Lloyds Metals and Energy Limited
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the accompanying Standalone Financial Statements of Lloyds Metals and Energy Limited (“the Company”), which comprise the Balance Sheet as at 31st March, 2023, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year ended on 31st March, 2023, and a summary of the significant accounting policies and other explanatory information.
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 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 state of affairs of the Company as at 31st March, 2023, the loss and total comprehensive income, changes in equity and its cash flows for the year ended on that date.
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. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the Standalone Financial Statements under the provisions of the Companies Act, 2013 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 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 Standalone Financial Statements of the current period.
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. We have determined the matters described below to be the key audit matters to be communicated in our report.
1. Issue and Exercise of Optionally Fully Convertible Debentures (OFCD’s)
(Refer Note No. 11 and Note No. 24 of the Standalone Financial Statements)
A. During the year, the Board of Directors had approved, through their meeting held on 29th April, 2022, to convert
1.00. 00.000 Optionally Fully Convertible Debentures (OFCD’s) of the Company into Equity Shares of face value of ' 1/- each at a premium of ' 19/- each in the conversion ratio of 1:1, which were issued earlier in F.Y. 2021-22 at par via Preferential Allotment to Thriveni Earthmovers Private Limited. On conversion of the said debentures, the allottee is now a co-promoter of the Company.
B. During the year, the Company had issued 6,00,00,000 Optionally Fully Convertible Debentures (OFCD’s) on Preferential Allotment basis to Sunflag lron & Steel Company Limited (Sunflag/Allottee) on 15th June, 2022 to settle the entire liability of the Company which arose as a result of an Arbitration Award. The said Arbitration Award was recorded as an expense in Exceptional Item amounting to ' 1194.4 crores in its Statement of Profit and Loss. The carrying value of OFCD’s liability component and the equity component was ' 786.39 crores and ' 113.61 crores respectively, based on the provisions of IND AS 109 ‘Financial Instruments.’
On 15th March, 2023, Sunflag exercised their right to convert the aforesaid 6,00,00,000 OFCD’s into
6.00. 00.000 fully paid-up equity shares. The residual notional surplus arising upon settlement of the OFCDs, which amounted to ' 56.60 Crores, was transferred to Retained Earnings.
The Management has used its judgements and estimates in presentation and disclosure of the aforementioned instrument in accordance with the principles of IND AS 32, ‘Financial Instrument: Presentation’ and IND AS 109, ‘Financial Instruments.’
How the matter was addressed in our audit:
Our audit procedures to assess the accounting of OFCDs included the following:
1. Obtained an understanding of the contractual terms and conditions of the OFCD agreements.
2. Evaluated the accounting treatment of OFCDs done by the management with reference to IND AS 109, ‘Financial Instruments.’
3. Assessed the appropriateness of the presentation of issue and conversion of OFCD as per IND AS 32, ‘Financial Instruments: Presentation.’
2. Conversion of Warrants
(Refer Note No. 11 of the Standalone financial statements)
During the year, the Company has converted
6,60,00,000 convertible warrants into Equity Shares in the ratio of 1:1 of face value of ' 1/- each at a premium of '. 8.47/- each. The said conversion had happened within the prescribed time period. The allottees are Sky United LLP (5,28,00,000 warrants) and Blossom Trade and Interchange LLP (1,32,00,000 warrants) and the total consideration received for issue and conversion of the said warrants was ' 62.50 Crores
How the matter was addressed in our audit:
Our audit procedures to assess the accounting of warrants included the following:
1. Obtained an understanding of the terms and conditions of the issue and conversion of warrants.
2. Evaluated the accounting treatment of the conversion of warrants done by the Management as per the applicable financial reporting framework.
3. Evaluated the terms and conditions in relation to the conversion of warrants.
3. Capitalization of Property, Plant and Equipment
(Refer Note No. 4(a) of the Standalone financial statements)
During the F.Y. 2022-2023, as part of the Company’s expansion plans, the capital projects commenced during the year amounted to ' 318.71 crores while the projects ready for use and capitalized as Property, Plant and Equipment amounted to ' 31.49 crores. On a year-on-year basis, Capital Work in Progress has increased from ' 85.88 crores to ' 373.10 crores as per Standalone IND AS Financial Statements as on 31st March, 2023 . Major expansion has been undertaken by the Company for construction of Steel Division at Ghughus Plant and a new Sponge Iron and Steel Production Facility at Konsari, Maharashtra.
