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We analysed Polycab India Ltd in 2022.

Analysis: Polycab India Ltd ( drvijaymalik.com/polycab-india/ )

During our analysis, we found plenty of instances of weak internal controls and compliance-related issues at Polycab.

Reproducing below the said section from the analysis:

3) History of weak internal controls and compliance:

There have been numerous instances in the past when auditors of Polycab India Ltd and other regulatory authorities have highlighted weaknesses in its processes and decisions.

3.1) Auditor’s observations:

In FY2010, the auditor of the company highlighted that the company has not maintained proper cost records and its internal control system needs strengthening.

FY2010 annual report, page 5:

(vii) The Company has an internal audit system, the scope and coverage of which, in our opinion requires to be enlarged to be commensurate with the size and nature of its business.
(viii) The Company has not maintained the books of account required to be maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records

In FY2015, the auditor of the company highlighted that the internal controls are weak and need strengthening.

RHP, April 2019, page 341:

The internal control system for purchase of inventory is adequate except documentation of quotation analysis for Engineering Procurement and Construction (EPC) Business and vendor selection, which needs strengthening in the Company

In addition, the auditor also questioned the inventory records of its work-in-progress.

RHP, April 2019, page 341:

The Company has maintained proper records of inventory except in respect of inventory of work-in-progress

In FY2016, the auditor could not opine about the strength of internal financial control of Polycab India Ltd, as the company could not provide enough documents/evidence to the auditor.

RHP, April 2019, page 273:

Since the company was not able to provide us with sufficient appropriate audit evidence on the system of internal finance control… we are unable to express an opinion on the adequacy or operating effectiveness of Internal Financial Controls over Financial Reporting as at March, 31, 2016.

In FY2017, the auditor could not confirm whether the revenue and receivables are accurate. Instead, the auditor highlighted that internal financial controls were not working properly and there could be over or under accrual of revenue and receivables.

RHP, April 2019, page 273:

The Company’s internal financial control over cut-off procedures for recognition of revenue at the year-end and review of invoices raised for certain category of customers were not operating effectively which could have potentially resulted in under or over accrual of revenue and receivables in the financial statements.

In addition, there have been numerous instances where the company did not deposit undisputed statutory dues like tax deducted at source, employee state insurance, professional tax, value-added tax and the provident fund from FY2014 to FY2018 (RHP, April 2019,  pages 524-525). Such delays in the deposit of undisputed statutory dues were also present in FY2010 and FY2019.

3.2) Reserve Bank of India (RBI)’s observations:

In FY2017, RBI pointed it out to the company that it has not complied with FEMA guidelines in issuing shares and compulsory convertible debentures (CCDs) in 2009, 2010 and 2016 by not filing forms FC-GPRs. RBI cautioned the company in this regard and stressed that any future violations would be seen seriously.

RHP, April 2019, pages 51-52:

The acknowledgement letter however noted that the Form FC-GPRs was not filed within the stipulated period which is a contravention of 9(1) (B) of FEMA 20/2000-RB dated May 3, 2000 and further stated that any such failure by us in the future will be viewed seriously by the RBI and the RBI will take appropriate action under FEMA.

Later on, RBI highlighted violations of Overseas Direct Investment (ODI) regulations in the investment by Polycab India Ltd in its Italian subsidiary.

RHP, April 2019, page 30:

on May 5, 2017, RBI issued a memorandum of compounding of contraventions to our Company in respect of alleged violations of Regulation 16A(3) and 15(i) of the ODI Regulations in relation to our Subsidiary, Polycab Wires Italy SRL

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You may read the complete article for our in-depth analysis of Polycab India Ltd:

drvijaymalik.com/polycab-india/

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