DIRECTORS' REPORT Dear Members, Your Directors have pleasure in presenting their report together with the audited financial statements for the financial year ended March 31, 2016. Performance overview • The Company continued its record of clocking highest ever turnover and profit for the financial year 2015-16. • Total revenue (net of excise duty) for the year was Rs. 46.91 billion as against Rs. 42.11 billion in the previous year registering a growth of 11%. • The operating profit (Earnings Before Depreciation, Interest, Tax and Amortisation-EBIDTA) for the year stood at Rs. 8,424 million • (previous year Rs. 7,241 million) representing 17.96% of net revenue. • The Profit Before Tax (PBT) and Profit After Tax (PAT) for the year was at Rs. 7,222 million and Rs. 4,894 million as against Rs. 6,099 million and Rs. 4,109 million of the previous financial year respectively. • The profit after tax has registered an impressive 19% growth. Industrial battery business The Company's industrial battery business registered double digit growth over the previous financial year, in a challenging and competitive market conditions. The industrial battery business improved the overall performance by virtue of its "preferred supplier status" with all major customers, efficient after sales service, customer relationship management and consistent product performance of its flagship brands PowerStack®, Quanta® and QRS Series batteries. The Company has progressively started providing total solutions to customers enabling it to forge strategic alliances. Automotive battery business The Company's automotive battery business reported double digit revenue growth supported by volume increase of 24% in both four-wheeler and two-wheeler batteries, over the previous financial year. During the year, the Company commenced supplies from the new four-wheeler battery plant, consolidating its position in this space. In four-wheeler OEM space, the company grew the business by 15% inspite of just 4% increase in automobile production. In the aftermarket segment, the company's brands grew at a healthy pace of 30% in four-wheelers and 23% in two-wheeler batteries. The volume growth in both four-wheeler and two-wheeler aftermarket business continued during the year due to strong preference for Company's products, supported by complete product offering, strengthening of brands Amaron® and PowerZone TM, expansion of channel and leveraging customer relationships. The volume of inventer batteries, which includes both flat and tubular plate, witnessed a good growth of 14% over previous year. The volume from export business grew significantly at 33% over previous year. The brand and products of the company have started gaining recognition in overseas markets, resulting in increased business. The focused market strategy of the Company paid off leading to higher penetration and business increase. The Company also expanded the distributor's network to newer countries. The new four-wheeler battery plant at Nunegundlapalle Village, Chittoor District with capacity of 2.25 million units per annum started supplying during the year, taking the total capacity of the four-wheeler automotive battery plant to 8.25 million units per annum. During the year, we also commenced supplies from the new Tubular plant. In view of the anticipated growth in demand for two-wheeler battery, the Board reviewed a proposal for expansion of two-wheeler battery capacity to be implemented in four phases, staggered over a period of four years, which would on completion take the capacity from existing 11 million units p.a to 25 million units p.a. The Board approved the setting up of necessary infrastructure for the entire expansion and first phase comprising of 3 lines which would take the capacity to 15 million units p.a. The Board had already approved the expansion of four-wheeler battery capacity from 8.25 million units p.a to 11 million units p.a. Financial position The networth as at March 31, 2016 improved to Rs. 21,016.42 million with the addition of Rs. 4,020.71 million to the reserves and surplus during the year. There is no interest bearing debt as of March 31, 2016. CRISIL rated the Company's long-term bank loan facilities at 'CRISIL AA+/Stable' and on the short-term bank facilities at 'CRISIL A1+.' During the year under review, the gross fixed assets including capital work in progress increased by Rs. 5,068.96 million (net of deletions of Rs. 677.84 million) and are at Rs. 20,345.96 million (previous year Rs. 15,277 million). The entire additions were funded through internal accruals. The earnings per share of Rs. 1/- each for the financial year 2015-16 grew by 19% at Rs. 28.65/- as against Rs. 24.05/- for the previous financial year, while the book value per share as at March 31, 2016 was at Rs. 123.04/-as against Rs. 99.50/- as at March 31, 2015. Dividend The Company paid an interim dividend of Rs. 4.25 per equity share of Rs. 1/- each (425%) for the financial year 2015-16. The interim dividend (excluding corporate dividend tax) aggregated to Rs. 725.95 million, a pay-out of 14.83% of the profit after tax of the Company for the financial year 2015-16. As the pay-out is in line with the dividend policy of the Company i.e. Dividend Payout (excluding corporate dividend tax) upto 15% of the profit after tax of the Company. The Board has not recommended final dividend for the financial year 2015-16. Transfer to reserves Your directors have proposed to transfer a sum of Rs. 489.44 million to the general reserve out of the profits earned by the Company. An amount of Rs. 17,448.73 million is proposed to be retained as surplus in the statement of Profit and Loss. Directors and Key Managerial Personnel Pursuant to the provisions of Section 149 of the Companies Act, 2013 Mr. Nagarjun Valluripalli, Mr. N Sri Vishnu Raju, Mr. T R Narayanaswamy, Mr. Raymond J Brown and Ms. Bhairavi Tushar Jani were appointed as an Independent Directors of the