Virescent Renewable Energy Trust

Virescent Renewable Energy Trust Auditor Reports

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Virescent Renewable Energy Trust Share Price Auditors Report

To the Unitholders of Virescent Renewable Energy Trust

Report on the Audit of the Standalone Financial Statements

Opinion

We have audited the accompanying standalone financial statements of Virescent Renewable Energy Trust ("the Trust" / "InvIT"), which comprise the Standalone Balance Sheet as at March 31, 2023, and the Standalone Statement of Profit and Loss (Including Other Comprehensive Income), Standalone Statement of Changes in Unitholders Equity and the Standalone Statement of Cash Flow for the year then ended and the Standalone Statement of Net Assets at Fair Value as at March 31, 2023, Statement of Total Returns at Fair Value and the Net Distributable Cash Flows for the year then ended, and notes to the standalone financial statements, including a summary of significant accounting policies and other explanatory information (hereinafter referred to as "the standalone financial statements").

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 Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 as amended from time to time including any guidelines and circulars issued thereunder read with the SEBI circular number CIR/IMD/DF/114/2016, dated October 20, 2016 and CIR/IMD/DF/127/2016 dated November 29, 2016 (together referred to as the "InvIT Regulations") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards as defined in Rule 2(1)(a) of the Companies (Indian Accounting Standards) Rules, 2015 (as amended), and other accounting principles generally accepted in India, to the extent not inconsistent with the InvIT Regulations, of the state of affairs of the Trust as at March 31, 2023, its profit including other comprehensive income, its changes in Unitholders Equity, and its cash flows for the year then ended and its net assets at fair value as at March 31, 2023, its total returns at its fair value and the net distributable cash flows for the year then ended and other financial information of the Trust.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013 (‘the Act). Our responsibilities under those Standards are further described in the Auditors Responsibilities for the Audit of the standalone financial statements section of our report. We are independent of the Trust in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit of the standalone 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 obtained by us 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 standalone financial statements for the year ended March 31, 2023. 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.

Sr. No	Key Audit Matter	How the Key Audit Matter was addressed in our audit
1	Assessment for impairment of investments in subsidiaries and loans given to subsidiaries	Our audit procedures to address the impairment of investment in subsidiaries and loans given to subsidiaries included and were not limited to the following:
	Refer to Note 2 (m),3 & 4 of the standalone financial statements.	1. Obtained an understanding from the management with respect to process and controls followed to perform impairment test related to investments and loans including verification of design and implementation of controls.
	The Trust has non-current investments in subsidiaries and loans given to subsidiaries amounting to ^ 316,594.21 Lakh as at March 31, 2023 which constitutes 94.93% of the total assets of the Trust.	2. Verified operating effectiveness of the Trusts internal controls over preparation of annual budgets and future forecasts for the subsidiaries and the approach followed for impairment test and key assumptions applied.
	The management assesses annually the existence of impairment indicators in regard to its investments and loans made to subsidiaries. The determination of recoverable amounts of the investments and loan balances is subject to managements estimates of future cash flows which are uncertain, various unobservable valuation inputs and other assumptions that require considerable judgement with respect to the investees performance and the underlying numbers.	3. Obtained report of external valuation specialist appointed by the Management for the valuation of investment and loans. Evaluated the competence and objectivity of the valuation specialist engaged by the management.
	Hence, due to the significance of such investments and loans to the standalone financial statements and significant degree of judgement and subjectivity involved in the estimates and key assumptions used as stated above, this is considered to be the area which requires significant audit focus and accordingly, the matter is determined as a key audit matter.	4. Involved our internal valuation experts for testing of the various assumptions used and the methodology in the valuation report.
		5. Verified the completeness and arithmetical accuracy of the management computations.
		6. Assessed the appropriateness of the valuation methodology applied and reasonableness of the key assumptions used i.e. the discount rate and longterm growth rates used in the forecast including comparison to economic and industry forecasts where appropriate.
		7. Assessed the reasonableness of the inputs of future revenue and margins, the historical accuracy of the Trusts estimates by comparing the forecasts used in the prior year model with the actual performance in the current year and its ability to produce accurate long-term forecasts.
		8. Assessed and validated the adequacy and appropriateness of the disclosures made by the management in the standalone financial statements as per applicable accounting standards.
2.	Classification of Unitholders funds as equity	Our audit procedures included, among others the following:
	Refer Note 2(t) of the standalone financial statements	1. We obtained and read the requirements for classification of financial liability and equity under Ind AS 32 "Financial Instruments: Presentation" and evaluated the provisions of SEBI Circulars for classification/presentation of unit holders funds in the standalone financial statements of an Infrastructure Investment Trust.
	The InvIT is required to distribute to unitholders not less than 90% of its net distributable cash flows for each financial year in terms of Regulation 18 of Securities Exchange Board of India (Infrastructure Investment Trust) Regulations, 2014. Accordingly, a portion of unitholders funds contains an obligation of the InvIT to pay to its unitholders cash distributions. In accordance, with SEBI Circulars No. CIR/IMD/DF/114/2016 dated October 20,2016 and No. CIR/IMD/DF/127/2016 dated November 29,2016 ("SEBI Circulars") issued under the InvIT regulations, the unitholders funds have been classified as equity in order to comply with the mandatory requirements of Section H of Annexure A to the SEBI circular dated October 20, 2016 dealing with the minimum disclosures for key financial statements.	2. We read and assessed the disclosures included in the standalone financial statements for compliance with the relevant requirements of InvIT regulations, SEBI Circular and the applicable Indian Accounting Standards.
	Considering the judgement required for classification of unitholders funds as equity, this is considered as key audit matter.
3.	Disclosures relating to Statement of Net Assets at Fair Value and Statement of Total Returns at Fair Value as per InvIT Regulations	Our audit procedures included, among others, the following:
	The InvIT is required to disclose Statement of Net Assets at Fair Value and Statement of Total Returns at Fair Value pursuant to SEBI circular issued under the InvIT regulations which requires fair valuation of the assets. Such fair valuation has been carried out by the independent valuer appointed by the InvIT.	1. We read the requirements of InvIT regulations for disclosures relating to Statement of Net Assets at Fair Value and Statement of Total Returns at Fair Value.
	For the purpose of the above, fair value is determined by forecasting and discounting future cash flows.	2. Tested design, implementation and operating effectiveness of the internal control related to Managements process of determination of fair value, assumptions used and preparation and review of Statement of Net Assets at Fair Value and Statement of Total Returns at Fair Value.
	The processes and methodologies for assessing and determining the fair value is based on complex assumptions, that by their nature imply the use of the managements judgment, in particular with reference to valuation methodologies used in determining fair value, identification of forecast of future cash flows relating to the period covered by the respective subsidiarys solar power purchase agreement (PPA) with the discoms, debt equity ratio, cost of debt, cost of equity, residual value, etc.	3. We evaluated terms of the PPA to understand roles and responsibilities of the grantor.
	There are also inherent estimation uncertainties and complexities in the assumptions that are used for the determination of fair values. Considering this and the significant management judgment involved in the determination of fair values, this is considered as a key audit matter.	4. We tested, on sample basis, the base data and supporting documents for basis of key assumptions and estimates used by the management.
		5. We read and evaluated the PPA to understand whether the grantor controls significant residual interest in the infrastructure at the end of the term of the arrangement through ownership, beneficial ownership or otherwise.
		6. Tested the reasonableness of the future cash flows shared by management with external valuer by comparing it to source information used in preparing the forecasts and with historical forecasts and actual performance to support any significant expected future changes to the business.
		7. Obtained report of external valuation specialist appointed by the management for the fair valuation of the net assets. Evaluated the competence and objectivity of the valuation specialist engaged by the management.
		8. Involved our internal valuation experts for testing of the valuation report.
		9. We tested the completeness, arithmetical accuracy and validity of the data used in the calculations.
		10. We read and assessed the disclosures included in the standalone financial statements in compliance with the requirements of InvIT Regulations.

