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UNITED SPIRITS LTD.

17 September 2021 | 12:00

Industry >> Beverages & Distilleries

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ISIN No INE854D01024 52Week High 777 Book Value (Rs.) 56.70 Face Value 2.00
Bookclosure 21/08/2019 52Week Low 494 EPS 5.28 P/E 140.51
Market Cap. 53898.43 Cr. P/BV 13.08 Div Yield (%) 0.00 Market Lot 1.00
Security Type Other

AUDITOR'S REPORT

You can view full text of the latest Director's Report for the company.
Year End :2021-03 

To the Members of United Spirits Limited

Report on the audit of the Standalone Financial Statements

Opinion

1. We have audited the accompanying standalone financial statements of United Spirits Limited ("the Company"), which comprise the Balance Sheet as at March 31,2021, 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 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 accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2021, its total comprehensive income (comprising of profit and other comprehensive income), changes in equity and its cash flows for the year then ended.

Basis for opinion

3. We conducted our audit of the standalone financial statements in accordance with the Standards on Auditing (SAs) 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 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.

Emphasis of Matter

4. We draw attention to the following matters:

a) As explained in Note 40(a) to the standalone financial statements, upon completion of the Initial Inquiry, which identified references to certain Additional Parties and certain Additional Matters, the MD & CEO, pursuant to the direction of the Board of Directors, had carried out an Additional Inquiry that revealed transactions indicating actual and potential diversion of funds from the Company and its Indian and overseas subsidiaries to, in most cases,

Indian and overseas entities that appear to be affiliated or associated with the Company's erstwhile non-executive Chairman and other potentially improper transactions. The amounts identified in the Additional Inquiry have been fully provided for or expensed by the Company and/or its subsidiaries in earlier periods. Management is currently unable to estimate the financial impact on the Company, if any, arising from potential non-compliances with applicable laws in respect of the above.

b) As explained in Note 40(b)(i) to the standalone financial statements, the Company has commenced the rationalisation process for divestment/ liquidation/ merger of certain overseas subsidiaries including step down subsidiaries. The completion of the above process is subject to regulatory and other approvals (in India and overseas). At this stage, it is not possible for the management to estimate the financial impact on the Company, if any, arising out of potential historical non-compliances with applicable laws, if established.

c) As explained in Note 40(d) to the standalone financial statements, the Managerial remuneration for the year ended March 31,2015 included an amount paid in excess of the limit prescribed under the provisions of Schedule V to the Act by INR 134 million to the former Executive Director and Chief Financial Officer (ED & CFO). The Company has initiated steps, including by way of filing a suit for recovery before the jurisdictional court, to recover such excess remuneration from the former ED & CFO.

d) Note 40(e) to the standalone financial statements which describes the various regulatory notices and communications received from Securities Exchange Board of India ('SEBI'), Ministry of Corporate Affairs ('MCA')/ Registrar of Companies, Karnataka (the 'Registrar'), Directorate of Enforcement ('ED') to which the Company has responded to and communication received from the Company's authorised dealer banks ('AD') to which the Company is in the process of responding.

e) Note 40(f) to the standalone financial statements which describes the uncertainty relating to the final outcome of litigations with a bank ("the bank") that continues to retain the pledge of certain assets of the Company and of the Company's shares held by USL Benefit Trust (of which the Company is the sole beneficiary) despite the Company prepaying the term loan to that bank along with the prepayment penalty and further depositing an additional sum of INR 459 million demanded by the bank and as directed by the Hon'ble High Court of Karnataka (the "Court"). Based on management assessment supported by external legal opinions, the Company has disclosed the aforesaid amount of INR 459 million under Other

Non-current financial assets as recoverable from the bank pending the final outcome of the litigation. In a separate proceeding before the Debt Recovery Appellate Tribunal, the bank's appeal against the judgement awarded by Debt Recovery Tribunal in favour of the Company in respect of attachment of the aforesaid pledged shares for recovery of the loans advanced by the bank to Kingfisher Airlines Limited is pending disposal.

f) As explained in Note 40(g) to the standalone financial statements, the Company came across information suggesting continuing past practices resulting in differences in reporting to the relevant Regulatory Authorities of yields of certain non-potable intermediates and associated process losses in the liquor manufacturing process. Related actions taken and monitoring of future

development by the Company in this respect have been described in the said note.

Our opinion is not modified in respect of the matters described

under paragraph 4 above.

Key audit matters

5. 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.

Key audit matter

How our audit addressed the key audit matter

a) Assessment of Expected Credit Loss (ECL) provision in respect of Loans to subsidiaries

(Refer Notes 5 and 31 to the standalone financial statements)

These loans to subsidiaries fall within the scope of Ind AS 109-Financial Instruments and are measured at amortised cost using effective interest method. A credit loss provision is recorded to adjust the balance to the present value of estimated cash flows. The Company has made a (net) provision for credit loss of INR 475 million (March 31, 2020: IR 478 million) for the year ended March 31, 2021.

We considered provisioning for credit loss on loans to subsidiaries as a key audit matter as estimation of credit loss provision requires management to make significant assumptions on forward looking information for subsidiaries such as financial projections, other resources and the ability of the subsidiaries to repay those loans.

