Prajay Engineers Syndicate Limited
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the standalone financial statements of Prajay Engineers Syndicate Limited(“the Company) ,Which comprise the standalone balance sheet as at 31 March 2023, the standalone statement of profit and loss (including other comprehensive income), the standalone statement of changes in equity and the standalone statement of cash flows for the year than ended, and notes to the standalone financial statements, including a summary of the significant accounting policies and other explanatory information (hereinafter referred to as “Standalone Financial Statements”).
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statement 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 recognition and measurement principles laid down in the applicable Indian Accounting Standards, and other accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2023, its profit/loss and other comprehensive income, changes in equity and its cash flows for the year ended on the date.
Basis for Opinion
We Conducted our audit in accordance with the standards on Auditing (SAs) specified under section 143 (10) of the Act. Our responsibilities under those SAs are further described in the Auditors’ 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 Act and 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.
Emphasis of Matters
We draw attention to below mentioned Notes to standalone annual financial results :
a. Note 41 relating to the Hon’ble NCLT, Hyderabad bench order referring the matter for resolution by way of mediation to the International Commercial Arbitration and Mediation Centre (IAMC), Hyderabad.
In furtherance to the mediation proceedings pertaining to the disputes between the Investor Entities (i.e. White Stock Limited & Belclare Limited) and Prajay Entities including Prajay Engineers Syndicate Limited (The Company), The Settlement Agreement has been executed amongst and by the parties, under the auspices of International Arbitration and Mediation Centre, (IAMC) Hyderabad and the filing of the compromise terms before the National Company Law Tribunal (NCLT), Hyderabad has been completed. The cases filed by the Investor Entities before the Hon’ble NCLT Bench, Hyderabad Bench have accordingly been disposed off.
b. The Government of Andhra Pradesh (Youth Advancement Tourism & Culture Department, now the Government of Telangana) and the company along with its subsidiary M/s Secunderabad Golf & Leisure Resorts Private Limited, a special purpose company to develop Golf Course, had entered into Lease Agreement and Construction & Management agreement. Subsequently, for the issues that arose between the company and the Tourism Department, the Company invoked the Arbitration clause as per the Agreements and the Hon’ble High Court vide its order dated 28.07.2022 appointed Hon’ble S.M.Rafee (retired District judge) as the Arbitrator in Arbitration Application No.86 of 2022. The Arbitration proceedings are in progress.
c. Note 39(a) of the Standalone Financial Statements, in respect of trade receivable considered good include an amount of Rs.15099.42 Lakhs due from customers which are outstanding for more than six months. We are unable to comment on the realization of these receivables in the absence of conformation from the concerned parties. An
amount of Rs.1246.96 Lakhs is set aside towards provision for trade receivables considered as doubtful. During the year the company has written of bad and doubtful debts to the tune of Rs.1094.77 lakhs
d. Note 39(b) of the standalone financial statements, in respect of Loans & Advances amounting to Rs.5840.53 lakhs towards purchase of Land/Development towards certain project of long term nature, and an amount of Rs.894.87 Lakhs given to suppliers, etc. outstanding. We are unable to comment on the realization of these advances. An amount of Rs.700 Lakhs is set aside towards provision for Advances considered as doubtful.
Our opinion is not modified in respect of these matters.
Key Audit Matters
Key audit matters are those matters that in our professional judgement, 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.
Revenue recognition (refer note 3.1 to the standalone financial statements)
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The key Audit Matter
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How the matter was addressed in our audit
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Revenue from sale of residential and commercial units represents 65.70% of the total revenue from operations of the company.
Revenue recognition - Fixed price development contracts
The Company inter alia engages in fixed - price development contracts, where, revenue is recognized using the percentage of completion computed as per the input method based on management’s estimate of contract costs ( Refer Note 3.1 to the standalone financial statements).
Measurement of revenue recorded over time which is dependent on the estimates of the costs to complete
Revenue recognition involves significant estimates related to measurement of costs to complete for the projects. Revenue from projects is recorded based on management’s assessment of the work completed, costs incurred and accrued and the estimate of the balance costs to complete. Due to the inherent nature of the projects and significant judgment involved in the estimate of costs to complete, there is risk of overstatement or understatement of revenue.
At Year-end a significant amount of work in progress related to these contracts is recognized on the balance sheet.
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Our audit procedures on revenue recognition included the following;
• Evaluating that the company’s revenue recognition accounting policies are in line with the applicable Accounting standards and their application to the key customer contracts including consistent application; Sales cut-off procedures for determination of revenue in the current reporting period.
• Scrutinizing all the revenue journal entries raised throughout the reporting period and comparing details of a sample of these journals, Which met certain risk-based criteria, with relevant underlying documentation;
• Conducting site visits during the year for selected projects to understand the scope and nature of the projects and to assess the progress of the projects and
• Considered the adequacy of the disclosures in note 2 & 3 to the standalone financial statement in respect of the judgment taken in recognizing revenue for residential and hospitality sector.