Company. They have submitted a declaration that each of them meet the criteria of independence as provided in Section 149(6) of the Act and there has been no change in the circumstances which may affect their status as an Independent Director during the year. In accordance with the provisions of Section 152 of the Companies Act, 2013, Dr. Ramachandra N Galla, Chairman (DIN : 00133761) is liable to retire by rotation at the ensuing annual general meeting and being eligible offer himself for re-appointment. Mr. Bruce Ronning Jr. (DIN: 06938974) resigned from the Board with effect from February 1, 2016 and Mr. Raphael John Shemanski (DIN: 07462586) was appointed as an Additional Director on the Board with effect from March 19, 2016, who hold office up to the date of the ensuing annual general meeting. The Board wishes to place on record their sincere appreciation for the valuable services rendered by Mr. Bruce A Ronning Jr. during his tenure as a director of the Company. The Company has received a notice in writing under Section 160 of the Act proposing the appointment of Mr. Raphael John Shemanski as a Director. The resolutions seeking your approval for the re-appointment of Dr. Ramachandra N Galla, Chairman and appointment of Mr. Raphael John Shemanski as a Director are included in the notice of the ensuing annual general meeting along with brief details about them. Pursuant to the provisions of Section 203 of the Act, Mr. Jayadev Galla, Vice Chairman and Managing Director, Mr. S V Raghavendra, Chief Financial Officer and Mr. M R Rajaram, Company Secretary are the key managerial personnel of the Company. Auditors M/s. Brahmayya & Co., Chartered Accountants and M/s. Deloitte Haskins & Sells LLP, Chartered Accountants were appointed as the joint statutory auditors at the Annual General Meeting held on August 14, 2015 for a term of five (5) years from the conclusion of the 30th annual general meeting till the conclusion of 35th annual general meeting. As required under the provisions of Section 139 of the Act, a resolution for the annual ratification of their appointment is being placed before the shareholders for their approval. In this regard, the Company has received a certificate from the auditors to the effect that if their appointment is ratified, it would be in accordance with the provisions of Section 141 of the Act. The Auditor's report does not contain any qualification, reservation or adverse remark. As per Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Rules as amended from time to time, the cost records are required to be audited. Based on the recommendation of Audit Committee, your Board has appointed M/s. Sagar & Associates, Cost Accountants, Hyderabad as cost auditors for the financial year 2016-17. Necessary resolution for ratification of their remuneration is being placed before the shareholders for their approval. Pursuant to Section 204 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company had appointed R.Sridharan & Associates, Company Secretaries to undertake the secretarial audit of the Company for the financial year 2015-16. The Secretarial Audit Report in Form MR-3 received from them is annexed herewith as Annexure I. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. Corporate Governance The report on corporate governance for the year ended March 31, 2016 pursuant to Regulation 34 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed hereto as Annexure II. The certificate from practicing company secretary regarding the compliance of conditions of corporate governance is attached to the report on corporate governance. Management discussion and analysis Management discussion and analysis report, highlighting the performance and prospects of the Company's business, forms part of this annual report. Directors' responsibility statement Pursuant to Section 134(3)(c) and 134(5) of the Companies Act, 2013, the Board of Directors of the Company confirm to the best of their knowledge and belief that in the preparation of the statement of profit and loss for the financial year ended March 31, 2016 and the balance sheet as at that date ("financial statements"): 1. applicable accounting standards have been followed; 2. appropriate accounting policies have been selected and applied consistently and such judgements and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company as at the end of the financial year and of the profit of the Company for that period; 3. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. To ensure this, the Company has established internal control systems, consistent with its size and nature of operations, subject to the inherent limitations that should be recognised in weighing the assurance provided by any such system of internal controls. These systems are reviewed and updated on an on-going basis. Periodic internal audits are conducted to provide reasonable assurance of compliance with these systems. The audit committee meets at regular intervals to review the internal audit function; 4. financial statements have been prepared on a going concern basis; 5. proper internal financial controls are in place and that such internal financial controls were adequate and were operating effectively; 6. systems to ensure compliance with the provisions of all applicable laws are in place and were adequate and operating effectively. Information and Disclosures under the Companies Act, 2013 Extract of Annual Return The extract of Annual Return pursuant to Section 134(3)(a) and Section 92(3) of the Companies Act, 2013 ('Act') in the prescribed form MGT-9 is annexed herewith as Annexure III Number of Meetings of the Board During the year five meetings of the Board of the Directors of the Company were convened and held in accordance with the provisions of the Companies Act, 2013. The date(s) of the Board Meeting, attendance by the directors are given in the Corporate Governance Report forming part of this annual report. Committees