1. We have audited the accompanying standalone financial statements of Shalimar Paints Limited (‘the Company’), which comprise the Balance Sheet as at 31 March 2024, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flow and the Statement of Changes in Equity for the year then ended, and notes to the standalone financial statements, including material accounting policy information and other explanatory information.
2. 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 (‘Ind AS’) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015 and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2024, and its loss (including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing specified under section 143(10) of the Act. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (‘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 Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
4. Key audit matters are those matters that, in our professional judgment, 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 financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
5. We have determined the matters described below to be the key audit matters to be communicated in our report.
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Key audit matter
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How our audit addressed the key audit matter
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A.
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Revenue recognition
(Refer Note 3.3 and 32 for details of revenue recognised during the year)
The Company’s revenue is derived primarily from manufacturing, selling and distribution of paints, coatings and providing related services recognised in accordance with the accounting policy described in the accompanying standalone financial statements.
In accordance with the principles of Ind AS 115, Revenue from Contracts with Customers, (‘Ind AS 115’) revenue from the sale of products is recognised by the Company when the performance obligation is satisfied, i.e., when the ‘control’ of the goods underlying the particular performance obligation is transferred to the customer. The performance obligations are generally considered to be satisfied by the management when the buyer examines the goods after taking delivery in accordance with the terms and conditions included in the revenue contracts. Revenue recognition from sale of products also involves determination of variable consideration on account of volume discounts and other rebate programs run by the Company, which requires estimates to be made by the management at each year end.
Further, the Company and its external stakeholders focus on revenue as a key performance measure, which could be an incentive or external pressures to meet expectations resulting in revenue being overstated or recognized before control has been transferred.
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Our audit procedures for testing revenue recognition included,
but were not limited to the following:
a) Assessed the appropriateness of the revenue recognition accounting policies and its compliances with applicable accounting standards;
b) Obtained an understanding of the management’s processes and controls relating to revenue recognition;
c) Evaluated the design and tested the operating effectiveness of Company’s key internal controls relating to revenue recognition;
d) Performed substantive testing of revenue transactions recorded during the year using statistical sampling by verifying the underlying supporting documents including customer contracts, purchase order, sales order, sales invoice and proof of delivery through dispatch/shipping documents;
e) Performed testing of samples of revenue transactions recorded during specific period before and after year-end by verifying underlying documents as above, to assess whether revenue was recognised in the correct period;
f) Performed analytical procedures which include variance analysis of current year revenue with previous year revenue and corroborating the variance considering both qualitative and quantitative factors;
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Key audit matter
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How our audit addressed the key audit matter
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Considering the above factors and the amounts involved, it required considerable audit efforts in testing revenue recorded during the year, and therefore, we have identified revenue recognition as a key audit matter in the current year audit.
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g) Tested on a sample basis rebates and discount schemes as approved by the management to assess its accounting. For the samples selected compared that the actual rebates and discounts recognised in respect of particular schemes do not exceed their approved amounts;
h) Circularised balance confirmations for invoices outstanding at the year-end on a sample basis and reviewed the reconciling items, if any; and
i) Assessed that the adequacy of disclosures made by the management are in accordance with the applicable accounting standards.
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B.
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Provision for Obsolescence of Inventory
(Refer Note 3.5 and 13 for details of inventory as at 31 March, 2024).
The Company held inventories aggregating Rs. 116.48 crores as at 31 March, 2024 comprising of raw materials, work-in progress, stock-in-trade, finished goods, packaging materials and stores, spares and consumables, on which the Company has recorded an obsolescence provision amounting to Rs. 4.98 crores as at 31 March 2024.
At each reporting period end, the management assesses whether there is any objective evidence indicating that the net realisable value of any item of inventory is below its carrying value. If so, such inventories are written down to their net realisable value in accordance with the requirements of Ind AS 2, Inventories (‘Ind AS 2’).
The factors that the Company considers in determining the provision for slow moving, obsolete, damaged and other nonsaleable inventory include estimated remaining shelf life, product discontinuances and ageing of inventory, to the extent each of these factors impact the Company’s business and markets. The Company considers all these factors and adjusts the inventory provision to reflect its actual experience on a periodic basis. The aforesaid determination involves significant management judgement and high estimation uncertainty on account of usage of slow moving, obsolete and other nonsaleable inventory.
Considering the above, provision for obsolescence of inventory has been considered as key audit matter for the current year audit.
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Our audit procedures for testing provision for obsolescence of
inventory included, but were not limited to the following:
a) Obtained an understanding of management’s process to identify slow-moving, obsolete, and other non-saleable inventory, and process of consequent measurement of required provision for obsolescence.
b) Evaluated the appropriateness of related accounting policies adopted by the Company in accordance with the requirements of Ind AS 2 (‘Ind aS 2’);
c) Evaluated the design, implementation and tested the operating effectiveness of key controls that the Company has in relation to aforesaid process;
d) Evaluated the nature, source and reliability of all the information used by the management for arriving at the estimates for determination of provision for obsolescence of inventory and observed physical count at few locations;
e) For the provision made in respect of non-processable inventory and reprocessing cost to be incurred on re-processable inventory, discussed with the senior management the basis of identification of such inventory along with the judgement and estimates used. We have evaluated the aforesaid in view of our understanding of the business and industry conditions. Further, reperformed computations to validate the accuracy and completeness of such provision; and
f) Evaluated appropriateness of disclosures made in the standalone financial statements.
