Maharashtra Seamless Ltd:Annual Report 2023-24 Analysis

Maharashtra Seamless Ltd.: A Comprehensive Overview #

About the Company #

• Year of Establishment and Founding History: Established in 1988. Maharashtra Seamless Ltd. (MSL) was promoted by the D.P. Jindal Group.
• Headquarters Location and Global Presence: The company is headquartered in Mumbai, India. MSL has a global presence through exports to various countries.
• Key Milestones in Their Growth Journey: MSL has established itself as a leading manufacturer of seamless pipes and tubes in India.
• Stock Exchange Listing Details and Market Capitalization: Listed on the Bombay Stock Exchange (BSE: 500265) and the National Stock Exchange (NSE: MAHSEAMLES). Market capitalization fluctuates with market conditions.
• Recent Financial Performance Highlights: Review recent annual reports and investor presentations for the latest revenue, profit, and key financial ratios.
• Management Team and Leadership Structure: Refer to the company’s website for details on the current Board of Directors and key management personnel.

Their Products #

• Complete Product Portfolio with Categories:
  • Seamless Pipes & Tubes: Hot Finished Seamless Pipes, Cold Drawn Seamless Tubes, OCTG (Oil Country Tubular Goods), Drill Pipes, Casing Pipes, Tubing Pipes.
  • Value Added Services: Threading, Coating, and other customized solutions for specific client requirements.
• Flagship or Signature Product Lines: Seamless pipes are the core product line.
• Manufacturing Facilities and Production Capacity: The company has manufacturing facilities located in Nagothane, Maharashtra. Consult annual reports or corporate presentations for the current production capacity.
• Quality Certifications and Standards: MSL adheres to various international quality standards such as API, ISO, and other relevant certifications.
• Any Unique Selling Propositions or Technological Advantages: MSL has capabilities for manufacturing a wide range of seamless pipes in various sizes and grades, catering to diverse industry requirements.

Primary Customers #

• Target Industries and Sectors:
  • Oil and Gas
  • Power
  • Engineering
  • Automotive
  • Infrastructure
• Geographic Markets (Domestic vs. International): MSL serves both domestic and international markets.
• Distribution Network and Sales Channels: MSL utilizes a network of distributors and direct sales to reach customers.

Major Competitors #

• Direct Competitors in India and Globally: Jindal Saw, ISMT, Welspun Corp, and global manufacturers of seamless pipes and tubes.
• Competitive Advantages and Disadvantages:
  • Advantages: Established brand reputation in India, wide product range, integrated manufacturing facilities.
  • Disadvantages: Susceptible to fluctuations in raw material prices, competition from cheaper imports.

Future Outlook #

• Expansion Plans or Growth Strategy: MSL is focusing on increasing capacity, improving operational efficiency, and expanding into new markets.
• Sustainability Initiatives or ESG Commitments: Refer to the company’s annual reports and corporate presentations for any reported sustainability initiatives.
• Industry Trends Affecting Their Business: Fluctuations in global oil and gas prices, infrastructure development in India, and demand for seamless pipes in various industries.

Maharashtra Seamless Limited - Financial Year 2023-24 Performance Analysis #

Key Financial Metrics Trend Analysis (FY23 vs. FY24) #

Analysis based on FY24 and FY23 figures from the Directors’ Report and MD&A:

Financial Ratios (Standalone, FY24) #

• Operating Profit Margin: 23% (FY24) vs. 18% (FY23) – Significant improvement.
• Net Profit Margin: 18% (FY24) vs. 14% (FY23) – Notable improvement.
• Return on Capital Employed: 21% (FY24) vs. 19% (FY23) – Improved capital efficiency.
• Debt Equity Ratio: 0.00 (FY24) vs. 0.05 (FY23) – Company became virtually debt-free (long-term).
• Current Ratio: 2.99 (FY24) vs. 2.10 (FY23) – Strengthened liquidity.
• Return on Investment: 7% (FY24) vs. 5% (FY23) – Higher returns from treasury management.

