To the Members of
Shankara Building Products Limited Bengaluru - 560001.
Report on the Audit of Consolidated Indian Accounting Standards
(‘Ind AS)
financial statements Opinion
We have audited the accompanying consolidated financial statements of
Shankara Building Products Limited (hereinafter referred to as the "Holding
Company") and its subsidiaries (Holding Company and its subsidiaries together
referred to as "the Group"), which comprise the consolidated Balance Sheet as at
March 31, 2023, and the consolidated Statement of Profit and Loss, (including other
comprehensive income), consolidated Statement of Changes in Equity and consolidated
Statement of Cash Flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies and other explanatory
information (hereinafter referred to as "the consolidated financial
statements"). In our opinion and to the best of our information and according to the
explanations given to us, the aforesaid consolidated 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
prescribed under section 133 of the Act read with the Companies (Indian Accounting
Standards) Rules, 2015, as amended, ("Ind AS") and other accounting principles
generally accepted in India, of the consolidated state of affairs of the Group as at March
31, 2023, of its consolidated profit (including other comprehensive income), consolidated
changes in equity and consolidated cash flows for the year then ended.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing
(SAs) specified under section 143(10) of the Act. Our responsibilities under those SAs are
further described in the Auditors Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Group in accordance
with the ethical requirements that are relevant to our audit of the consolidated financial
statements in India in terms of the Code of Ethics issued by ICAI and the relevant
provisions of the Act, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the consolidated financial statements of the
current period. These matters were addressed in the context of our audit of the
Consolidated 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 the matter was addressed in our audit |
| Inventory existence and valuation |
We have performed the following
procedures: |
| Inventory is held in various locations by the
Holding Company. There are complexities and manual process involved in determining
inventory quantities on hand and valuation of the same due to the diverse & numerous
inventory products, multiple storage locations and price fluctuations of products. Hence,
inventory quantities and valuation thereof is identified as a key audit Matter. |
We have attended inventory
counts at certain locations, which we selected based on financial significance and risk,
observed managements inventory count procedures to assess the effectiveness,
selected a sample of inventory products and compared the quantities counted to the
quantities recorded and ensured inventory adjustments, if any, are recorded in the books
of accounts. |
|
Comparative analysis of
inventory as at the end of the year with the inventory at the beginning of the year. |
| Key audit matter |
How the matter was addressed in our audit |
| Carrying value of Goodwill |
we assessed whether the
managements controls relating to inventorys valuation are appropriately
designed and implemented. Verification of the correctness of valuation made by the
management on a sample basis, with regard to the cost and net realizable value of
inventory. |
| The group has recognised goodwill on
consolidation involving three subsidiaries amounting to 14.04 crore. The goodwill has to
be tested for impairment annually, which requires signifi cant judgement on the part of
the management in identifying and valuing the relevant Cash Generating Unit that contains
goodwill. |
The Board of Directors of
the holding company has tested whether there is any impairment of goodwill recognised in
the financials viz. 14.04 crore. The projected discounted cash flow of the respective
cash generating unit was considered in detail and on such due consideration, the Board has
come to the conclusion that goodwill has not suffered any impairment and can be carried at
14.04 crore. |
|
We have considered the basis
on which the Board has arrived at this consideration and we agree with their assessment. |
As a result of the above audit procedures no material differences were
noted. We confirm the adequacy of disclosures made in the Financial Statements.
