Sathavahana Ispat Ltd Auditors Report.

To the Members of SATHAVAHANA ISPAT LIMITED

Report on the Ind AS Financial Statements

We have audited the accompanying Ind AS financial statements of SATHAVAHANA ISPAT LIMITED ("the Company"), which comprise the Balance Sheet as at March 31, 2018, and the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Managements Responsibility for the Ind AS 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 Ind AS financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the Indian Accounting Standards (Ind AS) prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, 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 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 Ind AS 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 Ind AS financial statements based on our audit.

In conducting 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 thereunder and the Order issued under section 143(11) of the Act. We conducted our audit of the Ind AS financial statements 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 Ind AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the Ind AS financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the Ind AS 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 Ind AS 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 Ind AS financial statements.

We believe that the audit evidence obtained by us, is sufficient and appropriate to provide a basis for our qualified audit opinion on the Ind AS financial statements.

Basis for Qualified Opinion

Note no. 38 to the Ind AS financial statements, where in management has considered outstanding trade receivables, Supplier advances and capital advances of Rs.46,71,24,493/-, Rs.4,40,72,265/- and Rs 2,70,23,201/- respectively for period more than one-year as good and fully recoverable as at the balance sheet date. For reasons stated in the aforesaid note, and due to confirmations being not available and pending reconciliation adjustments we are unable to comment on the recoverability of these receivables, advances and its consequential effect on these financial statements.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, the aforesaid Ind AS 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 Ind AS and other accounting principles generally accepted in India of the state of affairs of the Company as at March 31, 2018, and its loss, total comprehensive loss, its cash flows and the changes in equity for the year ended on that date.

Material uncertainty related to Going Concern

We draw attention to Note no. 35 to the Ind AS financial statements, which indicates that the Company has incurred a net loss of Rs. 306,36,43,139/- during the year and negative other equity of Rs.199,31,87,179/- as at the balance sheet date, has eroded entire net worth of the Company and, as of that date, the Companys current liabilities exceeded its current assets by Rs.760,94,19,443/-. Defaults in repayment of loans and interest payments and shut down of the operations at Ferrous division since June 12, 2017 due to non-availability of working capital funds. These events or conditions, along with other matters as set forth in Note 35, indicate that a material uncertainty exists that may cast significant doubt on the Companys ability to continue as a going concern. However, the Ind AS financial statements of the Company have been prepared on a going concern basis for the reasons stated in the said Note.

Our opinion is not modified in respect of this matter.

Other Matters

The comparative financial information of the Company for the year ended March 31, 2017 and the transition date opening balance sheet as at April 01, 2016 included in these Ind AS financial statements, are based on the statutory financial statements prepared in accordance with the Companies (Accounting Standards) Rules, 2006 audited by the predecessor auditor whose report for the year ended March 31, 2017 and March 31, 2016 dated May 30, 2017 and May 30, 2016 respectively expressed an unmodified opinion on those financial statements, and have been restated to comply with Ind AS. Adjustments made to the previously issued said financial information prepared in accordance with the Companies (Accounting Standards) Rules, 2006 to comply with Ind AS have been audited by us. Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

1. As required by Section 143(3) of the Act, based on our audit we report that: a) We have sought and except for the matters described in the Basis for Qualified Opinion paragraph above, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. b) Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, proper books of account as required by law have been kept by the Company. c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Cash Flow Statement and Statement of Changes in Equity dealt with by this Report are in agreement with the books of account. d) Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid Ind AS financial statements comply with the Indian Accounting Standards prescribed under section 133 of the Act. e) The matter described in the Basis for Qualified Opinion paragraph as above, in our separate Report in "Annexure A" and in the Material uncertainty related to Going Concern paragraph above in our opinion, may have an adverse effect on the functioning of the Company.

f) On the basis of the written representations received from the directors of the Company as on March 31, 2018, taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2018, from being appointed as a director in terms of Section 164(2) of the Act. g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above. h) 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 A". Our report expresses a qualified opinion on the operating effectiveness of the Companys internal financial controls over financial reporting. i) 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, as amended, 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 Ind AS financial statements. (Refer Note No.30 to the Ind AS 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.

2. As required by the Companies (Auditors Report) Order, 2016, issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act ("the Order"), and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure B a statement on the matters specified in paragraphs 3 and 4 of the Order.