Business Segment Performance (Consolidated, FY23 vs. FY24) #

Detailed Analysis #

Maharashtra Seamless Limited - FY2023-24 Financial Analysis: Operating Performance #

Revenue Analysis #

Consolidated Revenue Performance #

Total Revenue from Operations for FY24: ₹5,404.12 crore, a decrease of 5.46% from ₹5,716.37 crore in FY23. Other Income increased significantly to ₹142.18 crore in FY24 from ₹88.87 crore in FY23. Total Consolidated Income: ₹5,546.30 crore in FY24, down 4.46% from ₹5,805.24 crore in FY23.

Segment Revenue (Consolidated - FY24 vs FY23) #

Steel Pipes & Tubes #

• FY24: ₹5,399.34 crore
• FY23: ₹5,714.00 crore
• Growth: -5.51%

This segment remains the primary revenue contributor, accounting for over 99% of operational revenue. The decline mirrors the overall revenue trend. The Chairman’s statement indicated robust domestic demand but a slowdown in export markets like the USA and Canada.

Power - Electricity #

• FY24: ₹1.68 crore
• FY23: ₹1.72 crore
• Growth: -2.33%

This segment has a negligible contribution to overall revenue.

RIG #

• FY24: ₹3.10 crore
• FY23: ₹0.65 crore
• Growth: +376.92%

While showing significant percentage growth, its absolute contribution to total revenue is minimal.

Geographical Revenue Breakdown #

The annual report indicates a slowdown in export markets (USA and Canada) but does not provide a detailed quantitative breakdown of revenue by geography. Export incentives were ₹0.98 crore in FY24 (Consolidated) compared to ₹0.61 crore in FY23. Total foreign exchange earned was ₹40.09 Lakh in FY24, suggesting exports are a small fraction of total revenue. Exports contribute less than 10% of total turnover.

Cost Structure Analysis (Consolidated - FY24) #

Major Cost Components as a Percentage of Total Income (₹5,546.30 crore) #

• Cost of Materials Consumed: ₹3,249.74 crore (58.59% of Total Income). This is the largest cost component, reflecting the nature of the manufacturing business. Decreased from 64.22% of Total Income in FY23, indicating improved material cost management or changes in product mix/pricing.
• Changes in Inventories (Finished Goods, WIP, Stock-in-Trade): ₹(104.19) crore (-1.88% of Total Income). A negative figure indicates that sales outpaced production leading to a drawdown of inventory, or lower closing inventory valuation.
• Employee Benefits Expense: ₹186.98 crore (3.37% of Total Income). Increased from 2.91% in FY23.
• Other Expenses: ₹860.10 crore (15.51% of Total Income). Slightly increased from 14.82% in FY23.
• Depreciation and Amortisation Expense: ₹101.92 crore (1.84% of Total Income). Decreased from 2.18% in FY23.
• Finance Costs: ₹6.35 crore (0.11% of Total Income).

Cash Flow and Liquidity Analysis: Maharashtra Seamless Limited #

Operating Cash Flow (OCF) #

Profit Before Tax (PBT) including OCI (not to be reclassified) #

• FY24: ₹1,223.50 Crore
• FY23: ₹945.71 Crore

Adjustments for Non-Cash/Non-Operating Items (Selected) #

• Depreciation and Amortization:
  • FY24: ₹140.58 Crore
  • FY23: ₹175.52 Crore
• Fair valuation of Investment:
  • FY24: (₹38.99) Crore
  • FY23: (₹26.95) Crore
• Share of Loss of JV & Associates:
  • FY24: ₹22.59 Crore
  • FY23: ₹23.51 Crore
• Finance Costs:
  • FY24: ₹6.68 Crore
  • FY23: ₹31.57 Crore
• Interest Income:
  • FY24: (₹116.95) Crore
  • FY23: (₹64.06) Crore
• Dividend Income:
  • FY24: (₹7.35) Crore
  • FY23: (₹3.52) Crore