of the Board In compliance with the provisions of Sections 135, 177, 178 of the Companies Act, 2013, the Board constituted Corporate Social Responsibility Committee, Audit Committee, Nomination and Remuneration Committee and Share Transfer and Stakeholders Relationship Committee (Committees). The details of composition of the Committees, their meeting and attendance of the members are given in the Corporate Governance Report forming part of this annual report. Corporate Social Responsibility (CSR) The brief outline of the CSR Policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are given in Annexure IV to this report in the format prescribed in Companies (Corporate Social Responsibility Policy) Rules, 2014. The said policy is available on the Company's website at <http://www.amararaja.co.in/> policies/ARBL-Corporate-Social-Responsibility-Policy.pdf Nomination and Remuneration Policy The Board has on the recommendation of Nomination and Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management Personnel and their remuneration. The Nomination and Remuneration Policy adopted by the Board is available on the Company's website at <https://amararaja.co.in/policies/ARBL%20%20Nomination%20and%20> Remuneration%20Policy.pdf Evaluation of the Board Pursuant to the provisions of the Companies Act, 2013 and Regulation 17 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board had carried out an annual evaluation of its own performance, the Directors individually and of the committees of the Board. A structured questionnaire was prepared after taking into consideration inputs received from the Directors, covering aspects of the Board's functioning such as adequacy of the composition of the Board and its committees, execution and performance of specific duties, obligations and governance. A separate exercise was carried out to evaluate the performance of Individual Directors including the Chairman of the Board. The Directors performance was evaluated on parameters such as level of engagement and contribution in safeguarding the interest of the Company etc. The performance of every Director was evaluated by the Nomination and Remuneration Committee. The performance evaluation of the Independent Directors was carried out by the entire Board. Further, the performance evaluation of the Chairman and the Non Independent Directors was carried out by the Independent Directors Mr. Raphael John Shemanski, additional director did not participate in the evaluation process or being evaluated, as he was appointed at the end of financial year 2015-16. Familiarisation Programme for Directors In addition to giving a formal appointment letter to newly appointed Directors on the Board, a handbook covering the role, function, duties and responsibilities and the details of the compliance requirements expected from the Directors under the Companies Act, 2013 and relevant Regulations of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 were given and explained to the new Directors. The newly appointed Directors are given induction and orientation with respect to Company's Vision, Core purpose, Core Values and business operations. In addition detailed presentations are made by Senior Management Personnel on business environment, performance of the Company at every Board Meeting. The above initiatives help the Directors to understand the Company, its business and the regulatory framework in which the Company operates and enables the Directors to fulfill their role/responsibility. The details of the familiarisation programme is available on the Company's website www.amararaja.co.in Particulars of loans, guarantees and investments The Company has not given any loans, guarantees or security in connection with loans or made any investments falling within the ambit of Section 186 of the Companies Act, 2013. Transactions with the Related Parties All related party transactions that were entered into during the financial year were on arm's length basis and were in the ordinary course of business. During the financial year 2015-16, there were no materially significant transactions with the related parties which might be deemed to have had a potential material conflict with the interest of the Company at large. In line with the provisions of Section 177 of the Companies Act, 2013 read with the Companies (Meetings of the Board and its Powers) Rules, 2014, omnibus approval for the estimated value of transactions with the related parties for the financial year ahead is obtained from the Audit Committee. The transactions with the related parties are routine and repetitive in nature. The summary statement of transactions entered into with the related parties pursuant to the omnibus approval so granted are reviewed and approved by the Audit Committee and the Board of Directors on a quarterly basis. The summary statements are supported by an independent audit report certifying that the transactions are at an arm's length basis and in the ordinary course of business. The members at the annual general meeting held on August 14, 2015 approved and authorised the Board to enter into transactions with Mangal Industries Limited (MIL) upto a cumulative value of transactions of Rs. 600 crores in each financial year. During the financial year 201516, the transactions with MIL amounted to Rs. 520.13 crores (including dividend paid), a material transaction under the Regulation 23 of the SEBI(Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Regulations") and the policy adopted by the Company under the said Regulations. The Form AOC- 2 pursuant to Section 134 (3)(h) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Accounts) Rules, 2014 is set out as Annexure V to this Report. Internal Controls The Company has put in place adequate system of internal controls commensurate with its size and the nature of its operations. The Company's internal control system covers the following aspects: • Financial