In addition, we have the performed the following procedures:
Revenue recognition prior to receipt of OC / similar approval and intimation to the customer
• Discussing and challenging key management judgments in interpreting contractual terms including obtaining in- house legal interpretations;
• Testing sample sales of units for projects with the underlying contracts, completion status and proceeds received from customers;
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• Identified and tested operating effectiveness of key controls around approvals of contracts, milestone billing, intimation of possession letters / intimation of receipt of occupation certificate and controls over collection from customers; and
• We have obtained confirmations, on a sample basis, from major customers for selected projects to confirm revenue recognized during the year end, performing alternative procedures by comparing details with contracts , collection details and other underlying project related documentation for cases where confirmations are not received.
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Measurement of revenue recorded over time which is dependent on the estimates of the costs of complete
Compared, on a sample basis, revenue transactions recorded during the year with the underlying contracts, progress reports, invoices raised on customers and collections in bank accounts and whether the related revenue had been recognized in accordance with the Company’s revenue recognition policies;
• Identification and testing operating effectiveness of key controls over recording of actual costs incurred for the projects;
• Review of the costs to complete workings, comparing the costs to complete with the budgeted costs and inquiring into reasons for variance; and
• Sighting approvals for changes in budgeted costs with the rationale for the changes and assessment of contract costs to determine no revenue nature costs are taken to inventory.
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Inventories (refer note 11 to standalone financial statements)
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The key Audit Matter
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How the matter was addressed in our audit
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Inventories comprising of land, construction work in progress, food & beverages represent 32.58% of the Company’s total assets.
Assessing net realizable value
The Company recognizes profit on each sale by reference to the overall project margin, which is the projected profit percentage for a phase that may comprise multiple units and can last a number of years. The recognition of profit is therefore dependent on the estimate of future selling prices and build costs including an allowance for risk. Further estimation uncertainty and exposure to cyclicality exists within the long term projects.
Forecasts of future sales are dependent on market conditions, which can be difficult to predict and be influenced by political and economic factors.
Inventory represents the capitalized project costs to date less amounts expensed on sales by reference to the aforementioned projections. It is held at the lower of cost
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Our audit procedures to assess the net realizable value (NRV) of inventories included the following:
• Discussion with the management to understand the basis of calculation and justification for the estimated recoverable amounts of the unsold units (“the NRV assessment”);
• Evaluating the design and implementation of the Company’s internal controls over the NRV assessment. Our evaluation included assessing whether the NRV assessment was prepared and updated by appropriate personnel of the Company and whether the key estimates, including estimated future selling prices and costs of completion for all property development projects, used in the NRV assessment, were discussed and challenged by management as appropriate;
• Evaluating the management’s valuation methodology and assessing the key estimates, data inputs and assumptions adopted in the valuations, which included comparing expected future average selling prices with available market data such as
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and net realizable value, the latter also being based on the forecast for the project. As such inappropriate assumptions in these forecasts can impact the assessment of the carrying value of inventories.
Further, due to their materiality in the context of total assets of the Company this is considered significant to our overall audit strategy and planning.
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recently transacted prices for similar properties located in the nearby vicinity of each property development project and the sales budget plans maintained by the Company;
• Re-performing the calculations of the NRV assessment and comparing the estimated construction costs to complete each development with the Company’s updated budgets.
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Land Advances - (refer note 10 to the standalone financial statements)
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The key Audit Matter
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How the matter was addressed in our audit
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Assessment of recoverability of land advances
Land advance represents a sizeable portion of the Company’s total assets.
Land advance represents the amount paid towards procurement of land parcels to be used in the future, for construction of residential projects. These advances are carried at cost less impairment losses, if any. These land advance will be converted into land parcels as per the terms of the underlying contract under which these land advances have been given. To assess the carrying value of land advances, these advances are tested for recoverability by the Company by comparing the valuation of land parcels in the same area for which land advances have been given.
Further due to their materiality in the context of total assets of the company this is consider significant to our overall audit.
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Our audit procedures to assess the recoverability of land advances included the following;
• For our samples, verified the underlying agreements in possession of the Company, based on which land advances were given;
• Discussion with the management to understand their plan for conversation of these land advances into land parcels; and
• For our samples, verified the valuation reports of land stock.
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Investment in subsidiaries and loans to group companies (refer to note 8, 9 and 10 to the standalone financial statements)
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The key Audit Matter
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How the matter was addressed in our audit
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The carrying amount of the investments in subsidiaries, held at cost represents 11.34%, to associate, represents 4.91% of the Company’s total assets respectively.
Recoverability of investment in subsidiary, joint ventures and an associate
The Company has investments in subsidiaries, joint ventures and an associate company which are considered to be associated with significant risk in respect of valuation of such investments. These investments are carried at cost less any diminution in value of such investments.
In addition, considering the materiality of the investments in subsidiaries, joint ventures and an associate, vis-a-vis the total assets of the Company, this is considered to be significant to our overall audit strategy and planning.
