Aarvi Encon's record is clean on its face: eight straight years of unqualified audit opinions, no auditor resignations, and no material regulator order ever reported. Three things deserve attention: reported profit has almost no operating cash behind it, the audit trail for payroll records has been switched off for three consecutive years, and the promoter father-son duo runs both executive roles with remuneration repeatedly approved under Schedule V "inadequate profit" provisions.
Key findings
- Reported profit is not backed by operating cash flow
Major- Cumulative operating cash flow of ₹11 crore equals only 0.13x cumulative profit after tax less other income of ₹86 crore over the nine-year history through the latest period. FY2025-26 CFO was ₹8.05 crore against PAT of ₹17.62 crore, a CFO/PAT ratio of 0.46x. The Board recommended a final dividend of ₹2 per equity share for FY2025-26 at its meeting held on May 22, 2026, with an outflow of approximately ₹2.97 crore excluding taxes. - Eight straight years of unqualified opinions sit alongside recurring audit-trail gaps
Major- The standalone and consolidated audit opinions were unqualified in every year from FY2019-20 through FY2025-26, with no qualifications, reservations, adverse remarks, Emphasis of Matter, or material-uncertainty paragraphs reported in any year. The auditor reported the audit trail (edit log) facility was not enabled at the database level for payroll records and not enabled at the application layer for payroll for the Holding Company and its Indian subsidiary in FY2023-24, FY2024-25, and FY2025-26. A case of employee embezzlement of Rs. 7,00,000 through falsification of records was first reported in the CARO fraud clause for FY2022-23, with Rs. 6,00,000 outstanding as of the report date, and the same Rs. 7,00,000 embezzlement with Rs. 6,00,000 outstanding was repeated in the CARO fraud clause for FY2023-24, FY2024-25, and FY2025-26. - Promoter family controls both executive roles with Schedule V approvals
Major- Mr. Virendra D. Sanghavi is the father of Mr. Jaydev V. Sanghavi; no other directors are related inter-se as on March 31, 2026. Mr. Virendra D. Sanghavi (Managing Director) and Mr. Jaydev V. Sanghavi (Executive Director & CFO) each received remuneration of ₹1,68,00,000 in FY2024-25, including commission of 0.5% of turnover, subject to a maximum limit of ₹1.68 crore. The company stated it "falls under the category of inadequate profit on account of which remuneration is paid as per Schedule V of the Companies Act, 2013" for both in FY2024-25. - Revenue recognition has been a recurring auditor Key Audit Matter
Minor- The auditor identified revenue recognition as Key Audit Matter 1 in FY2020-21, focusing on management's judgment in identifying distinct performance obligations and determining principal vs. agent in manpower supply contracts. The top 1 customer accounted for 13% of total revenue in FY2025-26, down from 17% in FY2024-25. Disputed trade receivables considered doubtful were Rs. 29.62 lakhs as at March 31, 2024, Rs. 93.93 lakhs as at March 31, 2025, 1.15 crore as at March 31, 2022, and 1.85 crore as at March 31, 2021. - Recurring SEBI Listing Regulations compliance lapses across FY2019-FY2025
Minor- The Secretarial Audit Report for FY2019-20 recorded delays in filing e-forms with MCA, submission of the 30 June 2020 board meeting outcome and AGM proceedings beyond SEBI Listing Regulations timelines, and failure to publish the QE 31 March 2020 financial results in a regional-language newspaper. The Secretarial Compliance Report for FY2024-25 noted non-disclosure of dividend-related UPSI in the SDD software under SEBI (PIT) Regulations, 2015 Regulation 3(5) and 3(6), and delay in submission under Regulation 30 and Schedule III of SEBI LODR. On 30 August 2023, the company disclosed that NSE levied a fine for the delay in submitting the FY ended 31 March 2019 Annual Report to the stock exchange, and the company requested a waiver. - Income-tax disputes that once totaled ₹4.05 crore have shrunk to nil-disclosed amounts
Minor- As at 31 March 2023, disputed income-tax demands were ₹2,58,50,875 for A.Y. 2017-18, ₹30,84,672 for A.Y. 2018-19, and ₹1,16,07,077 for A.Y. 2020-21, all pending at CIT (Appeal). As at 31 March 2024, disputed income-tax demands for A.Y. 2018-19 and A.Y. 2020-21 before CIT (Appeal) were shown as "Nil" amount. The FY2025-26 standalone auditor's report states no disputed statutory dues were outstanding on account of any dispute as at 31 March 2026. - FY2025-26 profit includes a ₹1.14 crore gratuity provision write-back booked as exceptional
Minor- In FY2025-26, Aarvi Encon Ltd wrote back its Gratuity Retention Balance of ₹1.14 crore (1.14 crore) and disclosed it as an Exceptional Item after concluding adequate provision already existed under the New Labour Codes. Effective 21 Nov 2025, the company's actuarial valuation of gratuity as at 31 Mar 2026 resulted in an increase in gratuity liability of 1.48 crore, recognised as an exceptional item in FY2025-26. For associate (billable) employees, the company states the New Labour Codes gratuity costs are contractually recoverable from customers and therefore have no P&L impact. - A growing web of foreign subsidiaries and step-down entities
Minor- As on March 31, 2026, the Company has four subsidiaries, two step-down subsidiaries, and one associate company. Aarvi Encon FZE (UAE) is a Material Subsidiary as its net worth exceeds 10% of consolidated net worth as on March 31, 2026. The consolidated financial statements for FY2023-24 include unaudited financial statements of foreign subsidiary Aarvi Encon (FZE), with total assets of Rs. 2,360.35 Lacs, total revenue of Rs. 2,726.06 Lacs, and net cash inflow of Rs. 609.11 Lacs as at 31st March 2024. - Auditor rotation completed on schedule in 2022 with no resignations
Clean- M/s. Arvind H. Shah & Co., Chartered Accountants (FRN 100577W) served as statutory auditor from appointment at the 29th AGM on July 15, 2017 for five years until conclusion of the 34th AGM. M/s. Jay Shah & Associates, Chartered Accountants (FRN 135424W) was appointed as statutory auditor at the 34th AGM on July 29, 2022 for five consecutive years until the conclusion of the 39th AGM in 2027. Total fees paid to the statutory auditor and all network entities on a consolidated basis were ₹10 lakh in FY2019-20, ₹15,02,710.83 in FY2020-21, ₹14,90,000 in FY2021-22, ₹12,20,000 in FY2022-23, ₹16,01,437 in FY2023-24, and ₹20,73,000 in FY2025-26.
What to watch
- Audit trail exceptions. The FY2026-27 annual report will show whether the audit trail exceptions for payroll and consolidation records persist for a fourth consecutive year, and whether the Rs. 6,00,000 embezzlement recovery remains outstanding for a fifth consecutive year.
- PP&E records. The FY2026-27 annual report will show whether the PP&E records remain "in process".
- SEBI action on UPSI non-disclosure. Any further SEBI action or penalty arising from the FY2024-25 dividend-related UPSI non-disclosure under SEBI (PIT) Regulations, 2015.
Bottom line: This is a disclosed and audited record with eight straight years of unqualified opinions and no auditor turnover drama. The risk sits in two places: cash conversion that has been weak for nine years while dividends continue, and a control environment where the audit trail is switched off for payroll and consolidation records year after year. Read the cash flow statement before the profit line, and watch whether the FY2026-27 annual report finally closes the audit trail gaps and the embezzlement recovery.