Based on the management representations received, there are no capital projects for which completion is
overdue or has exceeded its cost compared to its original plan. Also, significant level of judgement is involved to ensure that the aforesaid capital expenditure / additions meet the recognition criteria of Ind AS 16, ‘Property, Plant and Equipment’, specifically in relation to costs directly and indirectly associated with it to be ready for the intended use by the management. As a result, the aforesaid matter was determined to be a key audit matter.
How the matter was addressed in our audit:
Our audit procedures to assess the accounting for Capital Work in Progress included the following:
1. Performed walk-through of the capitalization process and tested the design and operating effectiveness of the controls in the process.
2. Assessed the nature of the additions made to Property, Plant and Equipment and Capital Work-inProgress (CWIP) in a detailed manner to assess whether they meet the recognition criteria as set out in Ind AS 16, ‘Property, Plant and Equipment’ including any other costs directly and indirectly associated with it to be ready for intended use.
4. Evaluation of Contingent Liabilities:
(Refer Note No. 34 of the Standalone Financial Statements)
On a year-on-year basis, Contingent Liabilities have increased from ' 65.66 crores to ' 100.06 crores as per the Notes to Financial Statements as on 31st March, 2023. The existence of the payments against these claims requires management judgment to ensure disclosure of most appropriate values of contingent liabilities.
How the matter was addressed in our audit:
Our audit procedures included, among others, assessing the appropriateness of the management’s judgment in estimating the value of claims against the company not acknowledged as debts as given in the Note 34 as per IND AS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’ and reviewing the legal documents including Bank Guarantee letters for guarantees issued by banks on behalf of the Company.
Information Other than the Standalone Financial Statements and Auditor’s Report Thereon
The Company’s Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the
Management Discussion and Analysis, Board’s Report including Annexure to Board’s Report, Corporate Governance Report but does not include the Standalone Financial Statements and our auditor’s report thereon. 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 during the course of our 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.
Management’s Responsibility for the Standalone Financial Statements
The Company’s 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 Standalone Financial Statements that give a true and fair view of the financial position, financial performance, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of 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 financial statement 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, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the
Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors are also responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibility
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 auditor’s 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.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticisms 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 financial controls 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 management’s 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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s 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 auditor’s report. However, future events or conditions may cause the Company 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 of the current period and are therefore the key audit matters. We describe these matters in our auditor’s 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.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor’s Report) Order,
2020 (“the Order”) issued by the Central Government of
India in terms of sub-section (11) of section 143 of the
Companies Act 2013, we give in the ‘Annexure B’, a
statement on the matters specified in paragraphs 3 and
4 of the Order, to the extend applicable.
2. As required by section 143(3) of the Act, 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 purpose of our audit.
b. In our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.
c. The Company has no branch office and hence the company is not required to conduct audit under section 143 (8) of the Act;
d. The Balance Sheet, the Statement of Profit and Loss, the Cash flow statement dealt with by this Report are in agreement with the books of account;
e. In our opinion, the aforesaid Standalone Financial Statements comply with the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 (As amended);
f. On the basis of the written representations received from the directors as on 31st March, 2023 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2023 from being appointed as a director in terms of Section 164 (2) of the Act;
g. 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 an unmodified opinion on the adequacy and operating effectiveness of the Company’s Internal Financial Controls over financial Reporting;
h. With respect to the other matters to be included in the Auditor’s 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 (As amended):
i. The Company has disclosed the impact of pending litigations on its financial position in Note 34 of the Standalone Financial Statements.
ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
iii. During the year, no amounts were required to be transferred to the Investor Education and Protection Fund by the Company. So, the question of delay in transferring such sums does not arise.
iv. a) The management has represented that,
to the best of its knowledge and belief, other than as disclosed in the notes to accounts to the standalone Ind AS financial statements, 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 Company to or in any other person or entity, including foreign entities (“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 Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
b) The management has represented that, to the best of its knowledge and belief, no funds have been received by the
Company from any person or entity, including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company 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; and
c) Based on such audit procedures performed 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 under subclause (a) and (b) contain any material misstatement; and
v. The final dividend paid by the Company during the year, in respect of the same declared for the previous year is in accordance with Section 123 of the Act to the extent it applies to payment of dividend.
For TODARWAL & TODARWAL LLP
Chartered Accountants ICAI Firm Reg. No.: 111009W/ W100231
Kunal Todarwal
Partner
Date: 25th April, 2023 M.No.: 137804
Place: Mumbai UDIN: 23137804BGWDFN5096
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