DIRECTORS' REPORT To The Members, HMT Limited Bangalore Dear Members, The Board of Directors have pleasure in presenting the 62nd Annual Report on the Business & Operations of your Company and Annual Financial Statements of the Company for the financial year 2014-15 along with the Auditors' Report thereon. The Comments of the Comptroller & Auditor General of India are attached to this Report. BUSINESS SCENARIO India's economic growth rate in the current financial year has recovered to 7.3 per cent, against 6.9 percent of the previous year. The growth of Gross Value Added (GVA) at basic prices for agriculture & allied sectors, industrial sector and services sector are estimated at 0.2 per cent, 6.1 per cent and 10.2 per cent respectively in 2014-15 as compared to the corresponding rates of 3.7 per cent, 4.5 per cent and 9.1 per cent respectively in 2013-14. Overall growth in the Index of Industrial Production (IIP) was 4.1 per cent during April 2015 as compared to 3.7 per cent in April 2014. In the year 2014-15, IIP growth was 2.8 per cent as compared to (-) 0.1 per cent in the previous year. Eight core infrastructure industries registered a contraction of 0.4 per cent in April 2015 as compared to growth of 5.7 per cent in April 2014. In the year 2014-15, these sectors grew by 3.6 per cent as compared to 4.2 per cent growth in the previous year. The Growth in gross fixed capital formation (fixed investment) increased from 3 percent to 4.1 percent in 2014-15.Gross fixed capital formation (GFCF) as a percentage of GDP declined from 29.7 per cent in 2013-14 to 28.07 percent in 2014-15 Agriculture is the primary source of livelihood for about 58 per cent of India's population. Agriculture and its allied services grew at a CAGR of 2.8 per cent from 2007 to 2014. Rainfall has been excess/normal in 24 sub divisions as compared to 8 during the corresponding period last year accordingly to the advanced estimates; agriculture and allied sector recorded a growth of 3.6 per cent in 2014 and has fallen short of the 4 per cent growth target The Performance of two key sectors Capital Goods and Manufacturing has shown positive trend during financial year 2014-15. The Indian automobile industry showed 8.6 percent growth in sales ending the fiscal year 2015 on a positive note which in turn impacts optimistically on the performance of machine tool industry. Operating Results On the Company's main business portfolio of Tractors, the market indicators reveal that the industry recorded de-growth of 12% in terms of quantity. Your Company had to face severe pressure on performance during the year due to lack of working capital. Your Company recorded a Production of Rs. 53.66Crore (1078 Nos. of Tractors) as against Rs. 74.11 Crore (1546 Nos. of Tractors), in the previous year, and Sales of Rs. 60.28 Crore (1127 Nos. of Tractors) compared to Rs.78.45 Crore (1488 Nos. of Tractors) in the previous year. HMT Group along with its Subsidiaries achieved an aggregate Production of Rs. 252 Crore and Sales of Rs.277 Crore for the year 2014-15. Future Outlook Tractor Industry in India has shown a negative growth trend for the last six months of 2014-15 and has ended with a cumulative negative growth of 12%. No major relief from the current downswing is expected in the next three quarters of this financial year. Tractor demand will depend upon monsoon pattern and Govt. of India's Minimum Support Price (MSP) for farm products. Growth outlook stands at 8 - 9 % CAGR for Tractor Industry over the next five years as per Tractor Manufacturers Association (TMA). Tractor sales are expected to grow by 8-9 per cent CAGR, over next five years, with falling replacement cycles, stable farm incomes, and increased focus of the government on agricultural and rural development. Two categories 31 -40 HP and 41 -50 HP sub segments of Tractors continue to constitute bulk of the tractor market mainly driven by larger market, suitability of applications and relatively better affordability of the mix. This mix to remain largely unaffected over the 18-24 month timeframe though improving mechanization and increasing exports from India are likely to aid in enhancing the volume share of sub 30 HP and >51 HP tractors respectively over a longer horizon. Monsoon forecasts suggest that rain fall in central India should be above normal at 105-110%. Rainfall in south and east and north-east India, too, should be normal. There is overwhelming evidence to suggest that monsoon this year will most probably be normal and is hopeful that Tractor sales may pick up only in second half of the year subject to monsoon. Tractor industry may accordingly see a growth phase once again. The other trend that is evident is increased use of tractors in infrastructure and construction sectors which has led to a huge growth in purchase of higher HP tractors. High growth in this segment is expected to continue because of the following: • Replacement demand turning towards higher HP tractors. • Increased usage of tractors for non-agricultural applications across India The Tractor Industry will continue to grow in the year 201516 due to thrust of Govt. on Agriculture and infrastructure. The growth drivers of Tractor Industry such as boost in rural economy, increased focus on agriculture and rural development, credit availability, shorter replacement cycle, several policy initiatives by the Government, etc., are aiding the growth trends. The Tractor Business Group of your Company has already initiated a host of measures towards