Key Audit Matter relating to a subsidiary viz. Vishal Precision Steel
Tubes and Strips Private Limited (extract from the report of the Statutory Auditors)
| KEY AUDIT MATTER |
HOW THE MATTER WAS ADDRESSED |
| ASSESSMENT OF THE APPROPRIATENESS OF |
Our procedure included among others: |
| THE ALLOWANCE FOR DOUBTFUL DEBTS. |
|
|
Evaluated the debtor impairment methodology |
| Trade Receivable comprises 23.67% (2021-22
25.02%) of the total assets in the Statement of Financial Position (the Balance sheet) |
applied in the current year against the
requirements of Ind AS 113 in respect of fair valuation. |
| The appropriateness of the allowance for
doubtful debts is subjective due to high degree of judgement applied by the management in
determining the impairment provision.. |
Analysed the methodology by comparing the
prior year provision to the actual current year write offs. Assessed key ratios which
include cash collections, days outstanding and delinquencies. |
| Due to the significance of trade receivables
and the related estimation uncertainty, this is considered as key audit risk. |
We considered the changes in credit strategy
and assessed the impact on the allowances for doubtful debts. |
| This disclosure is set out in the Note under
Schedule 10 |
|
Key Audit Matter relating to a subsidiary viz. Vishal Precision Steel
Tubes and Strips Private Limited (extract from the report of the Statutory Auditors)
| KEY AUDIT MATTER |
HOW THE MATTER WAS ADDRESSED |
|
Assessed the changes in the economy with
particular reference to the sector where the company predominantly operates and the impact
on the collectively of the trade receivables. |
|
Based on the above, we satisfied ourselves
that the management had taken reasonable judgements that were materially supported by the
available evidence in respect of the receivable balances. We did not encounter any issues
through these audit procedures that indicated that provisioning in respect of trade
receivables was inappropriate. |
| INVENTORY PROVISION |
Our procedure included, among others: |
| Inventory comprises of 32.49% (2021-22 32.73%)
of the total assets in the statement of financial position (Balance sheet). |
Compared the provision/valuation methodology
applied by the management by comparing to previous year methodology. |
| As discussed in the Notes on Accounts, the
management has made provision for markdowns against inventory in respect of damaged,
unmarketable, unserviceable and have become obsolete. |
Evaluated the assumptions and judgements
applied by the management in determining such markdown provision/valuation. |
|
Tested and evaluated historical information,
data trends and ageing pro files and shelf lives. |
| The allowance for markdown of inventory takes
into account the historic information related to sales trends and estimated net realisable
value has been applied in respect of the class of inventory stated above. This requires
significant management judgement based on past experience, inventory ageing profile as
well as different market factors impacting sale of these products. As these factors change
each year, this required specific focus on the current year assumptions. Further due to
the significance of the inventories and related estimation uncertainty, this is considered
as key audit risk. Accordingly the markdown against inventory is considered to be a key
audit matter and disclosure is included in the Notes on accounts. |
Analysed the provisions by performing
analytical procedures on provisioning/valuation levels including against historical
experience. |
Key Audit Matter relating to a subsidiary viz. Centurywells Roofing
India Private Limited (extract from the report of the Statutory Auditors )
| KEY AUDIT MATTER |
HOW THE MATTER WAS ADDRESSED |
| ASSESSMENT OF THE APPROPRIATENESS OF THE ALLOWANCE FOR
DOUBTFUL DEBTS. |
Our procedure included, among others: |
| Trade Receivable comprises 47.49% (2021-22
46.25%) of the total assets in the Statement of Financial Position (the Balance sheet) |
Evaluated the debtor impairment methodology
applied in the current year against the requirements of Ind AS 113 in respect of fair
valuation. |
| The appropriateness of the allowance for
doubtful debts is subjective due to high degree of judgement applied by the management in
determining the impairment provision. Although there is quantum jump in the overall
debtors values, the increase in terms of percentage of assets has not marked a
significant growth. |
Analysed the methodology by comparing the
prior year provision to the actual current year write offs. Assessed key ratios which
include cash collections, days outstanding and delinquencies. |
|
We considered the changes in credit strategy
and assessed the impact on the allowances for doubtful debts. |
| The recoverability of trade receivables and
the level of provisions for bad and doubtful debts are considered to be key risk due to
the significance of these balances to the financial statements and the judgement required
in making appropriate provisions. |
Assessed the changes in the economy with
particular reference to the sector where the company predominantly operates and the impact
on the collectively of the trade receivables. Based on the above, we satisfied ourselves
that the management had taken reasonable judgements that were materially supported by the
available evidence in respect of the receivable balances. We did not encounter any issues
through these audit procedures that indicated that provisioning in respect of trade
receivables was inappropriate. |
| The disclosure is set out in the Note under
Schedule 10. |
|
| INVENTORY PROVISION |
Our procedure include, among others: |
| Inventory comprises of 32.11% (2021-22
32.42%) of the total assets in the statement of financial position (Balance sheet). As
discussed in the Notes on Accounts, the management has made provision for markdowns
against inventory in respect of damaged, unmarketable, unserviceable and have become
obsolete. The allowance for markdown of inventory takes into account the historic
information related to sales trends and estimated net realisable value has been applied in
respect of the class of inventory stated above. |
Compared the provision/valuation methodology
applied by the management by comparing to previous year methodology. Evaluated the
assumptions and judgements applied by the management in determining such markdown
provision/valuation. |
|
Tested and evaluated historical information,
data trends and ageing profiles and shelf lives. Analysed the provisions by performing
analytical procedures on provisioning/valuation levels including against historical
experience. |
| This requires significant management
judgement based on past experience, inventory ageing profile as well as different market
factors impacting sale of these products. As these factors change each year, this required
specific focus on the current year assumptions. |
|
| Further due to the significance of the
inventories and related estimation uncertainty, this is considered as key audit risk.