For MAJETI & CO
Chartered Accountants
Firms Registration No: 015975S
Kiran Kumar Majeti
Place: Hyderabad Partner
Date: May 30, 2018 Membership No: 220354

ANNEXURE "A" TO THE INDEPENDENT AUDITORS REPORT

(Referred to in paragraph 1 (h) under ‘Report on Other Legal and Regulatory Requirements of our report of even date) Report on the Internal Financial Controls Over Financial Reporting 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 SATHAVAHANA ISPAT LIMITED ("the Company") as of March 31, 2018 in conjunction with our audit of the Ind AS 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 internal financial controls over financial reporting of the Company 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") issued by the Institute of Chartered Accountants of India and the Standards on Auditing prescribed under Section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls. 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.

Basis for Qualified opinion

According to the information and explanations given to us and based on our audit, the following material weaknesses have been identified in the operating effectiveness of the Companys internal financial controls over financial reporting as at March 31, 2018: a) Refer note no 38 of the Ind AS financial statements, in respect of long outstanding overdue trade receivables and advances, whereby evidences of control over monitoring /assessing recoverability of such over dues, including assessment of provision for doubtful trade receivables and advances were not operating effectively. This could potentially result in the Company not recognising a provision for doubtful/old overdue trade receivables and advances. b) The Companys internal financial controls over recording of period end expenses in timely manner particularly relating service vendors, were not operating effectively which could potentially result in not recognising expense in relevant period, results in recognising prior year expense.

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.

Qualified Opinion

In our opinion, to the best of our information and according to the explanations given to us, the Company has, in all material respects, maintained adequate internal financial controls over financial reporting as of March 31, 2018, 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 described in Basis for Qualified Opinion paragraph above 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, 2018.

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 Ind AS financial statements of the Company for the year ended March 31, 2018, and these material weaknesses do not affect our qualified opinion on the said Ind AS financial statements of the Company.

For MAJETI & CO
Chartered Accountants
Firms Registration No: 015975S
Kiran Kumar Majeti
Place: Hyderabad Partner
Date: May 30, 2018 Membership No: 220354

ANNEXURE B TO THE INDEPENDENT AUDITORS REPORT

(Referred to in paragraph 2 under ‘Report on Other Legal and Regulatory Requirements section of our report of even date)

I. (a) The Company is maintaining proper records showing full particulars, including quantitative details and situation, of fixed assets.

(b) The fixed assets are physically verified by the Management according to a phased programme designed to cover all the items on rotation basis which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the Management during the year and no material discrepancies have been noticed on such verification.

(c) The title deeds of immovable properties, as disclosed in Note 3 on fixed assets to the financial statements, are held in the name of the Company. ii. The physical verification of inventory excluding stocks with third parties have been conducted at reasonable intervals by the Management during the year. In respect of inventory lying with third parties, these have substantially been confirmed by them. The discrepancies noticed on physical verification of inventory as compared to book records were not material. iii. The Company has not granted any loans, secured or unsecured, to companies, firms, Limited Liability Partnerships or other parties covered in the register maintained under Section 189 of the Act. Therefore, the provisions of Clause 3(iii), (iii)(a), (iii)(b) and (iii)(c) of the said Order are not applicable to the Company. iv. The Company has not granted any loans or made any investments, or provided any guarantees or security to the parties covered under Section 185 and 186. Therefore, the provisions of Clause 3(iv) of the said Order are not applicable to the Company. v. The Company has not accepted any deposits from the public within the meaning of Sections 73, 74, 75 and 76 of the Act and the Rules framed there under to the extent notified. vi. Pursuant to the rules made by the Central Government of India, the Company is required to maintain cost records as specified under Section 148(1) of the Act in respect of its products.

We have broadly reviewed the same, 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 records with a view to determine whether they are accurate or complete. vii. (a) According to the information and explanations given to us and the records of the Company examined by us, in our opinion, the Company is not regular in depositing undisputed statutory dues, including provident fund, employees state insurance, income tax, sales tax, service tax, duty of customs, duty of excise, value added tax, and cess and other material statutory dues, as applicable, except Goods and Service tax with the appropriate authorities. The extent of the arrears of statutory dues outstanding as at March 31,2018 are as follows:

Name of the statute Nature of dues Amount(Rs.) Period to which it relates Due date Date of Payment
Income Tax Act, 1961 Tax Deducted at source 1,40,77,565 July 2017 to March 2018 on 7th day of next month Not Yet Paid
Income Tax Act, 1961 Tax Collected at source 39,52,011 July 2017 to March 2018 on 7th day of next month Not Yet Paid
Employees Provident Funds & Miscellaneous Provisions Act, 1952 Provident Fund 89,19,070 September 2017 to March 2018 on 15th of next month Not Yet Paid
Employee state Insurance Act Employees State Insurance 13,98,534 Feb2018 to March 2018 on 15th of next month Not Yet Paid
Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987 Professional Tax 4,78,080 July 2017 to March 2018 on 10th of next Month Not Yet Paid
Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976 Professional Tax 1,84,600 July 2017 to March 2018 on 10th of next Month Not Yet Paid
Telangana Tax on Profession, Trades, Callings and employment Act, 1987 Professional Tax 78,400 July 2017 to March 2018 on 10th of next Month Not Yet Paid

