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Datamatics Global Services Ltd.

BSE: 532528 Sector: IT
NSE: DATAMATICS ISIN Code: INE365B01017
BSE 00:00 | 24 Apr 2020 Datamatics Global Services Ltd
NSE 05:30 | 01 Jan 1970 Datamatics Global Services Ltd

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OPEN 52.00
PREVIOUS CLOSE 52.00
VOLUME 6386
52-Week high 116.00
52-Week low 28.10
P/E 8.32
Mkt Cap.(Rs cr) 293
Buy Price 49.40
Buy Qty 200.00
Sell Price 51.30
Sell Qty 100.00
OPEN 52.00
CLOSE 52.00
VOLUME 6386
52-Week high 116.00
52-Week low 28.10
P/E 8.32
Mkt Cap.(Rs cr) 293
Buy Price 49.40
Buy Qty 200.00
Sell Price 51.30
Sell Qty 100.00

Datamatics Global Services Ltd. (DATAMATICS) - Auditors Report


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Company auditors report

To

The Members of DATAMATICS GLOBAL SERVICES LIMITED

Report on the Audit of the Standalone financial statements Opinion

We have audited the accompanying Standalone financial statements of DATAMATICSGLOBAL SERVICES LIMITED ("the Company") which comprise the Balance Sheet asat March 31 2019 the Statement of Profit and Loss (including Other ComprehensiveIncome) the Statement of Changes in Equity the Statement of Cash Flows for the year thenended and notes to the financial statements including a summary of significant accountingpolicies and other explanatory information (hereinafter referred to as "thestandalone financial statements".

In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ("the Act") in the manner so required and give a trueand fair view in conformity with the accounting principles generally accepted in India ofthe state of affairs of the Company as at March 31 2019 the profit and totalcomprehensive income changes in equity and its cash flows for the year ended on thatdate.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Companies Act 2013. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit of theStandalone financial statements section of our report. We are independent of the Companyin accordance with the Code of Ethics issued by the Institute of Chartered Accountants ofIndia together with the ethical requirements that are relevant to our audit of thestandalone financial statements under the provisions of the Companies Act 2013 and theRules thereunder and we have fulfilled our other ethical responsibilities in accordancewith these requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that in our professional judgment were of mostsignificance 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 financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.

A. Revenue recognition in respect of fixed price contract

Description of Key Audit Matters

Accuracy of revenues and onerous obligations in respect of fixed price contractsinvolves critical estimates: Estimated effort is a critical estimate to determine revenuesand liability for onerous obligations. This estimate has a high inherent uncertainty as itrequires consideration of progress of the contract efforts incurred till date and effortsrequired to complete the remaining contract performance obligations. How our auditaddressed the key audit matter Our procedures included discussion with the management onthe control on the data and its effectiveness. Our audit approach was a combination oftest of internal controls and substantive procedures which included the following:

• Evaluated the design of internal controls relating to recording of effortsincurred and estimation of efforts required to complete the performance obligations.

• Tested the access and application controls pertaining to time recordingallocation and budgeting systems which prevents unauthorised changes to recording ofefforts incurred.

• Selected a sample of contracts and tested the operating effectiveness of theinternal controls relating to efforts incurred and estimated through inspection ofevidence of performance of these controls.

• Selected a sample of contracts and performed a retrospective review of effortsincurred with estimated efforts to identify significant variations and verify whetherthose variations have been considered in estimating the remaining efforts to complete thecontract.

• Reviewed a sample of contracts with unbilled revenues to identify possibledelays in achieving milestones which require change in estimated efforts to complete theremaining performance obligations.

• Performed analytical procedures and test of details for reasonableness ofincurred and estimated efforts.

B. Transaction with Related Parties

Description of Key Audit Matters

The company has material related party transaction during the year. Related PartyTransactions imposes limitations on the auditor's ability to obtain audit evidence thatall other aspects of related party transactions (other than price) are equivalent to thoseof a similar arm's length transaction. Further nature and complexity of such transactionand involvement of management with respect to roles and responsibilities of the entitiesinvolved in the transactions makes it subjective. How our audit addressed the key auditmatter Our audit procedures on revenue for related parties included:

• We adopted the balancing method (Transfer pricing model) to arrive at arm'slength price and these prices are cross verified with the related party transaction.