Our audit procedures included the following:

• Understood, evaluated and tested the design and operating effectiveness of Company's controls to assess the adequacy of credit loss on loans to subsidiaries.

• Tested the methodology applied in the credit loss provision estimation by comparing it to the requirements of the relevant accounting standard.

• Examined the repayment terms by reference to the loan agreements with subsidiaries

• Tested the mathematical accuracy of management's model used to calculate credit loss provision and evaluated key underlying assumptions such as expected growth in revenue, cost savings, timing and ability to repay loans by evaluation of forecasts of future cash flows.

• Evaluated the adequacy of disclosures made in the standalone financial statements.

Based on above audit procedures performed, we did not note any significant exception to ECL provision in respect of loans to subsidiaries.

a) Assessment of the appropriateness of provisions recognised and contingent liabilities disclosed in respect of certain tax matters (Refer notes 8, 17 and 42 to the standalone financial statements and Appendix 1 to Annexure A of the Audit Report)

Our audit procedures included the following:

• Understood, assessed and tested the design and operating effectiveness of the Company's controls in respect of identifying potential tax exposures and/or the accounting and disclosures thereof.

• Evaluated the related accounting policy for provisioning for tax exposures/ disclosure of contingent liabilities by comparing it to the requirements of the relevant accounting standards.

Other Information

6. The Company's Board of Directors is responsible for preparation of the other information. The other information comprises the information included in the Report of the Directors, Business Responsibility Report, Corporate Governance Report and Management Discussion and Analysis, but does not include the standalone financial statements and our auditor's report thereon.

7. Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

8. In connection with our audit of the standalone financial statements, our responsibility is to read the other information 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. If, based on the work we have

Key audit matter

How our audit addressed the key audit matter

As at March 31, 2021, the Company has significant tax

• Obtained management's assessment in respect of tax demands

exposures and is subject to periodic assessments/ demands by

on whether tax outflow is either probable, possible or remote.

tax authorities on transfer pricing, income tax and a range of

• Evaluated the management's assessment with the help of

indirect tax matters. Consequent to such tax assessments and

auditors' experts, where necessary, as follows:

demands relating to past several years, the Company has paid certain amounts under protest at various dates. The Company

o For the samples selected, read the correspondences

has also filed appeals with various appellate authorities against such demands.

received during the year from the tax authorities/ orders from appellate authorities.

Management judgement is involved in assessing the likelihood

o Read views provided by the management/ management tax experts as applicable.

of ultimate outcome of the tax disputes to decide on the accounting/ disclosure requirements. In certain complex matters the probable amount of the outflows determined by

o Assessed management's positions on significant tax exposures in accordance with tax laws and past precedents of tax judgements.

management is supported by opinions obtained from external

tax counsels/ assessment performed by internal experts

o Ensured completeness of litigations by inquiring with the

(management tax experts).

management, review of board minutes, and review of

We considered this a key audit matter as:

significant legal expenses.

o Evaluated the objectivity, competence and capabilities of the management tax experts.

• The amounts involved are significant to the standalone

o Evaluated the adequacy of disclosures made in the

financial statements.

standalone financial statements.

• Change in the management's judgements and estimates may

Based on the above procedures, we considered the management's

significantly affect the provisions recognised or contingent

liabilities disclosed.

assessment in recognising provisions and disclosing contingent

liabilities in respect of the stated tax matters, as reasonable.

• Matters of disputes are complex in some cases due to the industry in which the Company operates and may lack clarity under tax laws.

performed, we conclude that there is a material misstatement of other information, we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the Standalone Financial Statements

9. The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance (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 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 implementation and maintenance of 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.

10. In preparing the standalone financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Board of Directors is also responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the Standalone

Financial Statements

11. Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

12. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism throughout the audit.

13. We also:

a) 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 controls.

b) Obtain an understanding of internal controls 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 the standalone financial statements in place and the operating effectiveness of such controls.

c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

d) Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the 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.

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

14. 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 controls that we identify during our audit.

15. 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.

16. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law

g) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact, if any, of pending litigations as at March 31, 2021 on its financial position in its standalone financial statements - Refer Notes 8, 17, 40(c),

40(d), 40(f) and 42 to the standalone financial statements;

ii. The Company has long-term contracts for which there are no material foreseeable losses. The Company did not have derivative contracts as at March 31, 2021 - Refer Note 39 to the standalone financial statements;

iii. The Company has transferred amounts required to be transferred to the Investor Education and Protection Fund by due dates during the year ended March 31, 2021 . Also Refer Note 16 to the Standalone financial statements;

iv. The reporting on disclosures relating to Specified Bank Notes is not applicable to the Company for the year ended March 31,2021.

19. The Company has paid/ provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Act.

For Price Waterhouse & Co Chartered Accountants LLP

Firm Registration Number: 304026E/E-300009

Chartered Accountants

Dibyendu Majumder

Partner

Membership Number: 057687

UDIN: 21057687AAAAAP6562

Place : Bengaluru

Date : May 21, 2021