Accordingly the markdown against inventory is considered to be a key audit matter and
disclosure is included in the Notes on accounts. |
|
Information Other than the Consolidated Ind AS financial statements and
Auditors Report Thereon
The Holding Companys management and Board of Directors are
responsible for the other information. The other information comprises the information
included in the Holding Companys annual report but does not include the financial
statements and our report thereon. Our opinion on the Consolidated financial statements
does not cover the other information and we do not express any form of assurance
conclusion thereon. In connection with our audit of the Consolidated financial statements,
our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the Consolidated financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated. If,
based on the work we have performed and based on the work done/ audit report of other
auditors, we conclude that there is a material misstatement of this 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 consolidated financial statements
The Holding Companys Board of Directors are responsible for the
preparation and presentation of these consolidated financial statements in term of the
requirements of the Act that give a true and fair view of the consolidated financial
position, consolidated financial performance, consolidated total comprehensive income,
consolidated changes in equity and consolidated cash flows of the Group in accordance with
the accounting principles generally accepted in India, including the Indian Accounting
Standards (Ind AS) specified under section 133 of the Act. The respective Board of
Directors of the companies included in the Group are responsible for maintenance of
adequate accounting records in accordance with the provisions of the Act for safeguarding
the assets of the group and for preventing and detecting frauds and other irregularities;
the selection and application of appropriate accounting policies; making judgments and
estimates that are reasonable and prudent; and the design, implementation and maintenance
of adequate internal financial controls, that were operating effectively for ensuring
accuracy and completeness of the accounting records, relevant to the preparation and
presentation of the consolidated financial statements that give a true and fair view and
are free from material misstatement, whether due to fraud or error, which have been used
for the purpose of preparation of the consolidated financial statements by the Directors
of the Holding Company, as aforesaid. In preparing the consolidated financial statements,
the respective Board of Directors of the companies included in the Group are responsible
for assessing the ability of the each company in the Group 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 Group or
to cease operations, or has no realistic alternative but to do so. The respective Board of
Directors of the companies included in the Group are responsible for overseeing the
financial reporting process of the each company in the Group.
Auditors Responsibilities for the Audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors 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 consolidated financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also: Identify and assess the risks of
material misstatement of the Consolidated 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 that 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 system 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 managements 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
ability of the Group to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors report to the
related disclosures in the consolidated 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 report. However, future events or conditions may cause the
Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and whether the consolidated
financial statements represent the underlying transactions and events in a manner that
achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within the Group to express
an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the audit of financial statements of such entities included
in the consolidated financial statements of which we are the independent auditors. For the
other entities included in the consolidated financial statements, which have been audited
by other auditors, such other auditors remain responsible for the direction, supervision
and performance of the audits carried out by them. We remain solely responsible for our
audit opinion. We communicate with those charged with governance of the Holding Company
and such other entities included in the consolidated financial statements of which we are
the independent auditors 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. 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. From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit matters. We describe
these matters in our 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.
Other matters
(a) We did not audit the financial statements of four
subsidiaries, whose financial statements reflect total assets of 338.02 crore as at March
31, 2023, total revenues of 772.94 crore and net cash outflows amounting to 1.08 crore
for the year then ended on that date, as considered in the consolidated financial
statements. These financial statements have been audited by other auditors whose reports
have been furnished to us by the management and our opinion on the Consolidated financial
statements, in so far as it relates to the amounts and disclosures included in respect of
these subsidiaries and our report in terms of sub-section (3) of Section 143 of the Act,
in so far as it relates to the aforesaid subsidiaries is based solely on the reports of
the other auditors. Our opinion on the consolidated financial statements, and our report
on Other Legal and Regulatory Requirements below, is not modified in respect of the above
matters with respect to our reliance on the work done and the reports of the other
auditors and the financial statements/financial information certified by the Management.