• We also reviewed comfort letter issued by the professional who handles theTransfer Pricing issues of the entity stating that the transaction is at arm's lengthprice.

• We also reviewed the income tax assessments of earlier years to corroboratewhether the methodology adopted has been accepted by the department.

• We also compared the pricing model and other terms of the agreement with thepriors years

C. Valuation of Financial Instruments

Description of Key Audit Matters

The Company has made investments in financial instruments amounting to र 299.68million. Due to their unique structure and terms the valuations of these unquotedinstruments are based on entity-developed internal models. Therefore there is significantmeasurement uncertainty involved in this valuation and is based on assumptions by themanagement.

As a result the valuation of these instruments was significant to our audit.

How our audit addressed the key audit matter

Our procedures included discussion with the management on the reasonableness of theassumptions and our procedures included: • obtaining an understanding of the internalrisk management procedures and the systems and controls associated with the originationand maintenance of complete and accurate information relating to financial instruments;• obtaining an understanding of key financial instrument contract terms to assess theappropriateness of accounting reflected in the financial report.

• Reviewing the Valuation reports issued by the independent valuation professionalfor valuation of the financial instruments.

• Reviewing the assumption made in the prior years and any significant change inassumption during the year.

D. Valuation of Employee Benefits

Description of Key Audit Matters

The Company has recognised provision for Gratuity of *Rs * 98.92 million and provisionfor Leave Encashment of ` 45.75 million as of March 31 2019. The assumptions thatunderpin the valuation of the Gratuity and Leave Encashment are important and also basedon subjective judgements. Management has obtained advice from actuarial specialists inorder to calculate the amount of Gratuity and Leave Encashment to be recognised asuncertainty arises as a result of estimates made based on the Company's expectations aboutlong-term trends and market conditions. As a result the actual surplus or deficitrealised by the Company may be significantly different to that recognised on the balancesheet since small changes to the assumptions used in the calculation materially affect thevaluation.

How our audit addressed the key audit matter

Our procedures included discussion with the management on the control on the data andreasonableness of the assumptions.

• We reviewed the scheme rules to ensure our understanding is correct. We testedthe input data used by the actuary to company records.

• We evaluated the key actuarial assumptions with the assistance of ourspecialists to determine if these were within an acceptable range.

• We compared with the actuarial gain/loss of earlier years to understand theimpact of the variation in the assumptions

• We read the disclosure in the financial statements in respect of employeebenefits to consider whether these are consistent with the conclusions of our audit workand meet the disclosure requirements of the relevant accounting standards.

Management's Responsibility for the Standalone financial statements

The Company's Board of Directors is responsible for the matters stated in Section134(5) of Companies Act 2013 ("the Act") with respect to the preparation andpresentation of these standalone

financial statements that give a true and fair view of the financial positionfinancial performance changes in equity and cash flows of the Company in accordance withthe accounting principles generally accepted in India including Accounting Standardsspecified under Section 133 of the Act. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets of the Company and for preventing and detecting frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the standalone financial statements that give a true andfair view and are free from material misstatement whether due to fraud or error.

In preparing the standalone financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.

The Board of Directors are responsible for overseeing the Company's financial reportingprocess.

Auditor's Responsibilities for the Audit of the Standalone financial statements

Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.

• Obtain an understanding of internal control relevant to the audit in order todesign 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 whetherthe company has adequate internal financial controls system in place and the operatingeffectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Company to cease tocontinue as a going concern.

• Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.

We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant defficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.

From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.

