Auditor Says McLeod Russel Understated Loss By Rs 1,822 Crore

Auditor to McLeod Russel India Ltd. said the tea company understated its loss as it didn't make provisions for advances to promoters, adding to the troubles of Williamson Magor Group that's struggling to repay debt.

McLeod Russel had deposits worth Rs 1,821.71 crore, including interest, outstanding from promoters as of March, Deloitte Haskins and Sells LLP said in its qualification to the financial statement. The company hasn't made any provisions for it, overstated long-term loans and interest and understated loss for the year by an equivalent amount, the auditor said, underscoring that the recovery is doubtful.

The tea grower and processor missed repayment of debt due on June 1, according to its filing. That prompted ICRA Ltd. to downgrade its long- and short-term debt to default from B- and A4, respectively.

The Williamson Magor Group has been struggling to meet its obligations. Auditor to battery maker Eveready Industries India Ltd., part of the group, quit last week citing financial support to promoters and raised concerns over the “fairness” of its financial statements. Shares of McLeod Russel have tumbled 90 percent in the last one year, while Eveready's stock plunged nearly 70 percent during the period.

Regulatory norms require disclosure of what impact the auditor qualification will have on the financial statement in a separate note. McLeod Russel's June 29 filing didn't adjust its loss for that. The company, however, filed a revised statement noting that the company's loss, according to the auditor, was Rs 1,821.71 crore more than the reported Rs 4.41 crore.

The management, responding to the auditor's findings in a statement, said promoter-group restructuring is underway to satisfy liabilities, including deposits advanced by McLeod Russel. The outstanding dues shall be recovered or adjusted, and no further provision is required at this stage, it said.

The auditor also raised a doubt if the company had disclosed all its related parties, as required by law, in its financial statements. Deloitte could not ascertain if the promoters that received money were required to be classified as a related party or not.

Emailed queries to the company seeking clarity on auditor's qualifications and promoter entities remained unanswered.

Going Concern Doubt

Deloitte expressed doubt about the company's ability to stay a going concern as McLeod Russel would fall short of meeting its short-term debt by Rs 1,435.66 crore even if it sells all its current assets. It pointed to the company's failure to repay loans and statutory liabilities in FY19.

The management, however, said that the tea company was in talks with lenders to refinance debt to improve operational efficiencies. It also plans to sell assets at tea estates to pare debt. McLeod Russel, it said, will be able to generate sufficient cash flows through profitable operations and improve its net working capital to meet short and long-term liabilities.