30 June 2019: McLeod Russel auditor Deloitte Haskins & Sells LLP has raised concerns over the company’s ability to remain in business unless its loan restructuring application with lenders receives a favourable response.
According to Deloitte, the Williamson Magor Group company’s liabilities exceeded assets by Rs 1,435.66 crore as on 31 March, 2019 and in the last financial year, it was unable to discharge its obligations for repayment of loans and settlement of other financial and non-financial liabilities including statutory liabilities.
While giving an adverse opinion on this company primarily on account of recovery of inter-company deposits (ICD), the auditor stated that the tea producer is currently in discussion with lenders for carrying out a refinancing proposal.
Stating that there are indications of a “a material uncertainty which cast a significant doubt on the company’s ability to continue as a going concern”, the auditor said, “The ability of the company to continue as a going concern is solely dependent on the acceptance of the refinancing proposal, which is not wholly within the control of the company”.
Explaining the basis of adverse opinion, Deloitte Haskins & Sells claimed that as on March 31, 2019, ICDs of Rs 1,744.68 crore were given to promoter group companies and other companies while Rs 77.03 crore has been accrued as interest. These ICDs as well as the interest income are doubtful of recovery, considering the financial condition of WMG and other companies to whom these ICDs were given.
Moreover, McLeod Russel didn’t make any provision for the outstanding amounts recorded as ICDs and interest accrued thereon.
“Consequently, the noncurrent portion of loans and interest accrued thereon are overstated and loss for the year is understated by Rs. 1821.71 crore”, the auditor said.
On a standalone basis, McLeod Russel has claimed to have incurred a loss of Rs. 4.41 crore in the last fiscal year while reported a profit of Rs. 38.82 crore on a consolidated basis.
Moreover, the auditor said that McLeod Russel recognised Rs. 67.82 crore as sundry income from one of the promoter group companies.
“In our opinion and according to the information obtained by us, the sundry income may have been funded to the said promoter group company through monies indirectly lent by the company and therefore may not have been actually realised. These therefore may have been reflected only by book entries and prejudicial to the interest of the company” the report from the auditor stated.
Calls to K K Baheti, the chief financial officer and director at McLeod Russel went unanswered.
The auditor has also stated that the financial statement prepared by the company is not in accordance with the requirements of Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as modified by a circular and does not give a true and fair view in conformity with the aforesaid Indian Accounting Standards and other accounting principles generally accepted in India.
For the year ended March 31, 2019, McLeod Russel reported nearly 20 per cent decline in its total income at Rs. 1960.23 crore and 82 per cent fall in its net profit at Rs. 38.82 crore. It has been selling its estates to pare debt and is estimated to have received Rs. 940 crore from the sale proceeds.
On June 29, Price Waterhouse & Co Chartered Accountants LLP quit as the auditor of another WMG company Eveready Industries citing its inability to obtain sufficient audit evidence on Eveready Industries’ ICD and its recovery.
Besides, on May 31, Deloitte Haskins & Sells and V Singhi & Associates, the auditors of McNally Bharat Engineering, another WMG entity raised concerns over this firm’s ability to remain in business unless a financial restructuring proposal with the lenders is approved.