Emphasis of matter

Attention is drawn to Note No. 40 the Company has an investment of *Rs * 646.30 millionin two wholly owned subsidiaries and has also extended loans and advances of `12.09million to these subsidiaries as on March 31 2019. The net worth of these subsidiaries ason March 31 2019 is *Rs * 539.48 million which is lower than the amount of investment.The investment is for long term and of strategic nature. As the management is confident ofturning around these subsidiaries in the near future and hence no provision fordiminution in the value of investment has been considered necessary by the management.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of sub-section (11) of section 143 ofthe Companies Act 2013 we give in the "Annexure A" a statement on the mattersspecified in paragraphs 3 and 4 of the Order to the extent applicable.

2. As required by Section 143(3) of the Act we report that: (a) We have sought andobtained all the information and explanations which to the best of our knowledge andbelief were necessary for the purposes of our audit.

(b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.

(c) The Balance Sheet the Statement of Profit and Loss including Other ComprehensiveIncome Statement of Changes in Equity and the Statement of Cash Flow dealt with by thisReport are in agreement with the books of account.

(d) In our opinion the aforesaid standalone financial statements comply with theAccounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014.

(e) On the basis of the written representations received from the directors as on March31 2019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2019 from being appointed as a director in terms of Section 164 (2) of theAct. (f) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in "Annexure B".

(g) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended inour opinion and to the best of our information and according to the explanations given tous: i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements – Refer Note 43 to the standalonefinancial statements; ii. The Company did not have any long-term contracts includingderivative contracts for which there were any material foreseeable losses; and iii. Therewere no amounts which were required to be transferred to the Investor Education andProtection Fund by the Company during the year ended March 31 2019.

(h) With respect to the matter to be included in the Auditor's Report under section 197(16): In our opinion and according to the information and explanations given to us theremuneration paid by the Company to its directors during the current year is in accordancewith the provisions of section 197 of the Act. The remuneration paid to any director isnot in excess of the limit laid down under section 197 of the Act. The Ministry ofCorporateAffairshasnotprescribedotherdetailsundersection 197 (16) which are required to becommented upon by us. For M L BHUWANIA AND CO LLP

Chartered Accountants FRN: 101484W/W100197

J. P. Bairagra Partner Membership No. 012839

Place: Mumbai Date: May 09 2019

Annexure A to the Independent Auditor's Report

Referred to in paragraph 2 of ‘Report on other Legal and Regulatory Requirements'in our Report of even date on the accounts of DATAMATICS GLOBAL SERVICE LIMITED for theyear ended March 31 2019

i. (a) The Company is generally maintaining proper records showing full particularsincluding quantitative details and situation of fixed assets.

(b) The fixed assets are physically verified by the Management in accordance with aregular programme of verification which in our opinion provides for physicalverification of all the fixed assets at reasonable intervals. Pursuant to the programmecertain fixed assets were physically verified during the year and no materialdiscrepancies were noticed on such verification.

(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deeds of immovable properties areheld in the name of the Company.

ii. The Company's nature of operations does not require it to hold inventories.Consequently clause 3(ii) of the order is not applicable.

iii. The Company has not granted loans secured or unsecured to companies firmslimited liability partnerships or other parties covered in the register maintained underSection 189 of the Act. Hence sub clauses (a) to (c) of clause 3(iii) are not applicableto the Company.

iv. According to information and explanation provided to us in respect of loansinvestments guarantees and securities the company has complied with the provisions ofSection 185 and 186 of the Companies Act 2013.

v. The Company has not accepted any deposits from the public within the meaning ofSections 73 74 75 and 76 of the Act and the rules framed there under to the extentnotified and therefore clause 3(v) is not applicable.

vi. The Central Government has not prescribed maintenance of cost records under subsection (1) of section 148 of the Companies Act 2013 for any of the products of thecompany.

vii. (a) The Company is generally regular in depositing with appropriate authoritiesundisputed statutory dues including provident fund employees' state insurance incometax sales tax service tax duty of custom duty of excise value added tax cess Goods& Services Tax and any other material statutory dues applicable to it. According tothe information and explanations given to us no undisputed arrears of statutory dues wereoutstanding as at March 31 2019 for a period of more than six months from the date theybecame payable.

