Cochin Shipyard Limited

Report on Audit of the Standalone Financial Statements

Opinion

We have audited the accompanying Standalone Financial Statements of Cochin Shipyard Limited (referred to as the "Company") which comprises the Balance Sheet as at March 31,2023, the Statement of Profit and Loss (including other comprehensive income), Statement of Cash Flows and Statement of changes in Equity for the year then ended, and notes to the standalone financial statements, including a summary of 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, 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 Companies Act 2013 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 March 31, 2023, the Profit including other comprehensive income, changes in equity and its cashflows 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 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 financial statements under the provisions of the Companies Act, 2013 and the Rules there under, 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 on the financial statements.

Emphasis of Matters:

1. Capitalization of Cost for International Ship Repair Facility (ISRF):

Attention is drawn to Note No. 42 to the Standalone Financial Statements, wherein, the cost directly attributable to construction/development of project is capitalized in the books with effect from commencement of the project.

The land and water area on which the International Ship Repair Facility (ISRF) project is in progress, is taken on lease from Cochin Port Trust. The company has commenced development of the new ship repair facility with effect from 09th Jan 2018. The lease period of 30 years commences from date of Environmental Clearance. The company has not considered capitalization of said cost amounting to H8,288.21 lakhs from the commencement of project construction/development. As the amount is less than the materiality level arrived by the company, the management rectified/corrected the prior periods error amounting to H6,181.35 lakhs during the year, which was duly classified as 'Exceptional items' in the Statement of Profit and Loss Account.

2. Non-Factoring of Liquidated Damages for 2 Nos 1200 Passenger Vessels:

Attention is drawn to Note No.33.5 to the Standalone Financial Statements, on shipbuilding contract with Andaman & Nicobar Administration for construction of 2 Nos 1200 Passenger Vessels. The contractual delivery date (as extended) for SH.0023 is already expired and another vessel SH.0024 is nearing expiry. The Company has provided for the liquidated damages for the delay upto 29th April,2023 and 30th Oct,2023 in respect of SH.0023 & SH.0024 respectively. Meanwhile, at the request of the A&N administration for reallocation of vessel to other prospective buyers, the delivery of ship has been abated, with minor progress. Since the Company has a valid contract with Andaman & Nicobar Administration for construction and delivery of 2 Nos 1200 Pax Vessels, the company has not recognized further liquidated damages in the financials beyond the dates mentioned above.

Our opinion is not modified in respect of these matters.

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. We have determined the matters described below to be the key audit matters to be communicated in our report.

1. Recognition of Revenue- Ship Building and Ship Repair activities:

(Refer Note No.3.15(a),33 and 44 to the Standalone Financial Statements)

There are significant accounting judgements involved in estimating contract revenue to be recognised on shipbuilding and ship repair contracts with customers, including determination of physical progress of completion as on the reporting date.

The physical progress of completion is ascertained as per the in-house procedures developed by the management of the company. The procedure and the assumptions therein are based on certain judgements made by the management based on inputs from the technical departments of the company. Further, the ascertainment of the actual physical completion of each sub-activity on reporting date also involves management estimation.

Significant judgements are involved in determining the expected losses, when such losses become probable based on the expected total contract cost. Cost contingencies are included in these estimates to take into account specific risks of uncertainties or disputed claims against the Company, arising within each contract. These contingencies are reviewed by the Management on a regular basis throughout the life of the contract and adjusted where appropriate. The revenue on contracts may also include variable consideration (variations and claims). Variable consideration is recognised when the recovery of such consideration is highly probable.

Due to the nature of the contracts, revenue recognition involves usage of percentage of completion method (ie., physical progress of completion) which is determined by survey of work performed , which involves technical expertise, significant judgments, identification of contractual obligations and the Company's rights to receive payments for performance completed till date, changes in scope and consequential revised contract price

and recognition of the liability for loss making contracts/ onerous obligations.

As revenue recognition involves aforesaid significant judgement and estimation, we therefore determined this to be a key audit matter.

Our principal audit procedures included but were not limited to:

• We assessed the appropriateness of the Company's revenue recognition policies, including those related to variable considerations by comparing with applicable accounting standards;

• We tested the effectiveness of controls relating to the evaluation of performance obligations and identification of those that are distinct; estimation of costs to complete each of the performance obligations including the contingencies in respect thereof, as work progresses and the impact thereon as a consequence of change orders; the impact of change orders on the transaction price of the related contracts; and evaluation of the impact of variable consideration on the transaction price.

• We selected a sample of contracts with customers and performed the following procedures:

• Obtained and read contract documents for each selection, change orders and other documents that were part of the agreement/arrangement.

• Identified significant terms and deliverables in the contract to assess management's conclusions regarding the (i) identification of distinct performance obligations; (ii) changes to costs to complete as work progresses and as a consequence of change orders; (iii) the impact of change orders on the transaction price; and (iv) the evaluation of the adjustment to the transaction price on account of variable consideration.

• Compared costs incurred with Company's estimates of costs incurred to date to identify significant variations and evaluated whether those variations have been considered appropriately in estimating the remaining costs to complete the contract.

• Tested the estimate for consistency with the status of delivery of milestones and customer acceptance to identify possible delays in achieving milestones, which require changes in estimated costs or efforts to complete the remaining performance obligation.

• Performed analytical audit procedures for reasonableness of revenues disclosed by type and nature of service.

• Substantial reliance was placed on the technical and activity-based assessment made by the management in determination ofpercentage ofphysical progress completion.

• Assessed appropriateness of the relevant disclosures made by the company in accordance with IND AS 115.

We concluded that based on the procedures performed above, we did not find any material exceptions with regards to adoption of IND AS 115 and timing of revenue recognition.

