MSP Steel's Rs 47.37 crore tax asset flagged by auditor

MSP Steel & Power Limited recognised a Rs 47.37 crore deferred-tax asset in FY2025-26 after optionally convertible debentures were converted into equity, and its auditor highlighted the treatment in reviewing the quarter and half year ended September 30, 2026 without modifying its conclusion.

Why did MSP Steel recognise a Rs 47.37 crore deferred-tax asset?

MSP Steel recognised the Rs 47.37 crore deferred-tax asset after claiming a Section 43B deduction under the Income-tax Act, 1961, for interest liabilities totalling Rs 188.23 crore in FY2024-25. The company said it had voluntarily not claimed those interest deductions under Section 43B in earlier years.

The claim followed the conversion of optionally convertible debentures, or OCDs, into equity shares during FY2024-25. MSP Steel considered the interest liability underlying those OCDs extinguished on conversion and, based on an independent tax opinion obtained by management, concluded that the deduction represented an unused tax benefit available for set-off against future taxable profits.

The company recognised the asset in the year ended March 31, 2026, not in the September 2026 half-year reporting period. Its stated basis was that sufficient future taxable profits were probable, as required for recognition under Indian Accounting Standard 12, or Ind AS 12, which covers income taxes.

The Rs 47.37 crore amount therefore reflects a tax-accounting recognition linked to the earlier interest claim rather than a current cash-tax payment. MSP Steel reported nil current tax in both the quarter and half year ended September 30, 2026, while recording deferred-tax expense of Rs 19.79 crore for the half year.

What did MSP Steel's auditor say about the OCD tax asset?

MSP Steel's statutory auditor, Singhi & Co., drew attention to Note 6 on the deferred-tax asset in its limited-review report for the quarter and half year ended September 30, 2026. The report identified the Section 43B deduction, the conversion of OCDs into equity and the management-obtained independent tax opinion as the relevant facts.

Singhi & Co. did not modify its conclusion because of this matter. The auditor said nothing had come to its attention to indicate that the standalone results did not disclose required information or contained a material misstatement, while also stating that its work was a limited review rather than an audit.

A limited review uses enquiries and analytical procedures and is narrower in scope than an audit, according to the report signed after the Board approved the results on November 13, 2026. The auditor consequently said it did not express an audit opinion on the September 30, 2026 standalone financial results.

The same tax-accounting matter was highlighted in the review report on MSP Steel's consolidated results for the same quarter and half year. That report also said its conclusion was not modified and described the asset as recognised by the parent company in the financial year ended March 31, 2026.

How did MSP Steel's tax asset and financial results change?

MSP Steel reported net deferred-tax assets of Rs 32.33 crore at September 30, 2026, down from Rs 52.26 crore at March 31, 2026. The Rs 19.93 crore balance-sheet reduction broadly corresponds with the Rs 19.79 crore deferred-tax expense reported in the standalone statement for the half year ended September 30, 2026.

Standalone profit after tax was Rs 56.43 crore for the half year ended September 30, 2026, compared with a loss of Rs 56.93 crore in the corresponding 2025 period. The earlier period included an exceptional item of Rs 100.88 crore, while no exceptional item was reported in the current half year.

Revenue from operations increased by Rs 245.77 crore year on year to Rs 1,633.50 crore in the September 2026 half year. Profit before exceptional items and tax rose to Rs 76.22 crore from Rs 21.91 crore, while the prior-year result was subsequently reduced by the Rs 100.88 crore exceptional charge.

For the September 2026 quarter alone, MSP Steel reported revenue from operations of Rs 806.99 crore, compared with Rs 676.86 crore a year earlier. Standalone net profit for the quarter was Rs 34.47 crore against a loss of Rs 74.77 crore in the September 2025 quarter, when the exceptional item was recorded.

What conditions affect MSP Steel's use of the tax benefit?

MSP Steel can use the tax benefit only against future taxable profits, according to Note 6 in its September 30, 2026 standalone results. Management said it recognised the Rs 47.37 crore asset after concluding that sufficient taxable profits were probable, rather than because a current tax liability existed in the reporting period.

The filing does not provide a timetable for utilisation, a year-by-year taxable-profit forecast or a disclosed assessment by tax authorities. It instead identifies management's independent tax opinion and its application of Ind AS 12 as the grounds for recognising the unused benefit arising from the Rs 188.23 crore interest deduction.

MSP Steel reported a single primary business segment, manufacturing and trading of iron and steel products, for the September 2026 results. As a result, it did not provide separate information under Ind AS 108 on operating segments that would allocate taxable profits or the deferred-tax asset by product, plant or business line.

The asset appears within non-current assets, which totalled Rs 935.12 crore at September 30, 2026, compared with Rs 919.76 crore at March 31, 2026. Within that category, property, plant and equipment fell to Rs 754.37 crore from Rs 780.93 crore, while capital work in progress increased to Rs 72.52 crore from Rs 18.15 crore.

How did MSP Steel's balance sheet and cash flow move in the half year?

MSP Steel's total assets declined to Rs 1,653.31 crore at September 30, 2026 from Rs 1,723.54 crore at March 31, 2026, while total equity rose to Rs 1,084.17 crore from Rs 1,027.32 crore. Other equity increased to Rs 517.37 crore from Rs 460.52 crore over the same six-month period.

Inventories fell to Rs 457.52 crore at September 30, 2026 from Rs 585.63 crore at March 31, 2026, and trade receivables decreased to Rs 81.20 crore from Rs 85.10 crore. Current borrowings declined to Rs 275.97 crore from Rs 310.15 crore, whereas non-current borrowings rose to Rs 32.56 crore from nil.

Net cash generated from operating activities was Rs 79.18 crore in the half year ended September 30, 2026, compared with Rs 100.83 crore in the corresponding 2025 period. The company used Rs 55.28 crore in investing activities, including Rs 61.83 crore spent on property, plant, equipment and capital work in progress.

Cash and cash equivalents were Rs 2.79 crore at September 30, 2026, down from Rs 3.70 crore at the beginning of the year. The cash-flow statement shows a net decrease of Rs 0.91 crore in the six months, compared with a Rs 0.46 crore decrease in the half year ended September 30, 2025.

Conclusion

MSP Steel's Rs 47.37 crore deferred-tax asset arose from management's conclusion that a Rs 188.23 crore interest deduction became available after OCD conversion in FY2024-25. The auditor highlighted the matter in its September 2026 review but did not modify its conclusion, while the net deferred-tax asset stood at Rs 32.33 crore at the half-year date.

The next financial reporting period will show whether MSP Steel continues to generate the future taxable profits that management considered probable when recognising the asset in FY2025-26. Investors can also watch whether deferred-tax expense or credit changes from the Rs 19.79 crore expense reported for the half year ended September 30, 2026.