(b) According to the information and explanations given to us and the records of the Company examined by us, there are no dues of service-tax, value added tax which have not been deposited on account of any dispute. The particulars of dues of income tax, sales tax, duty of excise, duty of customs, as at March 31, 2018 which have not been deposited on account of a dispute, are as follows:

Name of the statute Nature of dues Amount(Rs.) Period to which the amount relates Forum where the dispute is pending
Central Sales Tax, 1956 Sales Tax 23,29,595 2005-06 Sales Tax Appellate Tribunal, Hyderabad
Income Tax Act, 1961 Interest on Dividend Distribution Tax 13,79,100 2009-10 Deputy Commissioner of Income Tax, Hyderabad
Central Excise Act, 1944 Excise duty and penalty 2,53,99,502 September 2011-March 2015 The commissioner of central excise and customs, Belgaum
Central Excise Act, 1944 Excise duty and penalty 66,80,087 September 2011- May 2015 The Commissioner (Vizag Appeal-II), Guntur
Customs Act, 1962 Customs duty and penalty 10,47,95,907 2012-13 The Customs, Excise and Service Tax Appellate Tribunal, Hyderabad

viii. According to the records of the Company examined by us and the information and explanations given to us, The Company has delayed in repayment of principle and interest as mentioned below for the period from March 2017 to March 2018 aggregating Rs. 145,90,07,059/-

Term Loans (Refer note 13 to the financial statements) Nature of dues Amount of default (Rs.) Period of default and remains unpaid as at balance sheet date
From Banks
Canara Bank Principal 26,68,47,148 59-365 Days
Canara Bank Interest 16,74,63,510 59-424 Days
State Bank of India Principal 22,79,00,000 1-366 Days
State Bank of India Interest 14,99,35,974 1-365 Days
Andhra Bank Principal 20,23,69,830 1-366 Days
Andhra Bank Interest 12,77,11,904 1-365 Days
From Non-Banking Finance Company
Industrial Finance Corporation of India Principal 19,83,68,877 60-335 Days
Industrial Finance Corporation of India Interest 11,84,09,815 60-335 Days

 

Working capital Borrowings (Refer note 13 to the financial statements) Fund based limit (Sanctioned) (Rs.) Balance outstanding as at March 31, 2018 (Rs.) Overdrawn balance (Rs.) Interest overdue (Rs.)
From Canara Bank 26,40,00,000 2,24,33,50,949 1,97,93,50,949 -
From State Bank of India 40,20,00,000 1,70,65,81,675 1,30,45,81,675 23,39,69,022
From Andhra Bank 26,40,00,000 1,74,21,58,006 1,47,81,58,006 13,37,25,306
Total 93,00,00,000 5,69,20,90,630 4,76,20,90,630 36,76,94,328

ix. The Company has not raised any moneys by way of initial public offer, further public offer (including debt instruments) and term loans. Accordingly, the provisions of Clause 3(ix) of the Order are not applicable to the Company. x. During the course of our examination of the books and records of the Company, carried out in accordance with the generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any instance of material fraud by the Company or on the Company by its officers or employees, noticed or reported during the year, nor have we been informed of any such case by the Management. xi. 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. As the Company is not a Nidhi Company and the Nidhi Rules, 2014 are not applicable to it, the provisions of Clause 3(xii) of the Order are not applicable to the Company. xiii. The Company has entered into transactions with related parties in compliance with the provisions of Sections 177 and 188 of the Act. The details of such related party transactions have been disclosed in the financial statements as required under Accounting Standard (AS) 18, Related Party Disclosures specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. xiv. The Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review. Accordingly, the provisions of Clause 3(xiv) of the Order are not applicable to the Company. xv. The Company has not entered into any non-cash transactions with its directors or persons connected with him.

Accordingly, the provisions of Clause 3(xv) of the Order are not applicable to the Company. xvi. The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.

Accordingly, the provisions of Clause 3(xvi) of the Order are not applicable to the Company.

For MAJETI & CO
Chartered Accountants
Firms Registration No: 015975S
Kiran Kumar Majeti
Place: Hyderabad Partner
Date: May 30, 2018 Membership No: 220354