performance corrections, improvements and further growth. Appointment of new Distributors and Dealers in potential areas/territories, up gradation of the tractor engines for compliance to new emission norms for all models of tractors, entering into MoU's with Banks/Financing Agencies for priority loan sanction/retail financing for the purchase of HMT Tractors, dynamic business strategies, improved collections on account of price revision and incentive scheme etc., which are expected to yield results in the current financial year. The future plans of your Company envisages plant modernization and technology Upgradation & Manpower restructuring which will contribute to better productivity hence the efficiency and give a thrust to the growth trends in the coming years. DIVIDEND & PROVISIONS Owing to the losses incurred during the year, the Directors are unable to recommend any dividend on the paid up equity share capital of the Company. Share Capital The Authorised Share Capital of the Company is Rs. 2100 Crore and Paid up Share Capital is Rs. 1420.35 Crore Fixed Deposits: The Company did not accept any fixed deposits during the year, and as such there was no outstanding Fixed Deposits at the beginning / end of the year. Enterprise Risk Management: Establishment of Risk Management System in terms of Clause 49(VI) of the Listing Agreement and the provisions of the Companies Act, 2013 is under process. Particulars of Employees: There were no employees of the Company who received remuneration in excess of the limits prescribed under Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. SUBSIDIARY COMPANIES HMT Machine Tools Limited The Subsidiary achieved Sales of Rs. 172.15 Crore during the year against Rs. 159.02 Crore in the previous year. Production attained is Rs. 181.50 Crore as against Rs. 155.56 Crore, in the previous year. Net loss reported is Rs. 134.94 Crore during the year 2014-15 against a loss of Rs. 52.66 Cr. in previous year. The Subsidiary has implemented the revival plan proposals and plant up-gradation. The Subsidiary is also pursuing with various agencies for extending the reliefs and concessions sanctioned by the BIFR under the Rehabilitation Scheme. Some of these Parties including the Consortium of Banks have preferred appeals against the reliefs and concessions sanctioned by the BIFR, which is being contested by the Subsidiary. During 2013-14 BRPSE reviewed the progress of Revival Plan Implementation and recognised the need for interim measures to propel the growth of HMT Machine Tools Limited which will augur the momentum. Accordingly recommendation forwarded to the Government was approved and is under implementation. Infusion of Rs. 75 Cr. Working Capital will have a positive effect on the future performance. HMT Watches Limited This Subsidiary could not show significant improvement in performance during the year under review. Major factors affecting the performance of this Subsidiary were paucity of working capital, erosion of trade channel and high cost of borrowings. This Subsidiary could achieve a Sales of Rs. 8.13 Crore including sales through e-portals and Production of Rs. 2.69 Crore during the year under review. The Net Loss for the year stood at Rs. 259.20 Crore. HMT Chinar Watches Limited The performance of this Subsidiary could not be sustained at optimum levels due to working capital constraints for production and as majority of the employees have been separated on VRS leaving about 32 employees at Srinagar and Jammu Units of the Subsidiary. Under these circumstances, the Subsidiary's Sales was limited to X 0.90 Crore during the year with NIL Production for the year. In view of the virtual non operating levels, the Subsidiary incurred a Net loss of Rs. 49.05 Cr. HMT (International) Limited The Subsidiary achieved a turnover of Rs. 33.40 Crore during the year 2014-15 as against Rs. 25.08 Crore recorded in the previous year 2013-14. The Order procurement during the year is Rs. 82.08 Crore as against Rs. 22.23 Crore achieved in the previous year. Continuing the trend of achieving profits, Subsidiary reported Profit Before Tax (PBT) of Rs. 1.66 Crore achieved against Rs. 0.50 Crore reported in previous year. The Subsidiary has maintained its consistent dividend payment record and has recommended a dividend of 20% for the year 2014-15 on its Paid-up equity share capital HMT Bearings Limited During the year under review, the Subsidiary was able to achieve a Sales of Rs. 14.75 Crore, against the Previous Year's Sales of Rs. 14.36 Crore. In terms of Production the Company was able to achieve Rs. 14.20 Crore compared to the Previous Year's Production of Rs. 15.04 Crore. Profit Before Tax registered Rs. (-)17.78 Cr. against Rs. (-)15.98 Cr. reported during 2013-14. ASSOCIATE /JOINT VENTURE COMPANY SUDMO-HMT Process Engineers (India) Limited This Joint Venture Company could not transact any business during the year under review. For the financial year 2014-15, this Company showed a Profit after tax of Rs. 1.06 Lakhs only on account of the interest income of Rs. 3.71 Lakhs, on the fixed deposits kept with the Banks. Gujarat State Machine Tools Corporation Ltd This Joint Venture Company between HMT and GIIC Ltd has discontinued its operations since long. It is therefore proposed to divest from this Associate Company jointly with the JV Partner. The process of disinvestment from this Company, is under consideration by the Company in consultation with the JV Partner. CONSOLIDATED FINANCIAL STATEMENTS As required under the Listing