Operating Profit Before Working Capital Changes #

• FY24: ₹1,234.18 Crore
• FY23: ₹1,078.60 Crore

Changes in Working Capital (Selected) #

• (Increase)/Decrease in Inventories:
  • FY24: (₹174.28) Crore
  • FY23: (₹369.74) Crore
• (Increase)/Decrease in Trade Receivables and Other Receivables:
  • FY24: ₹126.75 Crore
  • FY23: (₹251.88) Crore
• Increase/(Decrease) in Trade Payables and Other Liabilities:
  • FY24: (₹7.04) Crore
  • FY23: ₹101.30 Crore

Cash Generated from Operations (Post WC Changes) #

• FY24: ₹1,179.61 Crore
• FY23: ₹558.28 Crore

Net Income Tax (Paid)/Refunds #

• FY24: (₹242.77) Crore
• FY23: (₹225.84) Crore

Net Cash Flow from Operating Activities #

• FY24: ₹936.84 Crore
• FY23: ₹332.44 Crore

Investing Cash Flow (ICF) #

Capital Expenditure on Property, Plant & Equipment (PPE) (Outflow) #

• FY24: (₹44.37) Crore
• FY23: (₹30.55) Crore

Proceeds from Sale of PPE (Inflow) #

• FY24: ₹0.15 Crore
• FY23: ₹0.65 Crore

Current Investments (Net Outflow/Inflow) #

• Purchased:
  • FY24: (₹2,851.31) Crore
  • FY23: (₹2,159.64) Crore
• Proceeds from Sale:
  • FY24: ₹2,018.54 Crore
  • FY23: ₹1,458.80 Crore

Interest Received (Inflow) #

• FY24: ₹114.48 Crore
• FY23: ₹62.26 Crore

Dividend Received (Inflow) #

• FY24: ₹7.35 Crore
• FY23: ₹3.52 Crore

Net Cash Flow from / (used in) Investing Activities #

• FY24: (₹757.60) Crore
• FY23: (₹665.53) Crore

Financing Cash Flow (FCF) #

Proceeds/(Repayment) of Long-Term Borrowings (Net) #

• FY24: (₹247.09) Crore
• FY23: (₹57.74) Crore

Finance Costs Paid (Outflow) #

• FY24: (₹6.68) Crore
• FY23: (₹31.57) Crore

Dividend Paid (Outflow) #

• FY24: (₹120.60) Crore
• FY23: (₹93.79) Crore

Net Cash Flow from / (used in) Financing Activities #

• FY24: (₹374.37) Crore
• FY23: (₹183.10) Crore

Working Capital Management Efficiency #

Inventory Turnover Ratio #

• FY24: 4.15 times (Standalone: 4.17)
• FY23: 5.03 times (Standalone: 4.95)
• Days Inventory Outstanding (DIO) (approx.):
  • FY24: 88 days
  • FY23: 73 days

Trade Receivable Turnover Ratio #

• FY24: 9.54 times (Standalone: 9.50)
• FY23: 9.69 times (Standalone: 9.68)
• Days Sales Outstanding (DSO) (approx.):
  • FY24: 38 days
  • FY23: 38 days

Trade Payable Turnover Ratio #

• FY24: 11.98 times (Standalone: 12.04)
• FY23: 13.37 times (Standalone: 10.43)
• Days Payables Outstanding (DPO) (approx.):
  • FY24: 30 days
  • FY23: 27 days

Cash Conversion Cycle (CCC) (Consolidated - Approx.) #

• FY24: 96 days
• FY23: 84 days

Capex Analysis #

Total Capital Expenditure (Consolidated) #

• FY24: ₹44.37 Crore
• FY23: ₹30.55 Crore

Capital Work-in-Progress (Consolidated) #

• As at 31st March 2024: ₹2.65 Crore
• As at 31st March 2023: ₹14.34 Crore
• Additions to CWIP during FY24: ₹2.65 Crore

