The statutory auditor of bulk tea producer McLeod Russel India Ltd. (MRIL) has made several adverse observations about the company’s 2018-19 financial statements, including a ₹1,821.7-crore loss understatement, a negative networth, and a trail of inter-corporate deposits (ICDs) for which no provision had been made.
A regulatory filing by MRIL, which has been on an asset-selling spree for over a year, showed that after adjustment for audit qualifications, MRIL’s net loss was ₹1,826.1 crore against the ₹4.4 crore reported earlier, while its net worth was ₹147.7 crore negative against ₹1,763 crore shown earlier. The management of MRIL, which has tea estates in Assam, Africa and Vietnam, however, disagreed with most of the qualifications. It said that its losses were due to the downturn of the tea industry and also operational issues such as increased production costs. The MRIL management said that many of the ICDs extended to group companies have been repaid and it was looking for further refinancing to address its present liquidity issues.
The statutory auditor — Deloitte Haskins & Sells LLP — said at the end of fiscal 2019, ₹1,744.7 crore of ICDs had been given to promoter group companies and other companies. However, it felt that recovery was doubtful considering the financial conditions of these companies. The company had not made any provision for the outstanding amounts.
Drawing attention to recognition of ₹67.8 crore of sundry income by MRIL, it said that these may have been reflected only by book entries. MRIL said held the view that a promoter group level recast was underway to monetise assets to meet up liabilities of those companies, including the ICDs. The management felt this would be recovered and adjusted and no further provision was required at this stage.
The statutory auditor, however, disagreed with this view saying that evaluation of recoverability of dues cannot be based on income of possible events that may occur in the future.
It may be mentioned here that MRIL has twice postponed its account finalisation. It has also suffered rating downgrades with the agency saying that MRIL was not cooperating with it (ICRA).
