NEW DELHI: L&T Shipbuilding’s auditors have flagged risks to the company’s functioning as a going concern after multiple quarters of losses, according to the auditors’ note attached to the company’s FY2016-17 balance sheet.
A ‘going concern assumption’ generally means that the company will remain in business for the foreseeable future without being forced to halt operations and liquidate its assets. The primary issue for the company is that multiple years of losses have substantially eroded the networth of engineering major L&T’s shipbuilding arm and led its independent auditors to cast ‘significant doubt’ over whether the company can continue as a “going concern”.
“The company’s current liabilities exceeds its current assets as at the balance sheet date. These conditions indicate the existence of material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern,” M/S Sharp & Tannan, the auditors, said in the FY17 balance sheet.
The parent firm L&T, however, said that its investment in L&T Shipbuilding is ‘strategic’ and has affirmed its financial support.
The auditors have noted that the company, which is 97 per cent owned by L&T, with the rest of the holding being with Tamil Nadu Industrial Development Corporation, incurred ‘significant cash losses’ in FY17 and the financial year preceding that, resulting in ‘substantial erosion’ of net worth as at 31 March.
However, the firm’s losses have narrowed to Rs 348.34 crore in FY17 as against Rs 711.71 crore in the previous fiscal. But, negative networth widened to Rs 829 crore in FY17 from Rs 341 crore a year ago.
While the impact of the firm’s performance during the just concluded financial year on this assessment is unclear, the auditors’ report says that the management is satisfied that there are “no events or conditions that may cast a significant doubt on the ability of the company to continue as a going concern”.