propriety of business transactions. • Safeguarding the assets of the Company. • Compliance with prevalent statues, regulations, management authorisation, policies and procedures. The Audit Committee of the board periodically reviews audit plans, observations and recommendations of the internal and external auditors, with reference to the significant risk areas and adequacy of internal controls and keeps the board of directors informed of its observations, if any, from time to time. Risk Management During the year, the risk assessment parameters were reviewed and modified. The audit committee reviewed the element of risks and the steps taken to mitigate the risks. In the opinion of the Board, there are no major elements of risk which has the potential of threatening the existence of the Company. Whistle Blower Policy /Vigil Mechanism The Company has established a whistle blower policy/vigil mechanism to provide an avenue to raise concerns. The mechanism provides for adequate safeguards against victimization of employees who avail of it and also for appointment of an Ombudsperson who will deal with the complaints received. The policy also lays down the process to be followed for dealing with the complaints and in exceptional cases, also provides for direct appeal to the Chairperson of the Audit Committee. The Whistle Blower Policy established by the Board is available on the Company's website at <http://www.amararaja.co.in/> policies/ARBL-Whistle-Blower-Policy.pdf Deposits from Public The Company has not accepted any deposits from the public falling within the ambit of Section 73 of the Companies Act, 2013 and The Companies (Acceptance of Deposit) Rules, 2014 during the year under review. There are no outstanding deposits as on March 31, 2016. Particulars of Remuneration The information required pursuant to Section 197(12) of the Act read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed hereto as Annexure VI. A statement showing names and other particulars of the employees drawing remuneration in excess of the limits prescribed under Rule 5(2) of the said rules is also annexed to the Directors' Report. However, as per the provisions of Section 136(1) of Companies Act, 2013, the annual report is being sent to all the members excluding the aforesaid statement. The statement is available for inspection at the registered office of the Company during working hours. Conservation of energy, Technology Absorption and Foreign Exchange Earnings and Outgo The information on conservation of energy, technology absorption, foreign exchange earnings and outgo as per Section 134(3)(m) of the Act read with Rule 8 of The Companies (Accounts) Rules 2014, are annexed hereto as Annexure VII and forms part of this annual report. Regulatory Orders There are no significant material orders passed by the Regulators/Courts which would impact the going concern status of the Company and its future operations. Awards and Recognitions Your Company continues to get accolades and awards from its customers and other prestigious domestic/international forums. Some of the awards and recognitions your Company received during the year under review: • Gold award for "Best Infra equipment supplier of the Year 2015-16" from Indus Towers Limited. • "Valued Partner - Service Excellence" award for the year 2015 from Bharti Infratel Limited. • Received SHIELD award on OVERALL EXCELLENCE from Maruti Suzuki Limited in the field of QCDM(Quality, Cost, Delivery and Management) parameters. • Amaron® received the prestigious "Superbrand" award from the Super Brand Council in the Automotive Battery category. • Amaron® adjudged as India's Most trusted Brand 2015 in the battery segment by the India's Most Trusted Brand Awards Council. • Received Warehouse Excellence Gold Award from CII-Institute of Logistics. • Good Performance Award- Private Manufacturing Large category for the year 2015 from the The Institute of Cost Accountants of India. Investor Education and Protection Fund (IEPF) In terms of Section 205A read with Section 205C of the Companies Act, 1956 and the corresponding provision under the Companies Act 2013, an amount of Rs. 4,17,520/- being unclaimed dividend pertaining to the financial year 2007-08 was transferred to IEPF on October 7, 2015. Health, Safety and Environmental protection (HSE) The Company has complied with all applicable environmental and labour laws. The Company continues to be certified under ISO-14001 and OHSAS 18001-2007 for its environment management systems and occupational health and safety management systems respectively. Prevention of Sexual Harassment at workplace policy The company has in place prevention of Sexual Harassment Policy in line with the requirements of the Sexual Harassment of women at the workplace (Prevention, Prohibition and Redressal) Act, 2013. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All women employees are covered under this policy. During the year 2015-16, no complaints were received by the ICC. Industrial relations During the year under review, industrial relations remained cordial and stable. The directors wish to place on record their sincere appreciation for the co-operation received from employees at all levels. Acknowledgement The Board of Directors takes this opportunity to place on record their appreciation for the unstinted co-operation, commitment and dedication of all the employees of the Company, and the support extended by the channel partners, customers, vendors, business associates, banks, government authorities and all concerned without which it would not have been possible to achieve all round growth of the Company. Your Directors also take this opportunity to thank the joint venture partner Johnson Controls Inc. for their valuable assistance and support. The Directors are thankful to the shareholders for their continued patronage. On behalf of the Board Dr. Ramachandra N Galla Chairman Place: Hanover, German Date: May 24, 2016 |