Information Other than the Standalone Financial Statements and Auditors Report Thereon

The Virescent Infrastructure Investment Manager Private Limited ("Investment Manager") acting in its capacity as an Investment Manager of the Trust is responsible for the other information. The other information comprises the information and disclosures included in the Annual Report but does not include the standalone financial statements and our auditors report thereon. The Annual Report is expected to be made available to us after the date of this auditors report.

Our opinion on the standalone 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 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 performed, 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 for the Standalone Financial Statements

The Management of Investment Manager ("the Management") is responsible for the preparation of these standalone financial statements that give a true and fair view of the financial position as at March 31, 2023, financial performance including other comprehensive income, changes in unitholders equity, cash flows for the year then ended, net assets at fair value as at March 31, 2023, total returns at fair value and net distributable cash flows for the year then ended, of the Trust in accordance with the InvIT Regulations, the Indian Accounting Standards as defined in Rule 2(1)(a) of the Companies (Indian Accounting Standards) Rules, 2015 (as amended) and other accounting principles generally accepted in India, to the extent not inconsistent with InvIT Regulations. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Trust 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 standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone financial statements, the management is responsible for assessing the Trusts ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management either intends to liquidate the Trust or to cease operations, or has no realistic alternative but to do so.

The Investment Manager is also responsible for overseeing the Trusts financial reporting process.

Auditors Responsibilities for the Audit of the Standalone Financial Statements

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 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 standalone financial statements.

We give in "Annexure A" a detailed description of Auditors responsibilities for Audit of the Standalone Financial Statements.

Report on Other Legal and Regulatory Requirements

Based on our audit and as required by InvIT Regulations, 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 Trust so far as it appears from our examination of those books.

(c) The Standalone Balance Sheet, the Standalone Statement of Profit and Loss (including other comprehensive income), the Standalone Statement of Changes in Unit holders Equity and

the Standalone Statement of Cash Flow for the year ended March 31, 2023 dealt with by this Report are in agreement with the books of account of the Trust.

(d) In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards as defined in Rule 2(1)(a) of the Companies (Indian Accounting Standards) Rules, 2015 (as amended), and other accounting principles generally accepted in India, to the extent not inconsistent with the InvIT Regulations.

For M S K A & Associates

Chartered Accountants

ICAI Firm Registration No. 105047W

Ananthakrishnan Govindan

Partner

Membership No. 205226

UDIN: 23205226BGWDVL9731

Place: Hyderabad

Date: May 12, 2023

ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT ON EVEN DATE ON THE STANDALONE FINANCIAL STATEMENTS OF VIRESCENT RENEWABLE ENERGY TRUST

Auditors Responsibilities for the Audit of the Standalone 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 standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for expressing our opinion on whether the Trust has internal financial controls with reference to standalone financial statements in place and the operating effectiveness of such controls.

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

• Conclude on the appropriateness of 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 Trusts ability 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 standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Trust to cease to continue as a going concern.

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

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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 standalone financial statements for the year ended March 31, 2023 and are therefore, the key audit matters. We describe these matters in our auditors 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.