Report on Other Legal and Regulatory Requirements
1. As required by Section 143(3), 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 purposes of our audit of the
aforesaid consolidated financial statements. b) In our opinion, proper books of account as
required by law relating to preparation of the aforesaid consolidated financial statements
have been kept so far as it appears from our examination of those books and the reports of
the other auditors. c) The Consolidated Balance Sheet, the Consolidated Statement of
Profit and Loss (including other comprehensive income), the Consolidated statement of
Changes in Equity and the Consolidated Statement of Cash Flows dealt with by this Report
are in agreement with the relevant books of account maintained for the purpose of
preparation of the consolidated financial statements. d) In our opinion, the aforesaid
consolidated financial statements comply with the Ind AS specified under section 133 of
the Act read with Rule 7 of the Companies (Accounts) Rules, 2014. e) On the basis of the
written representations received from the directors of the Holding Company as on March 31,
2023 taken on record by the Board of Directors of the Holding Company and on the basis of
the reports of the statutory auditors of its subsidiary companies incorporated in India,
none of the directors of the Group incorporated in India is disqualified as on March 31,
2023 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 with reference to financial
statements of the Holding Company and its subsidiary companies incorporated in India and
the operating effectiveness of such controls, refer to our separate Report in
"Annexure A". g) With respect to the other matters to be included in the
Auditors Report in accordance with the requirements of section 197(16) of the Act,
the remuneration paid / provided during the year to directors is in accordance with the
provisions of section 197 of the Act, in respect of the Holding Company. Remuneration was
not paid to the director(s) of the subsidiaries. h) 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, in our opinion and to the best of our information
and according to the explanations given to us and based on the consideration of the
reports of the other auditors on separate financial statements of the subsidiaries, as
noted in the ‘Other Matters paragraph: i. The consolidated financial statements
disclose the impact of pending litigations as at March 31, 2023 on the consolidated
financial position of the Group - Refer note no. 39 to the consolidated financial
statements. ii. The Group did not have any material foreseeable losses on long-term
contracts including derivative contracts during the year ended March 31, 2023. iii. There
were no amounts which were required to be transferred to the Investor Education and
Protection Fund by the Holding Company, and its Indian subsidiary companies. iv. a) The
Management of the Holding Company and the subsidiaries (incorporated in India) have
represented that, to the best of its knowledge and belief, other than as disclosed in
notes to account (refer note no. 53), no funds have been advanced or loaned or invested
(either from borrowed funds or share premium or any other sources or kind of funds) by the
Group to or in any other person or entity, including foreign entity
("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 Group
("Ultimate Beneficiaries") or provide any guarantee, security or the like on
behalf of the Ultimate Beneficiaries; b) The Management of the Holding Company and the
subsidiaries (incorporated in India) have represented that, to the best of its knowledge
and belief, other than as disclosed in the note no. 54 to consolidated financial
statements, no funds have been received by the Group from any person or entity, including
foreign entity ("Funding Parties"), with the understanding, whether recorded in
writing or otherwise, that the Group 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; c) Based on the audit procedures that
have been considered reasonable and appropriate in the circumstances, nothing has come to
our notice that has caused us to believe that the representations provided under
sub-clause (a) and (b) above, contain any material misstatement. (v)The final dividend
paid by the Holding company during the year in respect of the same declared for the
previous year is in accordance with the Section 123 of the Companies Act, 2013 to the
extent it applies to payment of Dividend. The Board of the Holding Company has not
declared interim dividend during the year. However, the Board of the Holding Company at
its meeting held today ie 11th May 2023 has recommended a final dividend of 2.5 /- per
equity share (face value of 10/- each) which is subject to the approval of the
shareholders in the ensuing Annual General Meeting. The dividend declared is in accordance
with the provisions of the section 123 of the Act to the extent it applies to declaration
of dividend.
(vi) Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for
maintaining books of account using accounting software which has a feature of recording
audit trail (edit log) facility is applicable to the company with effect from 1st April
,2023 , and accordingly , reporting under Rule 11(g) of Companies (Audit and Auditors)
Rules, 2014 is not applicable for the financial year ended March 31,2023.
2. With respect to the matters specified in paragraphs 3(xxi) and 4 of
the Companies (Auditors Report) Order, 2020 (the "Order"/ "CARO")
issued by the Central Government in terms of Section 143(11) of the Act, to be included in
the Auditors report, according to the information and explanations given to us, and based
on the CARO report issued by us for the Holding Company and by other auditors in respect
of subsidiaries included in the consolidated financial statements, we report that there
are no qualifications or adverse remarks in these CARO reports.
For Sundaram & Srinivasan
Chartered Accountants
Firm Registration. No. 004207S
Srinivasan K
Partner
Membership No. : 209120
ICAI UDIN : 23209120BGSINA6891
Place : Bengaluru
Date : May 11, 2023
+91-9892691696
