Welspun Global Brands Ltd Merged Auditor Reports

WELSPUN GLOBAL BRANDS LIMITED ANNUAL REPORT 2010-2011 AUDITORS REPORT TO THE MEMBERS OF WELSPUN GLOBAL BRANDS LIMITED 1. We have audited the attached Balance Sheet of Welspun Global Brands Limited (the Company) as at March 31, 2011, and the related Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. These financial statements are the responsibility of the Companys Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditors Report) Order, 2003, as amended by the Companies (Auditors Report) (Amendment) Order, 2004 (together the Order), issued by the Central Government of India in terms of subsection (4A) of Section 227 of The Companies Act, 1956 of India (the Act) 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 a statement on the matters specified in paragraphs 4 and 5 of the Order. 4. We draw your attention to Note 4(a) on Schedule 19, regarding: (a) investments in a subsidiary, Welspun Retail Limited (WRL), aggregating Rs. 499.63 million as at the year end, in relation to which diminution in the value of investments, which in our view is other than temporary, has not been estimated and adjusted against the aforesaid reported investments balance; resulting in non-compliance with Accounting Standard 13 - Accounting for Investments; and (b) unsecured loans to WRL, aggregating Rs. 134.65 million as at the year end, which have been converted to preference shares subsequent to the year end as stated in Note 4 (b) on Schedule 19, in relation to which valuaion allowance has not been estimated and adjusted against the aforesaid reported unsecured loans balance; which does not meet the requirement to consider prudence in selection of accounting policies, as set out in Accounting Standard 1 - Disclosure of Accounting Policies; as WRL has been incurring significant losses (Rs. 199.73 million for the year ended March 31, 2011 and Rs. 1,205.96 million as at March 31, 2011 basis its audited financial statements as of and for the year ended March 31, 2011) and has also been unable to achieve its projected financial results in the previous and current financial reporting periods. 5. Without qualifying our opinion, we draw your attention to: (a) Note 5 on Schedule 19, regarding the Companys dependence on Welspun India Limited (WIL) for procuring its products. If the arrangement between the Company and WIL is discontinued, the business of the Company could be adversely impacted. (b) Note 6 on Schedule 19, regarding corporate guarantees, aggregating Rs.5,887.40 million at the year end, issued consequent to the demerger of the marketing arm of WIL effective April 1, 2009, to the bankers of WIL in relation to the debt facilities provided by them to WIL, and other corporate guarantees disclosed in Note 3 on Schedule 19 aggregating Rs.1,677 million at the year end, issued on behalf of WIL and Welspun Retail Limited (WRL). If WIL and WRL are unable to meet their obligations as they fall due, the financial condition and cash flows of the Company could be adversely impacted. 6. Further to our comments in the Annexure referred to in paragraph 3 above, we report that: (a) Except for the indeterminate effects of the matters referred to paragraph 4 above, we have 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, except for the indeterminate effects of the matters referred to paragraph 4 above, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; (c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (d) In our opinion, except for the matters referred to paragraph 4 above, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act; (e) On the basis of written representations received from the directors, as on March 31, 2011 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2011 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Act; and (f) In our opinion and to the best of our information and according to the explanations given to us, except for the indeterminate effects of the matters referred to in paragraph 4 above, the said financial statements together with the notes thereon and attached thereto give, in the prescribed manner, the information required by the Act, and give, a true and fair view in conformity with the accounting principles generally accepted in India: (i) In the case of the Balance Sheet, of the state of affairs of the company as at March 31, 2011; (ii) In the case of the Profit and Loss Account, of the profit for the year ended on that date; and (iii) In the case of the Cash Flow Statement, of the cash flows for the year ended on that date. For Price Waterhouse & Co. Firm Registration Number: 007567S Chartered Accountants Neeraj Gupta Place: Mumbai Partner Date : June 21, 2011 Membership Number F055158 ANNEXURE TO AUDITORS REPORT: Referred to in paragraph 3 of the Auditors Report of even date to the members of Welspun Global Brands Limited on the financial statements for the year ended March 31, 2011. 1. (a) The Company is maintaining proper records showing full particulars, including quantitative details and situation, of fixed assets. (b) The fixed assets of the Company have been physically verified by the Management during the year and no discrepancies between the book records and the physical inventory have been noticed. In our opinion, the frequency of verification is reasonable. (c) In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed of by the Company during the year. 2. (a) Goods purchased by the Company from its supplier are immediately dispatched to customers. In the absence of any inventory being stocked by the Company, clauses (ii)(a) and (ii)(b) of paragraph 4 of the Order are not applicable. (b) On the basis of our examination of the inventory records, in our opinion, the Company has maintained proper records of inventory. 3. (a) The Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under Section 301 of the Act. (b) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Act. 4. In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory, fixed assets and for the sale of goods. Further, on the basis of our examination of the books and records of the Company, and according to the information and explanations given to us, no major weakness have been noticed or reported. 5. According to the information and explanations given to us, there have been no contracts or arrangements referred to in Section 301 of the Act during the year to be entered in the register required to be maintained under that Section. Accordingly, the question of commenting on transactions made in pursuance of such contracts or arrangements does not arise. 6. The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA of the Act and the rules framed there under. 7. In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. 8. The Central Government of India has not prescribed the maintenance of cost records under clause (d) of subsection (1) of Section 209 of the Act for any of the products of the Company. 9. (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 regular in depositing the undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income-tax, sales-tax, wealth tax, service-tax, customs duty, excise duty and cess and other material statutory dues as applicable with the appropriate authorities. (b) According to the information and explanations given to us and the records of the Company examined by us, there are no dues of income-tax, sales-tax, wealth tax, service-tax, customs duty, excise duty and cess which have not been deposited on account of any dispute. 10. The Company has no accumulated losses as at March 31, 2011 and it has not incurred any cash losses in the financial year ended on that date or in the immediately preceding financial year. 11. According to the records of the Company examined by us and the information and explanation given to us, the Company has not defaulted in repayment of dues to any financial institution or bank or debenture holders as at the balance sheet date. 12. The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. 13. The provisions of any special statute applicable to chit fund/ nidhi/ mutual benefit fund/ societies are not applicable to the Company. 14. In our opinion, the Company is not a dealer or trader in shares, securities, debentures and other investments. 15. In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company, for loans taken by others from banks or financial institutions during the year, are not prima facie prejudicial to the interest of the Company. 16. In our opinion, and according to the information and explanations given to us, on an overall basis, the term loans have been applied for the purposes for which they were obtained. 17. On the basis of an overall examination of the balance sheet of the Company, in our opinion and according to the information and explanations given to us, there are no funds raised on a short term basis which have been used for long-term investment. 18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act during the year. 19. The Company has not issued any debentures during the year. 20. The Company has not raised any money by public issues during the year. 21. 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 fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the Management. For Price Waterhouse & Co. Firm Registration Number: 007567S Chartered Accountants Neeraj Gupta Place: Mumbai Partner Date : June 21, 2011 Membership Number F055158