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Recoverability of investment in subsidiary, joint ventures and an associate
Our audit procedures included:
• Comparing the carrying amount of investments with the relevant subsidiaries, joint ventures and associate balance sheet to identify whether their net assets, being an approximation of their minimum recoverable amount, were in excess of their carrying amount and assessing whether those subsidiaries, joint ventures and an associate have historically been profit-making;
• For the investments where the carrying amount exceeded the net asset value, comparing the carrying amount of the investment with the projected profitability based on approved business plans of the subsidiaries joint ventures and an associate;
• Considering the adequacy of disclosures in respect of the investment in subsidiaries, joint ventures and an associate.
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The key Audit Matter
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How the matter was addressed in our audit
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Recoverability of loans to subsidiaries and joint ventures
The Company has extended loans to joint ventures and subsidiaries that are assessed for recoverability at each period end.
Financial assets, which include current loans to joint ventures and subsidiaries aggregated to Rs 1718.86 lakhs at 31 March 2023
Due to the nature of the business in the real estate industry, the Company is exposed to heightened risk in respect of the recoverability of the loans and advances granted to the aforementioned related parties.
There is also judgment involved as to the recoverability of the working capital and project specific loans, Which rely on a number of property developments being completed over the time period specified in agreements.
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Recoverability of loans to subsidiaries and joint ventures
Our procedures included:
• We reviewed the controls in place for issuing new loans and evidenced the Board/MD approval obtained. We obtained management’s assessment of the recoverability of the loans, which includes cash flow projections over the duration of the loans. These projections are based on underlying property development appraisals;
• We tested cash receipts received in relation to these loans during the year through to bank statement; and
We have obtained independent confirmations to ensure completeness and existence of loans and advances held by related parties as on 31 March 2023.
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Other Information
The Company’s Management and Board of Directors are responsible for the other information. The other information comprises the information included in the Company’s annual report, but does not include the standalone financial statements and our auditors’ report there on.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion there on.
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 statement or our knowledge obtained in the 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 Management and Board of Directors are responsible for the matters stated in Section 134(5) of the Act, with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs, profit/loss and other comprehensive income, changes in equity and cash flow of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards ( Ind AS) 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 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 standalone financial statements 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 and Board of Directors are responsible for assessing the Company’s ability to continue as a going concern , disclosing, as applicable, matters related to going concern and using the 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.
Board of Directors is also responsible for overseeing the Company’s financial reporting process.
Auditors’ 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 misstatement, whether due to fraud or error, and to issue an auditors’ 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 skepticism 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 control 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 with reference to financial statements 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 auditors’ 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
As required by the Companies (Auditor’s Report) Order, 2020 (‘the Order’), issued by the Central Government of India in terms of Section 143(11)of the Act, we give in the “Annexure A”, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
(A) 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;
(c) The standalone balance sheet, the standalone statement of profit and loss (including other comprehensive income), the standalone statement of changes in equity and the standalone statement of cash flows dealt with by this report are in agreement with the books of account;
(d) In our opinion, the aforesaid standalone financial statements comply with the Indian Accounting Standards (Ind AS) specified under Section 133 of the Act;
(e) On the basis of the written representations received from the directors as on 31 March 2023 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2023 from being appointed as a director in terms of Section 164 (2) of the act; and
(f) With respect to the adequacy of the internal financial controls with reference to the standalone financial Statements of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure B”.
(B) With respect to the other matters to be included in the Auditors’ 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 as at 31 March 2023 on its financial position in Its standalone financial statements - Refer Note 34 & 41 to 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) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company during the year ended 31 March 2023; and
(iv) a) The management has represented that , to the best of its knowledge and belief, no funds have been
advanced or loaned or invested (either from borrowing funds or share premium or any other sources or Kind of funds) by the Company to or in any other person or entities, 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 (“Ultimate Beneficiaries”) by or on behalf of the company or
• Provide any guarantee, security or the like to or 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 persons or entities, 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 (“Ultimate Beneficiaries”) by or on behalf of the Funding Party or
• Provide any guarantee, security or the like from or on behalf of the Ultimate Beneficiaries.
c) Based on such audit procedures as considered reasonable and appropriate in the circumstances,
nothing has come to our notice that has caused us to believe that the representations under sub-clause (iv) (a) and (iv) (b) contain any material mis-statement.
(v). During the year, the company has not declared any dividend.
(C) With respect to the matter to be included in the Auditor’s Report under Section 197(16) of the Act:
In our opinion and according to the information and explanations given to us, the remuneration paid by the Company to its directors during the current year is in accordance with the provisions of Section 197 of the act. The Remuneration paid to any director is not in excess of the limit laid down under Section 197 of the Act. The Ministry of Corporate Affairs has not prescribed other details under Section 197(16) of the Act which are required to be commented upon by us.
For and on behalf of Karumanchi & Associates
Chartered Accountants Firm’s Registration Number : 001753S Sd/-
K.Peddabbai
Partner M.No : 025036
UDIN No : 23025036BGYMDH5890
Place : Hyderabad Date : 27.05.2023
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