The plunge in GMR's scrip comes after the auditors observed that an impairment loss of Rs 2,250 crore arising out of GMR Chhattisgarh Energy Limited (GCEL) and certain other entities has not been accounted for in the consolidated financial results which were released on Thursday.
"Based on the assessment carried out by an independent expert during the year ended March 31, 2018, there exists an impairment as at March 31, 2018, of Rs. 2,250 crore," said the company's auditor S.R. Batliboi and Associates LLP.
"The Group has not accounted for the aforesaid impairment loss in the accompanying consolidated [Indian Accounting Standard] Ind AS financial results for the quarter and year ended March 31, 2018. In our opinion, the aforesaid accounting treatment is not in accordance with the relevant accounting standards."
According to the auditors, had the management provided for the impairment loss, "the loss after tax and minority interest for the quarter and year ended March 31, 2018, would have been higher by Rs 2,250 crore with a consequent impact on the consolidated reserves as at March 31, 2018".
Additionally, the auditor expressed doubts over the appropriateness of using "going concern basis" assumption for GMR Energy Limited (GEL), GMR Vemagiri Power Generation Limited (GVPGL) and GMR Rajahmundry Energy Limited (GREL).
For the uninitiated a "going concern basis" is an accounting term which basically refers to a firm's ability to generate enough financial resources to stay in business or avoid bankruptcy. However, even the investors were not convinced and dumped the stock.
"Continued uncertainty exists as to the availability of adequate supply of natural gas which is necessary to conduct operations in these entities at varying levels of capacity in the future and the appropriateness of the going concern assumption of these entities is dependent on the ability of the aforesaid entities to establish consistent profitable operations as well as raising adequate finance to meet short term and long term obligations and accordingly we are unable to comment on the carrying value of the Company's investment (including advances) in these entities as at March 31,2018," the auditor noted.
On Friday, GMR's stocks on the Bombay Stock Exchange (BSE) plunged by 7.99 per cent or Rs 1.45 to Rs 16.70 per share from its previous close of Rs 18.15 per share.
Consequent to the company's scrip movement, GMR Infra in a stock filing on Friday said: "We have seen unusual price movements in the stock of GMR Infrastructure Limited (GIL)..."
"Group has invested Rs 3,386 crore as equity in Chhattisgarh and already more than 60 per cent i.e., Rs. 1,883 crore has been provided for till March, 2018. Chhattisgarh is currently undergoing Resolution Plan through Bid process led by the lenders and the last date of submission of Final Bids is 11th June, 2018."
"Both lenders and GMR are expecting competitive binding bids by high quality investors who participated in non-binding stage and therefore, GIL will be able to sustain the equity carrying cost once this resolution plan is completed."
As per the filing, in terms of "Gas Based Projects", substantial equity has been already written off in the book and "we are expecting the operationalisation of one of the plants this quarter which should improve the viability of the project and the carrying value in the balance sheet".
"We would like to emphasise that there is a full agreement between management and auditors on this position and depending upon the developments, GMR is committed to make appropriate provisions, if necessary, in June 2018 quarter which would result into withdrawal of the auditors' qualification," the filing added.
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