Strategic Risks #

Market Demand Fluctuation & Geographic Concentration #

• Risk: Dependence on domestic market strength while facing slowdowns in key export markets (USA, Canada). Over-reliance on the oil & gas sector.
• Severity: Moderate to High.
• Likelihood: Occurring (export slowdown), High (O&G dependence).
• Trend: Mixed (domestic robust, export challenged); O&G dependence is a constant high-impact factor.
• Mitigation: Actively engaging new export markets via exhibitions and customer meets. Diversification into higher value-added products (subsea, drill pipes, cylinder pipes) to reduce import dependence and tap new applications. Exploration of renewable energy projects.
• Control Effectiveness: Proactive market development and product diversification efforts are underway. Leadership position in seamless pipes is a strength.
• Potential Financial Impact: Export revenue volatility

Maharashtra Seamless Limited - Financial & Strategic Analysis (FY2023-24) #

Financial Performance Highlights (FY24 vs. FY23) #

• Revenue from Operations: Decreased by 5.3% to ₹5,403.12 crore from ₹5,707.13 crore. Attributed to a slowdown in key export markets.
• Profitability:
  • Profit Before Tax (PBT): Increased by 31.3% to ₹1,246.09 crore from ₹949.08 crore.
  • Profit After Tax (PAT): Rose by 22.9% to ₹974.93 crore from ₹793.00 crore.
  • Earnings Per Share (EPS): Increased by 24% (₹72.76 in FY24, ₹59.18 in FY23).
• Margins:
  • Operating Profit Margin: Improved to 23% from 18%.
  • Net Profit Margin: Improved to 18% from 14%.
  • Margin expansion due to better sales realization and effective cost control.
• Dividend: Recommended dividend of ₹10/- per equity share (200% on a face value of ₹5/-).
• Balance Sheet & Ratios:
  • No long-term debt, leading to improved Debt Equity Ratio (effectively zero).
  • Debt Service Coverage Ratio increased significantly (+3854%).
  • Current Ratio improved by 42%.
  • Return on Capital Employed (ROCE): Improved to 21% from 19%.
  • Return on Investment: Increased to 7% from 5%.

Operational & Strategic Developments #

• Product Portfolio Enhancement:
  • Introduced higher value-added products (subsea pipes, drill pipes, cylinder pipes).
  • Pursuing the addition of a premium threading facility.
  • Expanding into cold-drawn seamless pipes and tubes.
• Market Development:
  • Actively engaging in new export markets.
• Cost Management & Efficiency:
  • Effective cost management through careful operations and working capital management.
  • Implemented a new version of Oracle ERP.
• Technological Advancement & R&D:
  • Continued investment in state-of-the-art technology, R&D (₹147.03 Lakhs), and quality testing facilities.
  • Technology absorption efforts include VFD installations and SCADA system upgrades.
• Capacity Building & Diversification:
  • Continuing to build capacities for products used in oil & gas and power sectors.
  • Actively exploring new projects in renewable energy.

Market Outlook & Competitive Positioning #

• Economic Environment: Optimism about India’s economic trajectory (“Viksit Bharat 2047”). India’s real GDP grew by 8.2% in FY24.
• Industry Outlook:
  • Projected growth for the steel pipes and tubes market in India (CAGR 6% till 2030).
  • Seamless pipes are favored for critical applications.
  • Government initiatives expected to drive demand.
• Competitive Strategy:
  • Leveraging leadership in seamless pipes and focusing on value-added products.
  • Emphasis on adaptability, innovation, and a customer-centric ecosystem.
  • Strengthening international market presence.

Risk Factors & Mitigation #

• Market Risk:
  • Slowdown in export markets being addressed by targeting new markets.
  • Fluctuations in demand from the oil & gas sector.
• Foreign Exchange Risk: Managed by monitoring exchange rates and utilizing hedging instruments.
• Internal Controls: Risk Management Committee and established framework in place.
• Auditor’s Qualification (Consolidated Financial Statements):
  • Qualified opinion on Gondkhari Coal Mining Limited (Joint Venture).
  • Emphasis of Matter drawn to subsidiaries with diminution in investment value and accumulated losses.

