Milkfood Ltd's FY2025-26 audit opinion flipped from clean to qualified, with auditors flagging three accounting-standard departures totalling ₹37.66 crore that cut reported profit by 78%. The qualification is the sharpest break in an otherwise long record of unqualified opinions, and it sits alongside a pattern of policy choices that have boosted profit in earlier years. The company's cash generation has also turned negative, and it is selling its Moradabad plant to cut borrowings after interest coverage collapsed to 0.7x.
Key findings
- FY2026 audit opinion flipped from clean to qualified on three Ind AS departures totalling Rs 37.66 crore, cutting reported profit by 78%
Critical- The standalone audit opinion for FY2025-26 was qualified on three departures: revaluation of Patiala Land of ₹31.97 crore recognised as profit instead of in Other Comprehensive Income per Ind AS 16, a retrospective vehicle useful-life revision overstating profit by ₹2.51 crore, and a share-based expense of ₹3.18 crore netted off from other income instead of classified as an employee benefit per Ind AS 102. The qualification adjusted net profit after tax from ₹4,429 lacs to ₹981 lacs and net worth from ₹21,636 lacs to ₹18,188 lacs. The prior year's opinion was unqualified, issued 29 May 2025. - Milkfood used accounting-policy choices and estimate changes that auditors qualified in FY2025-26
Critical- Other income for FY2025-26 includes a gain of ₹92.17 crore recognised on an agreement to sell where the sale deed was executed after the reporting date, treated as an adjusting event instead of non-adjusting. Plant and machinery useful life has been taken as 35 years instead of the 15 years prescribed under Schedule II, a policy repeated in annual reports from FY2021-22 through FY2025-26. In FY2021-22, the auditor's modified opinion cited excess depreciation of ₹2.72 crore taken as non-operating income. - Milkfood's reported borrowings understate economic obligations: supplier security deposits of ₹78.84 crore are classified as non-current despite being payable on demand, and nearly all bank debt is secured by the entire asset base and MILKFOOD brand
Major- Supplier security deposits of ₹78.84 crore are classified as non-current per "consistent trade practice," while the liquidity risk note states they are "payable on demand". Cash Credit limits from SBI/Canara Bank are secured by hypothecation on all present and future current assets, an extension of charge on fixed assets, and an exclusive charge on the MILKFOOD brand, guaranteed by two individual promoters. The latest balance sheet shows borrowings of ₹124 crore against cash of ₹0.49 crore, with net debt/EBITDA at 14.8x and interest coverage at 0.72x. - Milkfood carries a multi-year GST dispute load that peaked at ₹74.04 crore in show-cause notices, with one ₹25.82 crore demand quashed on appeal and a fresh ₹18.96 crore Ludhiana demand (plus equal penalty) still pending
Major- CGST Ludhiana issued a show-cause notice of ₹74.04 crore for the Patiala Plant, reduced to ₹18.96 crore with equivalent penalty on 29 January 2025; the company appealed on 24 February 2025. A separate ₹25.82 crore demand for the Moradabad Plant was set aside entirely by Commissioner CGST Appeals Meerut on 7 June 2024. The company has voluntarily deposited ₹16.27 crore as tax under protest in a separate GST investigation. - Milkfood's cash generation is volatile and now negative, yet it paid interim dividends in three consecutive years and is selling its Moradabad plant to reduce borrowings after interest coverage collapsed to 0.7x
Major- Standalone cash flow from operations was ₹19.24 crore in FY2024-25, ₹20.34 crore in FY2023-24, and negative ₹30.02 crore in FY2022-23. The Board declared interim dividends of ₹2.50 per share in each of FY2022-23, FY2023-24, and FY2024-25. The company entered an Asset Purchase Agreement dated 16 January 2026 to sell its Moradabad unit for ₹130 crore, with objectives stated as reducing borrowings and supporting future growth. - Milkfood's group structure has collapsed to a single standalone entity after its only subsidiary was struck off, while the group simultaneously reported two core investment companies that its own auditor had certified as non-existent in prior years
Major- MFL Trading Private Limited ceased to be a wholly owned subsidiary during FY2025-26; the ROC approved the strike-off on 20 January 2026, leaving the company with no subsidiary. The FY2025-26 CARO report states two core investment companies within the group, whereas the FY2023-24 and FY2021-22 CARO reports stated none. No consolidated financial statements were prepared for FY2025-26 because the company had no subsidiary, so only standalone financial statements are presented. - Related-party dealings are repeatedly certified as routine and immaterial, yet the filings show a related-party loan overdue over 90 days, a related-party advance with no repayment terms, and recurring group-entity borrowings for working capital
Major- In FY2021-22, a ₹1 lakh related-party loan had no repayment stipulations, and ₹17 lakhs of the related-party balance was overdue for more than ninety days at year-end. The company borrowed from a group entity to meet working capital requirements in both FY2022-23 and FY2023-24. The FY2025-26 interest rate risk disclosure states that the impact of a 1% rate increase is mitigated mainly by negotiating rates on long-term borrowing from a related party. - Milkfood's ESOP redesign and undisclosed promoter group findings
Major- The Milkfood ESOS 2024 granted 12,18,000 options on 27 January 2025, but grantees declined to exercise citing an "unattractive proposal"; the NRC accepted the lapse on 28 May 2025 and reissued the options on 20 June 2025 at ₹5 per option. In the 51st AGM held 31 July 2024, Public-Institutional holders voted 100% against Resolution 1, while promoter votes were cast 100% in favour. SEBI found the company failed to disclose five entities as promoter group from FY2006-07 till the quarter ending December 2022.
What to watch
- GST appeal outcome. The appeal before Tribunal CGST Ludhiana against the ₹18.96 crore demand with equivalent penalty for the Patiala Plant was pending as of the FY2025-26 Annual Report.
- Income tax re-assessment. The re-opened assessment for AY 2019-20 alleging ₹22.3 crore income escapement is contingent on the GST case before the Tribunal, as of the FY2025-26 Annual Report.
- Moradabad plant sale completion. The Asset Purchase Agreement dated 16 January 2026 for ₹130 crore and its effect on borrowings, as disclosed in the FY2025-26 Annual Report.
- Warrant allotments. Preferential allotment of up to 22,00,000 Convertible Warrants to Non-Promoter/Public Category at ₹30 each, with application filed with BSE on 3 July 2026; and 1,100,000 warrants each to Mr. Sudhir Avasthi and Mr. Deepankar Barat, with EGM notice dated 30 June 2026.
- 53rd AGM. Scheduled for 24 September 2026 to vote on re-appointment of Mr. Harmesh Mohan Sood (aged 78) as Non-Executive Non-Independent Director.
Bottom line: This is a record with a clean auditor-rotation history and full disclosure of changes, but the FY2025-26 qualified opinion marks a genuine break: three accounting-standard departures totalling ₹37.66 crore that cut reported profit by 78%, on top of a multi-year pattern of policy choices that have boosted earnings. The company's cash flow from operations was negative in FY2022-23 and positive in the two subsequent years, interest coverage has collapsed to 0.7x, and it is selling its Moradabad plant to reduce borrowings. The risk is concentrated in the quality of reported profit and the sustainability of the balance sheet, watch the GST appeal, the plant sale completion, and the warrant allotments.