To,

The Members of,

HBL Power Systems Limited, Hyderabad

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of HBL Power Systems Limited ("the Company"), which comprise the Balance Sheet as at 31st March, 2016, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Managements Responsibility for the Standalone Financial Statements

The Companys 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 financial position, financial performance 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, read with Rule 7 of the Companies(Accounts) Rules 2014. 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 financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors Responsibility

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

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.

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 the financial statements are free from material misstatement.

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 auditors 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 control relevant to the Companys 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 Companys Directors, as well as evaluating the overall presentation of the financial statements.

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

Opinion

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 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 31st March, 2016, and its profit and its cash flows for the year ended on that date.

Emphasis of Matters

1) We draw attention to Note 8.1 to Financial Statements which states that interest on delayed payments to parties, registered as MSME under the MSMED Act, 2006, is not provided for, as in the absence of any claim from the said parties, they are reckoned as not due by the company.

2) We draw attention to Note 15.3 to Financial Statements in respect of repudiation, by the Insurers, of a claim made by the company, in respect of which the company had initiated legal action for recovery, the outcome of which is uncertain at this stage.

3) Reference is drawn to Note No.31 Some of the year end balances appearing under the heads referred to therein are subject to confirmation/reconciliation and consequential adjustments.

4) Our opinion is not qualified in respect of the above matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2016 ("the Order") issued by the Central Government of India in terms of subsection (11) of section 143 of the Act, we give in the Annexure -A, a statement on the matters specified in the paragraph 3 and 4 of the Order, to the extent applicable.

2. As required by Section 143 (3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

(c) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.

(d) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 except for the disclosure to be made in pursuance of Accounting Standard AS-27, for the reasons detailed in Note No. 34.8.

(e) On the basis of the written representations received from the directors as on 31st March, 2016 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2016 from being appointed as a director in terms of Section 164 (2) of the Act.

(f) With respect to the adequacy of the Internal Financial Controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in Annexure - B.

(g) With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014 and amendments there to, 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 of pending litigations on its financial position in its financial statements - Refer Note No: 29 to the financial statements;

ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.

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

For Rao & Kumar
Chartered Accountants
Firms Registration Number 03089S
Anirban Pal
Place: Hyderabad Partner
Date: May 30, 2016 Membership Number 214919

(ii) The inventories within the factory premises/stores and at branches have been physically verified by the management during the year and also at the year end. For materials lying with ancillary parties confirmations have been obtained in some cases. In our opinion, the frequency of verification is reasonable. The discrepancies noticed, upon verification, between physical stocks and book records were not material and such differences have been properly dealt with in the books of account.

(iii) As at the year end, there are no outstanding loans granted by the Company to parties covered in the Register maintained under Section 189 of the Act. The Company had, in the previous years, granted unsecured loans to one of its subsidiaries, the details of which, are as under:

Sl No. Name of the subsidiary company Balance as at March 31, 2016 ( in Lakhs) Balance as at March 31, 2015 ( in Lakhs) Maximum amount outstanding at any time during the year 2015
(1) SCIL Infracon (P) Ltd. (SIPL) Nil 424.37 424.37

As there are no outstanding loans as at 31-3-2016, Paragraphs 3 (iii) (a) to (c) of the Order are considered inapplicable.

(iv) In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of Sections 185 and 186 of the Act, with respect to the loans, investments, guarantees and security.

(v) The company has not accepted any deposits to which provisions of Sections 73 to 76 and other relevant provisions of the Act are 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 Section 148 of the Act and are of the opinion that prima-facie the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the same.

(vii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company is regular in depositing the undisputed statutory dues including provident fund, employees state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and other statutory dues with the appropriate authorities. No such undisputed amounts payable were in arrears, as at March 31,2016 for a period more than six months from the date they became payable.

(b) According to the information and explanations given to us, the following demands have not been deposited on account of disputes.

Name of the Statute Nature of the dues and Period to which it relates Amount in lakhs Forum where the Dispute is pending as at 31-3-16
Excise Act Duty, Interest and Penalty on Intermediate goods emerged out of job works and used in the manufacture of exempted finished goods for the period from 1994-95 to 1998-99 94.85 Departmental Appeal before High Court, Mumbai
Excise Act Penalty levied on Cenvat Credit disallowed for the year 2010-11. 5.00 Appeal Before CESTAT, Bengaluru.
Excise Act Duty, Interest and Penalty for non-maintenance of separate CENVAT Account with respect to Input Services during April 2006 to March 2009. 186.28 Pending before Commissioner, Hyderabad.
Excise Act Dispute relating to Departmental Order on Refund alleged to be wrongly granted in 2012-13. 24.37 Appeal Before CESTAT, Hyderabad
Excise Act Duty on Job Work Charges Feb-Sept 2012. 20.31 Appeal Before CESTAT, Hyderabad
Excise Act Duty on Job Work Charges Oct 12 - May 2013 27.03 Appeal Before CESTAT, Hyderabad
Excise Act Dispute relating to alleged Irregular availment of Cenvat Credit for the period Dec-08 to Mar 14 and equal amount levied as penalty 375.92 Appeal Before CESTAT, Hyderabad
Excise Act Dispute relating to irregular availment of benefit on Job work between February 2014 to December 2014 9.77 Appeal before Commissioner Appeals, Hyderabad
Customs Act Dispute relating to alleged evasion of duty by claiming wrong classification and exemption and equal amount levied as penalty between May 2012 and October 2013. 488.70 Appeal before Tribunal, Chennai.