Maharashtra Seamless Limited: Financial Analysis Report #

Environmental Metrics and Targets #

Energy Conservation #

The company implemented various energy-saving measures across its facilities, including installation of VFDs, soft starters, sensor-based auto drain valves, auto control of fan speeds, replacement of DC motors with AC motors and VFDs, and replacement of sodium vapour lamps with LED lights. These steps resulted in reduced power consumption and maintenance costs.

Alternative Energy Sources #

No specific steps were reported for utilizing alternative sources of energy for FY 2023-24. However, the company is exploring new projects in renewable energy and has existing wind and solar power generation facilities.

Water Management #

Total water withdrawal was 3,081,660 kilolitres in FY 2023-24 (FY 2022-23: 3,079,840 kilolitres). Total water consumption was 2,916,180 kilolitres (FY 2022-23: 2,868,850 kilolitres). The company has implemented rainwater harvesting (1.90 Lacs KL storage capacity) and an Effluent Treatment Plant for recycling effluent water for gardening, aiming for Zero Liquid Discharge.

Air Emissions #

The company monitors emissions of SO2, NO2, PM10, PM2.5, Ozone, Ammonia, CO, Benzene, Benzo(a)Pyrene, Arsenic, Nickel, and Lead. All reported results for FY 2023-24 and FY 2022-23 were within National Ambient Air Quality (NAAQ) standards.

Greenhouse Gas (GHG) Emissions #

• Total Scope 1 emissions (FY 2023-24): 527,161 metric tonnes of CO2 equivalent (FY 2022-23: 520,078).
• Total Scope 2 emissions: Nil reported for both FY 2023-24 and FY 2022-23.

Projects to reduce GHG emissions include using CNG to replace LPG and switching to LED lights.

Waste Management #

Total waste generated in FY 2023-24: 14.02 MT of plastic waste + 1300 Ltrs of other hazardous waste (FY 2022-23: 13.94 MT plastic + 1000 Ltrs hazardous). E-waste and battery waste were NIL. Practices include reusing plastic packaging, disposing of e-waste and hazardous waste through authorised recyclers, and reprocessing/selling melting scrap.

R&D for Environmental Impact #

Capital expenditure on R&D was ₹8.70 Lakh and revenue expenditure was ₹138.33 Lakh in FY 2023-24, totaling 0.027% of turnover. While not exclusively for environmental impact, R&D efforts lead to product improvements and cost reductions, which can indirectly benefit environmental performance through efficiency.

Regulatory Compliance #

The company states it is compliant with applicable environmental laws (Water Act, Air Act, Environment Protection Act). No non-compliances were reported.

Social Responsibility Programs #

CSR #

• CSR obligation for FY 2023-24: ₹775.87 Lakhs.
• Amount spent on CSR projects: ₹563.15 Lakhs.
• CSR activities focus on promoting education, rural development, animal welfare, and healthcare.

Employee Well-being #

All permanent employees and workers are covered by health and accident insurance. Maternity benefits are provided to 100% of female permanent employees. Retirement benefits (PF, Gratuity) cover 100% of permanent employees and workers.

Health and Safety #

• Implemented an occupational health and safety management system certified to ISO 45001.
• Safety-related incidents (FY 2023-24): LTIFR for employees was 0.20 (workers: 0.31).

Training on health and safety measures covered 100% of employees and workers in FY 2023-24.

Human Rights #

• 100% of permanent employees and workers received training on human rights issues and company policies.
• All employees and workers are paid more than the minimum wage.

Community Engagement #

Key stakeholders include communities. Grievance redressal mechanisms are available through the Vigil Mechanism. The company aims to source inputs from local districts and focuses on job creation in rural areas.

Governance Structure and Effectiveness #

Board Composition #

The Board comprises a mix of Executive, Non-Executive, and Independent Directors, including one woman Director.

