

Under Protest Rs, crore

amount

relates

pending

The

Income

15.54

15.54

A.Y 2006-

Income Tax

Income

Tax

07 to

Appellate

Tax Act,

2010-11

Tribunal

1961

2.47

2.47

A.Y 2015-16

Commissioner of Income Tax (Appeals)

The

Sales

4.70

-

A.Y 1997-98 High Court

Sales

Tax/ Value

and A.Y

Tax Act

Added

2012-13

Tax/ Entry

56.36

0.49

A.Y 1996-

Tribunal

Tax

97 to A.Y. 2000-01, A.Y 200506, A.Y 2006-07 and A.Y 2013-14 to 2015-16

92.96

2.88

A.Y. 200203 and A.Y 2004-05 to

Commissioner level up to Appellate

A.Y. 2013-14 Authority

The

Service

314.44

-

January

Taxation

Finance

tax

2006 to

Tribunal

Act,

including

March 2015

1994

interest

and

penalty,

as

applicable

56.76

1.73

April 2011 to March 2013

Commissioner level up to Appellate Authority

viii. There are no loans or borrowings payable to government. The Company has defaulted in repayment of following dues to the financial institution, banks and debenture holders during the year, which were paid on or before the Balance Sheet date.

Debenture

Holders

Days

Principal

Interest

Total

AXIS - Non-

0-30

5.33

2.92

8.25

Convertible

Debentures

31-90

2.67

1.54

4.21

91-180

2.67

1.47

4.14

Rs, crore

Banks

Days

Principal

Interest

Total

Axis Bank

0-30

1.33

7.74

9.07

31-90

3.33

3.09

6.43

91-180

3.33

0.24

3.58

Bank of Baroda

0-30

1.39

1.67

3.06

31-90

0.69

0.15

0.85

Bank of

0-30

-

1.01

1.01

Maharashtra

31-90

0.67

0.33

1.01

91-180

0.67

0.33

1.00

Canara Bank

0-30

-

6.08

6.08

31-90

17.20

6.76

23.97

91-180

8.60

6.42

15.02

181-365

-

1.11

1.11

Central Bank of

0-30

1.11

2.76

3.87

India

31-90

2.97

0.37

3.33

Development

0-30

-

1.05

1.05

Bank of

31-90

2.54

0.59

3.12

Singapore

91-180

2.54

0.94

3.47

181-365

2.54

0.04

2.58

Federal Bank

0-30

0.55

1.12

1.67

31-90

-

0.03

0.03

IDBI Bank

0-30

18.03

12.06

30.09

31-90

6.01

3.71

9.72

Indian Overseas

0-30

2.12

4.18

6.30

Bank

31-90

-

0.89

0.89

91-180

2.12

-

2.12

Oriental Bank of

0-30

-

0.44

0.44

Commerce

31-90

1.67

0.13

1.80

91-180

3.34

-

3.34

Punjab National

0-30

1.01

0.95

1.97

Bank

31-90

3.04

1.18

4.21

91-180

-

0.30

0.30

State Bank of

0-30

1.06

1.75

2.81

Hyderabad

31-90

-

0.65

0.65

State Bank of

0-30

2.21

3.20

5.41

Mysore

31-90

-

1.88

1.88

State Bank of

0-30

0.32

0.57

0.89

Travancore

31-90

-

0.18

0.18

Syndicate Bank

0-30

8.62

734

15.96

31-90

4.31

2.02

6.33

91-180

-

1.13

1.13

Union Bank of

0-30

2.16

2.20

4.36

India

31-90

-

0.03

0.03

United Bank of

0-30

6.66

8.59

15.25

India

31-90

6.66

4.55

11.21

91-180

6.66

3.23

9.89

Financial

Institutions

Days

Principal

Interest

Total

Export Import

0-30

11.13

14.97

26.10

Bank of India

31-90

3.57

8.90

12.47

91-180

7.56

2.53

10.09

Industrial

0-30

-

4.55

4.55

Finance

31-90

6.76

2.20

8.95

Corporation of India

91-180

3.38

1.48

4.86

National Bank of

0-30

-

0.87

0.87

Agriculture and

31-90

2.10

0.87

2.97

Development

91-180

2.10

0.85

2.95

SREI Equipment

0-30

2.54

4.21

6.76

Finance Limited

31-90

2.54

1.14

3.69

91-180

-

1.12

1.12

The Company has defaulted in repayment of following dues to the financial institutions, banks and debenture holders during the year, which were not paid as at the Balance Sheet date.