 

Service Tax Act Dispute with regard to Penalty levied on excess Input availed between April 2008 and December 2010. 8.51 Pending before CESTAT, Hyderabad
CST Act Dispute in Taxable Turnover relating to 3rd party exports for the year 2005-06. 35.49 Case pending before TVATAT, Hyderabad.
KVAT Act Dispute with regard to Penalty for stock difference during the year 2010-11. 12.04 Remanded back to Intelligence Officer for modification of order.
TN VAT Act Dispute regarding Input VAT availed and penalty on Capital Goods which were sold during February 2011. 46.05 Appeal filed before Appellate Deputy Commissioner(C), Chennai
AP VAT Act Dispute regarding Input availed on LPG - during 2009-10 64.47 Appeal filed before Appellate Deputy Commissioner, Hyderabad
AP VAT Act Dispute regarding Input availed on LPG- during 2010-11 65.19 Appeal filed before Appellate Deputy Commissioner, Hyderabad
AP VAT Act Dispute regarding Input availed on LPG- during 2011-12 80.18 Appeal filed before Appellate Deputy Commissioner, Hyderabad
AP VAT Act Dispute relating to disallowance of input credit on purchase of LPG for the year 2012-13 107.76 Appeal filed before Appellate Deputy Commissioner, Hyderabad
CST Act Dispute in Taxable Turnover relating to 3rd party exports for the year 2007-08. 36.42 Case pending before TVATAT, Hyderabad
CST, VAT and Entry tax Acts Dispute relating to interest demand for alleged non-payment of assessed tax 18.85 Appeal pending before Joint Commissioner of Commercial Taxes, , Appeals, Patna
KVAT Act Dispute relating to tax demanded on alleged undisclosed turnover for the year 2011-12 29.49 Remanded back to Intelligence Officer for modification of order.
CST Act Dispute relating to tax demanded for alleged non-submission of forms for the year 2010-11 0.56 Appeal pending before Commissioner Appeals, Lucknow.
CST Act Dispute relating to penalty levied on late remittance ofTax. 18.70 Appeal before Appellate Deputy Commissioner, Hyderabad
AP VAT Dispute relating to disallowance of input tax credit on LPG. 71.23 Case Remanded back to Assistant Commissioner, Intelligence, Vizianagaram.
CST Act Dispute relating to demand raised for non-submission of C and TDS Certificates. 3.29 Appeal before Commissioner Appeals, Lucknow.
Income Tax Act For Asst. Year 2009-10, disallowance made and demand raised 65.08 Appeal before Commissioner of Income Tax (Appeals). Pending Dispute total tax was paid.

(viii) In our opinion and according to the information and explanations given to us, the company has not defaulted in repayment of loans or borrowings to a financial institution, Bank or Government. The company had not issued any Debentures.

(ix) The Company had not raised any money by way of Initial Public Offer or further Public Offer (including Debt Instruments). Based on review of the records of the term loan drawn and utilization thereof on an overall basis, the term loans have been applied for the purposes for which the loans were raised. However, unapplied funds are kept in Fixed Deposit.

(x) Based upon the audit procedures performed for the purpose of reporting true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud by the Company or on the Company by its Officers or employees has been noticed or reported during the year.

(xi) According to the information and explanations given to us and based on our examination of the records of the Company, 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.

(xii) In our opinion and according to the information and explanations given to us, the Company is not a Nidhi Company. Accordingly Paragraph 3 (xii) of the Order is not applicable.

(xiii) According to the information and explanations given to us and based on our examination of the records of the Company, the transactions with related parties are in compliance with Section 177 and 188 of the Act, where applicable and details of such transactions have been disclosed in the Financial Statements as required by the applicable Accounting Standards.

(xiv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

(xv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into Non-Cash transactions with Directors or persons connected with them. Accordingly Paragraph 3(xv) of the Order is not applicable.

(xvi) The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.

For Rao & Kumar
Chartered Accountants
Firms Registration Number 03089S
Anirban Pal
Place: Hyderabad Partner
Date: May 30, 2016 Membership Number 214919

Annexure - B

(Referred to in Paragraph 2(f) of Report on Other Legal and Regulatory Requirements in our report of even date)

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the internal financial controls over financial reporting of HBL Power Systems Limited ("the Company") as of March 31,2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Managements Responsibility for Internal Financial Controls

The Companys management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors Responsibility

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the "Guidance Note") and the Standards on Auditing, to the extent applicable to an audit of internal financial controls, both issued by the Institute of Chartered Accountants of India. 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 internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, 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 auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the Companys internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A companys internal financial control over financial reporting 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 companys internal financial control over financial reporting includes 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 authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, 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 internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit we are of the opinion that, the Company has, in all material respects, maintained adequate internal financial controls over financial reporting as of March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India, and except for the possible effects of the material weaknesses in the operating effectiveness of controls described below on the achievement of the objectives of the control criteria, the Companys internal financial controls over financial reporting were operating effectively as of March 31,2016.

a) During the year the Company had migrated from its existing ERP package to SAP which is in its final implementation stage. The Companys internal financial controls implemented through Information Technology Controls and General IT Controls are yet to be fully implemented which may lead to a failure of the Companys control procedures to prevent or detect a misstatement of an account balance or disclosure.

b) Control documents evidencing the operating effectiveness of controls are not signed off appropriately, resulting in nonidentification of deviations from the approved delegation of authority & responsibility, companys controls & procedures. In as much, effecting the assessment of risks associated and determining the effect of the deviations of the control being tested and the evidence to be obtained, as well as forming an opinion on the operating effectiveness of the controls.

A material weakness is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis.

We have considered the material weaknesses identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the March 31,2016 financial statements of the Company, and these material weaknesses do not affect our opinion on the standalone financial statements of the Company.

For Rao & Kumar
Chartered Accountants
Firms Registration Number 03089S
Anirban Pal
Place: Hyderabad Partner
Date: May 30, 2016 Membership Number 214919