Committees #

• Audit Committee: Oversees financial reporting, internal controls, and auditor appointments.
• Nomination and Remuneration Committee: Formulates criteria for director appointments, remuneration, and evaluation.
• Stakeholders’ Relationship Committee: Addresses investor grievances.
• Risk Management Committee: Responsible for risk identification, mitigation, and oversight.
• CSR Committee: Formulates and monitors CSR policy and activities.

Code of Conduct #

Adopted for Directors and Senior Management; compliance affirmed.

Risk Management #

A Risk Management Committee and policy are in place to identify, assess, monitor, and mitigate risks.

Internal Controls #

Adequate internal financial controls with reference to financial statements are in place, periodically reviewed by the Audit Committee.

Shareholder Relations #

AGM conducted via VC/OAVM. E-voting facility provided. Dedicated email for investor grievances.

Vigil Mechanism/Whistle Blower Policy #

Adopted and available on the company’s website.

Secretarial Audit #

Report for FY 2023-24 did not contain any qualification, reservation, or adverse remark.

Auditors’ Report #

• (Standalone): Unmodified opinion.
• (Consolidated): Qualified opinion due to a qualification in the audit report of Gondkhari Coal Mining Limited (Joint Venture).

Sustainability Investments and ROI #

Energy Conservation Equipment #

Various installations (VFDs, LEDs) were made, leading to power and cost savings.

R&D Expenditure #

Total R&D expenditure in FY 2023-24 was ₹147.03 Lakh, representing 0.027% of total turnover.

Financial Implications of Sustainability Issues (BRSR) #

• Product innovation, safety, and quality (Opportunity): Positive financial implication through market development and penetration.
• Customer satisfaction (Opportunity): Positive implication via repeat orders and market expansion.
• Corporate Governance (Risk): Non-compliance can lead to financial loss and reputation damage.

CSR Spending #

₹563.15 Lakhs spent in FY 2023-24 contributing to social license and brand value.

Development of Higher Value Products #

Successful introduction of subsea and drill pipes, cylinder pipes, substituting imports.

Regulatory Compliance and Future Preparations #

SEBI (LODR) Regulations, 2015 #

The company states compliance with Regulations 17 to 27 regarding corporate governance.

Companies Act, 2013 #

Directors’ Report confirms compliance with various sections. Secretarial Audit Report confirms general compliance with the Companies Act, 2013.

Environmental Laws #

The company states compliance with the Water (Prevention and Control of Pollution) Act, Air (Prevention and Control of Pollution) Act, and Environment Protection Act and rules thereunder.

Future Preparations/Outlook #

• Focus on “Viksit Bharat” and “Atmanirbhar Bharat” initiatives.
• Continuously exploring new projects in renewable energy.
• Plans to add new equipment to enhance finishing and testing facilities.
• Setting up a premium connection facility for high-pressure oil and gas wells and expanding into cold drawn seamless pipes.
• Addressing slowdown in export markets (USA, Canada) by engaging in new markets.
• New version of Oracle ERP implemented for better reporting and transparency.

Maharashtra Seamless Limited (MSL) - Forward Outlook #

Management Guidance and Assumptions #

Management anticipates strong domestic demand for seamless pipes, driven by India’s economic growth and infrastructure focus. The company assumes that higher-value products will open new markets and support import substitution. Growth is also expected from diversification into renewable energy projects. Management has invested surplus funds in Indian equity and debt markets and expects technological upgrades to enhance financial robustness. Management is addressing a slowdown in export markets by actively pursuing new international markets.

Market Growth Forecasts #

• Global Economy: Projected to grow around 3% in 2024 and 2025.
• Indian Economy: Real GDP grew by 8.2% in FY24.
• Pipes Industry (India): Estimated at USD 32.88 billion in 2023, projected to grow at a CAGR of 6% until 2030.
• Seamless Pipes (Global): Projected to reach USD 218 billion by 2026, with a CAGR of around 5%.
• Government initiatives are expected to drive demand for MSL’s products.