2. Recognition and measurement of Shipbuilding Financial Assistance (SBFA)-Government Grant:

( Refer Note No.3.15(b),33 and 33.6 to the Standalone Financial Statements)

Shipbuilding Financial Assistance is a monetary incentive granted by the government to the shipyards for construction of vessels eligible shipbuilding contracts, which is to be claimed on after the delivery of the vessels with in the time stipulated under the SBFA policy.

The company has a policy of recognising the assistance over the period of the time in proportionate to the expenses incurred.

During the current year ended March 31,2023, the company has recognised income of H1,193.43 lakhs (PY- H3,486.17 lakhs), which is essential for the eligible shipbuilding projects. The recognition and realisation of assistance income are based on the applicable rate to the period for which approval is issued by Director General (Shipping).

Considering prominence of the assistance to industry, revenue and profit may undergo a change in such judgements and estimates, we consider this to be area of significance.

Our principal audit procedures in relation to assistance income recognition include:

• We read the relevant notifications issued by the Govt. of India and discussed with the management, to understand the underlying matters and basis for management judgement and estimates including necessary changes made in estimates to address variations noted in past. Also ascertained the prevailing trade practice in the shipbuilding industry;

• We assessed the appropriateness of the company's policy on the recognition of the assistance income by comparing with applicable accounting standards;

• We have correlated the in-principle approval made by the company for eligibility of the vessels coming under assistance policy and verified the claims made by the company on delivery of vessels and subsequent realisation.

• Further, we reviewed and tested the accuracy of the assistance recognised by the management in accordance with SBFA policy, in-principal approval, and expenses incurred;

• We have enquired from the Management and discussed with those charged with governance, the appropriateness in recognising the assistance income;

• We assessed the disclosures in the standalone financial statements in this regard;

Based on the above procedures performed, the recognition of shipbuilding assistance Income is in accordance with applicable financial reporting framework and relevant notifications issued by the Ministry of Ports, Shipping and Waterways, Govt. of India and fairly presented in the standalone financial statements.

Information Other than the Standalone Financial Statements and Auditor's Report Thereon:

The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Directors' Report and Management Discussion and Analysis, but does not include the consolidated financial statements, 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.

When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

As on the date of this report, the other information was not made available to us by the management. Accordingly, we are unable to comment on this matter.

Responsibility of Management 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 including other comprehensive income, cash flows and changes in equity 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 implementation and maintenance of 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 misstatements, 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.

Those Board of Directors are also responsible for overseeing the company's financial reporting process.

Auditor's Responsibility 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 misstatements, 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 scepticism throughout the audit. We also:

a. Identify and assess the risks of material misstatements 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;

b. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether company has adequate internal financial controls system in place and the operating effectiveness of such controls;

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

d. 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;

e. 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;

Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work: and (ii) to evaluate the effect of any identified misstatements in the standalone financial statements.

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.

Other Matters:

1. The comparative financial information of the company for the year ended 31st March, 2022 included in these Standalone financial statements, are audited by the predecessor auditors of the company and their report dated 20th May,2022, wherein an unmodified opinion is expressed by them.

2. For the year ended 31st March, 2023, the company has initiated the obtaining of balance confirmations, whereas we have received few confirmations of balances from Trade receivables, Trade Payables and Bank balances. Wherever confirmations not received by us, we have performed alternative audit procedures by verifying the contract documents, invoices raised and communications made for follow up action etc.,

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements:

1. As required under the directions and sub-directions issued by the Comptroller and Auditor General of India in terms of Sub-section (5) of Section 143 of the Companies Act 2013, we are enclosing our report in "Annexure A".

2. As required by the Companies (Auditor's Report) Order,

2020 ("the Order") as amended, 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 a

statement on the matters specified in paragraphs 3 and 4

of the Order, to the extent applicable our report thereon is

enclosed as "Annexure B".

3. 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 purposes 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 and proper adequate returns have been received from all the regional offices of the company;

c. The Company's Balance Sheet, the Statement of Profit and Loss (incl. Other Comprehensive income), the Statement of Cash Flows and the Statement of Changes in Equity dealt with by this report are in agreement with the books of accounts;

d. In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards specified under Section 133 of the Act, read with The Companies (Indian Accounting Standards) Rules, 2015, as amended thereon.

e. The provisions of Section 164(2) of the Act in respect of disqualification of directors are not applicable to the Company, being a Government Company in terms of notification no. G.S.R.463 (E) dated 5th June, 2015 issued by Ministry of Corporate Affairs, Government of India;

f. 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 C". Our report expresses unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls over financial reporting;

g. With respect to the other matters to be included in the Auditors' Report in accordance with the requirements of section 197(16) of the Act, as amended:

The provisions of Section 197 read with Schedule V of the Act, relating to managerial remuneration are not applicable to the Company, being a Government Company, in terms of Ministry of Corporate Affairs Notification no. G.S.R. 463 (E) dated 5th June, 2015;

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:

i. The company has disclosed the impact of pending litigations on its financial position in its standalone financial statements- Refer Note No.47 to the Standalone Financial Statements;

ii. The company has made provision, as required under applicable law or accounting standards, for material foreseeable losses, if any on long-term contracts including derivative contracts;

iii. There were no amounts which were required to be transferred, to the Investor Education and Protection Fund by the Company;

iv. a. The management has represented that,

to the best of it's knowledge and belief, other than as disclosed in the notes to the accounts, 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(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall,

• 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 it's knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the company from any person(s) or entity(ies), including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the company shall,

• 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 as considered reasonable and appropriate in these circumstances, nothing has come to our notice that has caused them to believe that the representations under sub-clause (i) and (ii) contain any material mis-statement.

v. The dividend declared/paid by the Company during the year is in compliance with section 123 of the Companies Act, 2013.