Agreement, Consolidated Financial Statements of the Company along with that of the Subsidiaries for the financial year 2014-15, conforming to the applicable Accounting Standards, are attached to this Report along with the Auditors' Report on the same. The financial information of these subsidiary Companies have been furnished as part of the Consolidated Balance Sheet of the Company. The annual accounts and other detailed information of each of the Subsidiary companies will be available for inspection at the Registered Office of the Company/copy provided on requested by any member. HUMAN RESOURCE The employee strength of the Company as on March 31, 2015, stood at 4770 Nos comprising of various categories of employees in manufacturing plants and other offices in technical and other professional areas. The number of employees on the rolls of the Company as on March 31, 2015 in SC/ST, Ex-servicemen, Physically Handicapped and Women Employee Categories etc. is detailed below:detailed below: Scheduled Castes 317 Scheduled Tribes 46 Other Backward Classes 105 Ex-Servicemen 5 Persons with Disabilities 15 Women employees 43 Minorities 216 INDUSTRIAL RELATIONS The overall Industrial Relations situation in the Company during the year remained cordial. IMPLEMENTATION OF OFFICIAL LANGUAGE The efforts towards implementation of Official Language Act, Rules & Policy as per the directives of the Government in the Company is continuous. The Official Language Implementation Committee have been constituted in all the Units of the Company and the Subsidiaries, including the Corporate Office at Bangalore to monitor implementation of Official Language Act, Rules, Policy, etc. which meets at regular intervals in every quarter. In order to propagate the usage of Hindi as Official Language, "HINDI DIWAS/HINDI FORTNIGHT" was observed during the month of September, 2014. Various competitions in Hindi such as Hindi Story Writing, Hindi News Paper Reading, Hindi Quiz Writing, Hindi Conversation, Hindi Antyakshari, etc., were organized and participants were awarded prizes. A workshop was organised during the above period. The Hindi Magazines/Newspapers are being procured to propagate the usage of Hindi among employees. The concerned Officials of the Company regularly take part in the meetings of the Town Official Language Implementation Committee. Reporting on progress of Hindi proliferation is being done periodically on Rajabhasha Vibhag portal. VIGILANCE ACTIVITIES The Chief Vigilance Officer appointed by the Government of India heads the Corporate Vigilance Department of the Company. Presently the post of Chief Vigilance Officer is vacant and General Manager (HR) of HMT MTL is holding the additional charge of CVO as per the directive of Ministry of Heavy Industry. Chief Vigilance Officer is assisted at Unit level by exclusively appointed Vigilance Officers. The Corporate Vigilance Department carries out vigilance functions in the Holding Company as well as its Subsidiary Companies. The vigilance functions in the manufacturing Units and Marketing Offices are looked after by Vigilance Officers, under the guidance of Chief Vigilance Officer. All the Unit Vigilance Officers send their monthly Vigilance / Inspection Reports and Surprise Inspection reports to CVO. The reports so received are scrutinized at CVO Office for further action. Unit Vigilance Officers also verify Annual Property Returns submitted by the Unit level Officers. Apart from regular inspections by Unit Vigilance Officers, CVO conducts CTE type surprise and regular inspections of high value purchase/contracts and systems by visiting various Subsidiaries and Units. Violations of rules and procedures observed during the inspection of files by CVO/Unit VOs were recorded and depending upon the seriousness of the deviations, further actions are taken. Unit Vigilance Officers are advised to discuss deviations noticed by them during their inspection, in the quarterly Vigilance Workshop and advice the concerned officers that the violations of rules and procedures pointed out by the Vigilance Department should not be repeated and should conform to CVC and Company Purchase Manual guidelines. Emphasis was laid on preventive vigilance by striving towards strict adherence to all rules and procedures and all norms of transparency in tendering process. Based on CVC's guidelines for 'Improving vigilance administration by leveraging technology and increasing transparency through effective use of website' necessary directions were given by CVO for implementation of the same. Some of the systems put in place by the Company are: 1. Hosting of all open tenders and high value Limited Tenders on www.tenders.gov.in <http://www.tenders.gov.in> (Website of GOI). 2. Publishing details regarding all purchase orders / contracts concluded in any month and above the threshold value (presently Rs. 5.00 lakhs). This is generally followed by all manufacturing Units. 3. Application form for vendor registration along with list of items required by different Units of HMT Limited and Subsidiaries are made available on Company Website so as to enable the interested vendors to download the application form and submit the same to the Unit of their choice. 4. All Managing Directors and Unit Chiefs have been directed for switching over to e- Procurement process for all purchases of value Rs. 2 lakhs and above and adopt e-payment mode for making all payments including supplier payments. This is under implementation. 