Planned Strategic Initiatives #

1. Product Portfolio Enhancement: Focus on higher value-added products.
2. Technological Upgradation: Investment in state-of-the-art technology.
3. Market Expansion: Actively engaging new export markets.
4. Capacity Building: Increasing capacities for products used in oil & gas and power sectors.
5. Renewable Energy: Continuous exploration of new projects in the renewable energy segment.
6. Operational Efficiency: Effective cost management and implementation of a new Oracle ERP system.
7. R&D and Quality: Ongoing investment in R&D and quality testing facilities.
8. Approvals: Secured ONGC approval for Line Pipe Supply and EIL approval for ASTM A106.

Capital Expenditure Plans #

• Planned investment in a premium threading facility.
• Expansion into cold-drawn seamless pipes and tubes manufacturing.
• Addition of new equipment for finishing and testing facilities.
• FY24 R&D capital expenditure was ₹8.70 lakhs.
• Standalone Cash Flow for FY24 shows capital expenditure on PPE of ₹2.81 crores (Consolidated: ₹3.00 crores). Capital Work-in-Progress (CWIP) stood at ₹2.65 crores (Standalone & Consolidated) as of March 31, 2024.

Efficiency Improvement Targets #

• Cost control through operations, working capital management, and diversification of supplier base.

Financial Analysis of Maharashtra Seamless Limited (FY 2023-24) #

Auditor’s Opinion and Qualifications #

Standalone Financial Statements #

The Independent Auditors, Kanodia Sanyal & Associates, issued an unmodified opinion. They stated that the standalone financial statements give a true and fair view of the state of affairs as of March 31, 2024, and of its profit, cash flows, and changes in equity for the year then ended, in conformity with Indian Accounting Standards (Ind AS).

Consolidated Financial Statements #

The Independent Auditors, Kanodia Sanyal & Associates, issued a qualified opinion.

Basis for Qualification #

The qualification pertains to the financial statements of Gondkhari Coal Mining Limited, a Joint Venture (JV) company. The JV’s auditor highlighted that Gondkhari Coal Mining Limited has accumulated losses, its net worth has been fully eroded, and these conditions indicate a material uncertainty casting significant doubt on its ability to continue as a going concern. The JV prepared its statements on a going concern basis despite these uncertainties.

Management’s Reply #

Management stated that necessary provisions regarding the aforesaid qualifications have been recognized in the earlier Standalone statements.

Emphasis of Matters & Material Uncertainty #

The auditors drew attention to:

• A subsidiary (not audited by Kanodia Sanyal & Associates) where management assessed a provision for temporary diminution in the value of an investment (USD 95 million) as recovery is less probable, and related loans/advances from shareholders are unlikely to be repaid, with a provision maintained for this.
• Another subsidiary (not audited by Kanodia Sanyal & Associates) whose accumulated losses and subsequent absorption by shareholders, despite reporting accumulated earnings as of March 31, 2024, may cast significant doubt on its ability to continue as a going concern.

The auditors’ opinion on the consolidated financials was not modified in respect of these emphasis of matters.

Key Accounting Policies and Changes #

• Basis of Preparation: Financial statements are prepared in accordance with Ind AS on a historical cost basis, except for certain financial instruments and defined benefit plans measured at fair value.
• Revenue Recognition: Revenue from the sale of goods is recognized when control is transferred to the customer. Interest income is recognized on a time basis using the effective interest rate. Dividend income is recognized when the right to receive payment is established.
• Property, Plant, and Equipment (PPE): Stated at cost less accumulated depreciation and impairment. Depreciation is provided on a straight-line method based on useful lives prescribed in Schedule II of the Companies Act, 2013.
• Intangible Assets: Stated at cost less accumulated amortization and impairment.
• Inventories: Valued at the lower of cost (FIFO for raw materials; weighted average for stores & spares; cost including conversion for WIP/finished goods) or net realizable value. Scrap is valued at NRV.
• Financial Instruments: Recognized at fair value on initial recognition. Subsequent measurement is at amortized cost, Fair Value Through Other Comprehensive Income (FVTOCI), or Fair Value Through Profit and Loss (FVTPL) based on classification criteria.
• Impairment of Financial Assets: Loss allowance is measured at lifetime expected credit losses (ECL) if credit risk has significantly increased, or 12-month ECL otherwise. For trade receivables, lifetime ECL is always applied.
• Foreign Currency Transactions: Transactions are recorded at the exchange rate prevailing on the transaction date. Monetary assets/liabilities are re-translated at year-end rates. Differences are recognized in the Statement of Profit and Loss.
• Consolidation: Subsidiaries are consolidated line-by-line. Investments in Associates and JVs are accounted for using the equity method.
• Changes in Accounting Policies: The company states, “Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.” No specific major voluntary changes were highlighted for FY 2023-24.