(b) According to the information and explanation given to us and the records of theCompany examined by us there are no dues of Sales Tax Service Tax Goods and ServicesTax Custom Duty Excise Duty Value Added Tax and Cess which have not been deposited onaccount of any dispute. The disputed amounts that have not been deposited in respect ofIncome Tax are as under:

Name of the Statute Nature of the dues Financial Year to which it relates Forum where the dues is pending ` in million
1 Income Tax Act 1961 Income Tax 2011-12 ITAT Mumbai 17.49

viii. According to the records of the Company examined by us and information andexplanation given to us the Company has not defaulted in repayment of dues to banksduring the year. The company has not taken any loan or borrowing from governmentfinancial institution and has not issued debentures during the year.

ix. The Company has not raised any money by way of public issue/ further offer(including debt instruments). The money raised on term loans has been applied for thepurpose for which it was raised.

x. To the best of our knowledge and according to the information and explanation givento us no fraud by the Company and no fraud on the Company by its officers or employeeshas been noticed or reported during the year.

xi. In our opinion and according to the information and explanations given to us themanagerial remuneration has been paid or provided in accordance with the requisiteapprovals mandated by the provisions of Section 197 read with schedule V to the CompaniesAct 2013.

xii. In our opinion and according to the information and explanations given to us thenature of the activities of the company does not attract any special statute applicable toNidhi Company. Accordingly clause 3(xii) of the order is not applicable to the company.

xiii. According to the information and explanation given to us and based on ourexamination of the records of the Company transactions with the related parties are incompliance with Sec 177 and 188 of the Companies Act 2013 where applicable and details ofsuch transactions have been disclosed in the financial statements as required by theapplicable accounting standards.

xiv. In our opinion and according to the information and explanations given to us andbased on our examination of the records of the Company the company has not made anypreferential allotment or private placement of shares or fully or partly convertibledebentures during the year. Accordingly clause 3 (xiv) of the Order is not applicable tothe Company.

xv. In our opinion and according to the information and explanations given to us andbased on our examination of the records of the Company the company has not entered intoany non-cash transactions with directors or persons connected with him. Accordinglyclause 3 (xv) of the Order is not applicable to the Company.

xvi. The company is not required to be registered under Sec 45-IA of the Reserve Bankof India Act 1934. Accordingly clause 3 (xvi) of the Order is not applicable to theCompany.

For M L BHUWANIA AND CO LLP Chartered Accountants FRN: 101484W/W100197

J. P. Bairagra Partner Membership No. 012839

Place: Mumbai Date: May 09 2019

Annexure B to the Independent Auditor's Report

Report on the Internal Financial Controls under Clause (i) of Sub-Section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of DATAMATICSGLOBAL SERVICES LIMITED ("the Company") as of 31 March 2019 in conjunction withour audit of the Standalone financial statements of the Company for the year ended on thatdate.

Management's Responsibility for Internal Financial Controls

The Company's Board of Directors are responsible for establishing and maintaininginternal financial controls based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls over FinancialReporting issued by the Institute of Chartered Accountants of India (‘ICAI'). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013.

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls over Financial Reporting(the "Guidance Note") and the Standards on Auditing issued by ICAI and deemedto be prescribed under Section 143(10) of the Companies Act 2013 to the extentapplicable to an audit of internal financial controls applicable to an audit of InternalFinancial Controls and both issued by the Institute of Chartered Accountants of India.Those Standards and the Guidance Note require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls over financial reporting was established and maintained and if suchcontrols operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgment including the assessment of the risks ofmaterial misstatement of the Standalone financial statements whether due to fraud orerror.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemover financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A Company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A Company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition use or disposition of theCompany's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion to the best of our information and according to the explanations givento us the Company has in all material respects an adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as at March 31 2019 based on the internal controlover financial reporting criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls Over Financial Reporting issued by the Institute of Chartered Accountants ofIndia.

For M L BHUWANIA AND CO LLP Chartered Accountants FRN: 101484W/W100197

J. P. Bairagra Partner Membership No. 012839

Place: Mumbai

Date: May 09 2019


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