Rs, crore

ix. The Company did not raise moneys by way of initial public offer or further public offer (including debt instruments) during the year. In our opinion, the term loans were applied for the purposes for which the loans were obtained.

x. No fraud by the Company or on the Company by its officers

Banks

Days

Principal

Interest

Total

Standard

0-30

48.35

0.15

48.50

Chartered Bank

31-90

3.38

0.92

4.30

91-180

3.38

-

3.38

181-365

6.77

1.83

8.60

>365

-

2.64

2.64

Export Import

0-30

-

0.63

0.63

Bank of United States

31-90

3.23

-

3.23

91-180

3.23

-

3.23

181-365

6.45

-

6.45

>365

15.36

-

15.36

or employees has been noticed or reported during the period covered by our audit.

xi. Managerial remuneration has been paid and provided by the Company in accordance with the requisite approvals mandated by the provisions of Section 197 of the Act read with Schedule V to the Act.

xii. In our opinion, the Company is not a Nidhi Company. Accordingly, provisions of clause 3(xii) of the Order are not applicable.

xiii. In our opinion, all transactions with the related parties are in compliance with Sections 177 and 188 of Act, where applicable, and the requisite details have been disclosed in the standalone financial statements, as required by the applicable Ind AS.

xiv. During the year, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures except for allotment of equity shares and optionally convertible debentures during the year to a lender pursuant to the Scheme for Sustainable Structuring of Stressed Assets (S4A Scheme) adopted by the Joint Lender's Forum as stated in notes 15(g) and 16.1 to the standalone financial statements. In respect of the same, in our opinion, the Company has complied with the requirements of Section 42 of the Act and Rules framed there under.

xv. In our opinion, the Company has not entered into any noncash transactions with the directors or persons connected with them covered under Section 192 of the Act.

xvi. The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934. the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.

Auditor's Responsibility

3. Our responsibility is to express an opinion on the Company's IFCoFR based on our audit. We conducted our audit in accordance with the Standards on Auditing, issued by the ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of IFCoFR, and the Guidance Note issued by the 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 IFCoFR were established and maintained and if such controls operated effectively in all material respects.

4. Our audit involves performing procedures to obtain audit evidence about the adequacy of the IFCoFR and their operating effectiveness. Our audit of IFCoFR included obtaining an understanding of IFCoFR, 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 auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the Company's IFCoFR.

Meaning of Internal Financial Controls over Financial

Reporting

6. A company's IFCoFR 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 company's IFCoFR include 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 authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over

Financial Reporting

7. Because of the inherent limitations of IFCoFR, 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 IFCoFR to future periods are subject to the risk that IFCoFR may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Basis for Qualified opinion

8 In our opinion, according to the information and explanations given to us and based on our audit procedure performed, the following material weakness has been identified in the operating effectiveness of the Company's IFCoFR as at 31 March 2018:

The Company's internal financial controls in respect of supervisory and review controls over process of determining of (a) carrying value of the Company's non-current investments in its subsidiaries; and (b) recoverability of noncurrent loans, other non-current financial assets and other current financial assets due from such subsidiaries were not operating effectively. Absence of aforesaid assessment in accordance with the accounting principles generally accepted in India could potentially result in a material misstatement in the carrying value of investments in such subsidiaries and the aforesaid dues from such subsidiaries and consequently, could also impact the profit (financial performance including other comprehensive income) after tax.

9. A 'material weakness' is a deficiency, or a combination of deficiencies, in IFCoFR, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

Qualified Opinion

10. In our opinion, except for the possible effects of the material weakness described above in the Basis for Qualified Opinion paragraph, the Company has, in all material respects, maintained adequate IFCoFR as at 31 March 2018, based on 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 and the Company's IFCoFR were operating effectively as at 31 March 2018.

11. We have considered the material weakness identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the standalone financial statements of the Company as at and for the year ended 31 March 2018, and the material weakness has affected our opinion on the standalone financial statements of the Company and we have issued a qualified opinion on the standalone financial statements.

For Walker Chandiok & Co LLP

Chartered Accountants

Firm's Registration No.: 001076N/N500013

per Rakesh R. Agarwal

Partner

Membership No.: 109632

Place : Mumbai

Date : May 3, 2018

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