Internal Control Effectiveness #

Standalone IFC #

The auditors, Kanodia Sanyal & Associates, opined that “the Company has, in all material respect, an adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2024.” This is an unmodified opinion.

Consolidated IFC #

The auditors opined that “the Holding Company its subsidiary companies and its joint ventures, which are companies incorporated in India, have, in all material respect, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March 2024.” This opinion is based on their audit and the reports of other auditors for certain subsidiaries and JVs incorporated in India. This is also an unmodified opinion.

Directors’ Responsibility Statement #

Affirms that internal financial controls laid down by the Board are adequate and operating effectively. The Directors’ Report also states that the Audit Committee periodically reviews the adequacy of internal financial controls and no reportable material weaknesses were observed during the year.

Regulatory Compliance Status #

Secretarial Audit #

The Secretarial Audit Report for FY 2023-24, annexed to the Directors’ Report, “does not contain any qualification, reservation or adverse remark.” However, the Secretarial Auditor noted, “legal compliance mechanism needs to be strengthened and streamlined by the Company to commensurate with its size and operations.”

SEBI LODR & Companies Act #

The Corporate Governance Report states compliance with Regulations 17 to 27 of SEBI (LODR) Regulations, 2015. The Directors’ Report confirms compliance with applicable Secretarial Standards (SS-1 and SS-2).

Penalties/Strictures #

The Corporate Governance Report mentions a past fine (FY 2020-21) for delayed submission of financial results, which was subsequently waived by Stock Exchanges. “Except as above, there were no penalties or strictures imposed on the Company by SEBI or any other statutory authorities on any matter related to the capital markets during the last 3 years.”

Other Disclosures #

No significant or material orders were passed by Regulators/Courts/Tribunals impacting going concern status or future operations. No proceedings under IBC are pending.

Audit Trail #

The company has used accounting software with an audit trail (edit log) facility which operated throughout the year, and auditors found no instances of tampering (Note 2.48 to Standalone and Auditors’ Report).

Legal Proceedings and Their Potential Impact #

Contingent Liabilities #

• Sales Tax Demand under Appeal.
• Income Tax Demand under Appeal.
• Excise Duty / GST Demand under Appeal.

The financial statements disclose these as contingent liabilities, implying that management does not consider an outflow of resources to be probable or reliably estimable at this stage.

Gondkhari Coal Mining Limited (JV) #

The qualified opinion on the consolidated financial statements arises from the material uncertainty regarding the JV’s ability to continue as a going concern due to accumulated losses and eroded net worth.

Subsidiaries (Emphasis of Matter) #

• Potential impairment of a USD 95 million investment and related shareholder loans in one subsidiary.
• Going concern uncertainty for another subsidiary due to past accumulated losses, though current accumulated earnings are positive.

Related Party Transactions #

Policy and Approval #

All related party transactions (RPTs) during the year were stated to be in the ordinary course of business and on an arm’s length basis. These transactions were approved by the Audit Committee. The company has a policy on RPTs.

Key Audit Matter #

The accuracy and completeness of RPT disclosures were identified as a Key Audit Matter by the auditors for both standalone and consolidated financial statements.