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C.
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Impairment assessment of freehold land at Kolkata
As described in Note 3.18 to the standalone financial statements, In year 2014 the operations in Company’s Kolkata plant were suspended after a fire incident as a result of which the land at Kolkata plant is not used to its full capacity.
The aforesaid matter is impairment indicator and triggered a need for impairment assessment. Management, during the year ended 31 March 2024, has carried out valuation of land whereby the carrying amount of the land was compared with the recoverable value as determined under the principles of Ind AS 36.
The aforesaid recoverable value has been determined by the management with the help of an external valuation expert using market approach and the key assumptions underpinning such valuation are guideline rate published by state government.
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Our audit procedures for impairment assessment of Kolkata (Howrah) freehold land included, but were not limited to the following:
a) Discussed with the management, future plans of the Company with respect to alternate use of the plant and future revival of operations of the plant;
b) Assessed the appropriateness of the accounting policies with respect to Property plant and equipment and its compliance with applicable accounting standards “IND AS 16”;
c) Obtained an understanding of the management’s processes and tested the design and operating effectiveness of internal controls over identification and impairment test procedures;
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Key audit matter
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How our audit addressed the key audit matter
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Considering the materiality of the amounts involved and significant degree of judgement and subjectivity involved in the estimates and key assumptions used in the impairment evaluation, impairment assessment of the land at Kolkata plant was determined as a key audit matter.
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d) Reviewed the fair valuation report with respect to Howrah land at Kolkata plant obtained by the management from an independent valuer and assessed the professional competence, skills and objectivity of the valuer for performing the required valuation;
e) Assessed the appropriateness of the significant assumptions as well as the Company’s valuation methodology and assumptions with the support of auditor’s valuation specialists; and
f) Evaluated the adequacy and appropriateness of disclosures made by the Company in the standalone financial statements, as required by the applicable provisions of the Act and the requirement of Ind AS 36.
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Information other than the Financial Statements and Auditor’s Report thereon
6. The Company’s Board of Directors are responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the standalone financial statements and our auditor’s report thereon. The Annual Report is expected to be made available to us after the date of this auditor’s report.
Our opinion on the standalone financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
7. The accompanying standalone financial statements have been approved by the Company’s Board of Directors. The Company’s Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS specified under section 133 of the Act 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 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 statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
8. In preparing the standalone financial statements, the Board of Directors 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 the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
9. 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
10. 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 Standards on Auditing 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.
11. As part of an audit in accordance with Standards on Auditing, specified under section 143(10) of the Act we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
• Conclude on the appropriateness of Board of Directors’ 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; 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.
12. 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.
13. 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.
14. 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 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
15. As required by section 197(16) of the Act based on our audit, we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.
16. As required by the Companies (Auditor’s 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 I a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
17. Further to our comments in Annexure I, as required by section 143(3) of the Act based on our audit, we report, to the extent applicable, 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 purpose of our audit of the accompanying standalone financial statements;
b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books, except for the matters stated in paragraph 17(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);
c) The standalone financial statements dealt with by this report are in agreement with the books of account;
d) In our opinion, the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;
e) 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 on 31 March 2024 from being appointed as a director in terms of section 164(2) of the Act;
f) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in paragraph 17(b) above on reporting under section 143(3)(b) of the Act and paragraph 17(h)(vi) below on reporting under Rule 11 (g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);
g) With respect to the adequacy of the internal financial controls with reference to financial statements of the Company as on 31 March 2024 and the operating effectiveness of such controls, refer to our separate report in Annexure II wherein we have expressed an unmodified opinion; and
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 (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 note 44 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at 31 March 2024;
ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2024
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company during the year ended 31 March 2024;
iv. a. The management has represented that, to the best of its knowledge and belief, as disclosed in note 60 (m) to the
standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or securities premium or any other sources or kind of funds) by the Company to or in any person(s) or entity(ies), including foreign entities (‘the 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 (‘the Ultimate Beneficiaries’) or provide any guarantee, security or the like on behalf the Ultimate Beneficiaries;
b. The management has represented that, to the best of its knowledge and belief, as disclosed in note 60 (n) to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (‘the Funding Parties’), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (‘Ultimate Beneficiaries’) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
c. Based on such audit procedures performed as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the management representations under sub-clauses iv(a) and iv(b) above contain any material misstatement.
v. The Company has not declared or paid any dividend during the year ended 31 March 2024.
vi. As stated in note 61 to the financial statements and based on our examination which included test checks, except for instance mentioned below, the Company, in respect of financial year commencing on 1 April 2023, has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with other than the consequential impact of the exception given below:
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Nature of exception noted
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Details of Exception
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Instances of accounting software for maintaining books of account for which the feature of recording audit trail (edit log) facility was not operated throughout the year for all relevant transactions recorded in the software.
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The audit trail feature was not enabled at the database level for accounting software to log any direct data changes, used for maintenance of all accounting records by the Company.
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For Walker Chandiok & Co LLP
Chartered Accountants Firm’s Registration No.: 001076N/N500013
Ashish Gera
Partner
Place: Gurugram Membership No.: 508685
Date: 17 May 2024 UDIN: 24508685BKEUED5392
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