5. Quarterly vigilance workshops were organized at all manufacturing units to enhance the level of vigilance awareness among the employees and other stakeholders. Vigilance Awareness Week 2014 was observed in all Units and Offices of HMT Limited and Subsidiary Companies as per the guidelines of CVC. CORPORATE GOVERNANCE Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a Report on the Corporate Governance is annexed as part of this Report along with the Compliance Certificate from the Auditors. A Report on Management Discussion and Analysis is also appended to this Report separately. Further, a declaration by the Chairman & Managing Director for having obtained affirmation of compliance of the Code of Conduct by the Board Member (s) and Senior Management for the year ended March 31, 2015, is also appended. The Audit Committee could not be reconstituted as per Cl. 49 of the Listing Agreement in the absence of Independent Directors to be appointed by the Government on the Board. The Register of Members and Share Transfer Records both in respect of the shares held in physical and depository form are maintained by Karvy Computershare Private Limited, the Registrars & Share Transfer Agents of the Company. INFORMATION REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Information on conservation of energy, technology absorption and foreign exchange earnings and outgo. (as required under the section 134(3)(m) of companies Act. 2013 read with rules 8 of the companies (Accounts) Rules, 2014) are annexed to this Report. DIRECTORS RESPONSIBILITY STATEMENT To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013: V that in the preparation of the annual financial statements for the year ended 31.03.2015, the applicable accounting standards has been followed along with proper explanation relating to material departures; S that such accounting policies have been selected and applied consistently and judgments and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for the year ended on that date; V that 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; V that the annual financial statements have been prepared on a going concern basis; V that proper internal financial controls were in place and are adequate and were operating effectively; S that proper systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively; v Since the overall performance of the Company is evaluated against the annual MoU targets set by the Department of Public Enterprises (DPE), no specific criteria is laid down for the evaluation of Board and of its Committees and the individual Directors. Since your Company being a Central Public Sector Enterprise (CPSE), the personnel policies and guidelines issued by DPE are being adopted in line with other CPSEs. Accordingly, your Company has not formulated any separate policy in respect of appointment or evaluation of senior management and key managerial personnel. Extract of Annual Return In terms of Section 92(3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, an extract of the Annual Return in the prescribed form is placed as Annexure - AUDITORS M/s Dokaniya S.Kumar & Co., Howrah , were appointed as Statutory Auditors of the Company for the year 2014-15 by the Comptroller & Auditor General of India. Three firms of Chartered Accountants were also appointed as Branch Auditors for the other Units/Divisions of the Company. Replies to the observations by the Statutory Auditors in their Report are given by way of an addendum to this Report. Secretarial Audit Report In terms of Section 204 of the Companies Act 2013 and Rules made thereunder, Mr. D. Venkateswaralu, Practicing Company Secretary has been appointed as Secretarial Auditor of the Company. The report of the Secretarial Auditor is enclosed as Annexure to this report. along with management's response there to. DIRECTORS Vide Presidential Order No.5(8)/2010-P.E.X dated February 3, 2015 issued by the Department of Heavy Industry, Ministry of Heavy Industries and Public Enterprises, Shri Vishvajit Sahay has been appointed as the Part-time Official Director of the Company with immediate effect, until further orders vice Shri. Rajesh Kumar Singh. Shri Vishvajit Sahay is proposed for appointment as Director in terms of Article 67(4) of the Article of Association of the Company read with Section 160 of the Companies Act, 2013 in the ensuing Annual General Meeting for which a notice has been received from the Member. The Board placed on record its appreciation for the valuable services rendered by Shri R.K.Singh whose term of Office ended during the year. Shri P.Sivarami Reddy, Director (Operations) retires by rotation at the ensuing Annual General Meeting and being eligible, offeres himself for re-appointment. ACKNOWLEDGEMENTS Your Directors are thankful to the various Departments and Ministries in the Government of India, particularly the Department of Heavy Industry, Ministry of Corporate Affairs, Comptroller and Auditor General of India, Principal Director-Commercial Audit, Statutory and Branch Auditors, various State Governments, Foreign Collaborators, the Subsidiary Companies, Suppliers, Reserve Bank of India, the Consortium of Banks lead by UCO Bank and the valued Customers of the Company both in India and abroad for their continued co-operation and patronage. Your Directors would also like to take this opportunity to express their appreciation for the contributions made by the Company's employees and look forward to their continued services in pursuit of building a world class Indian Company. For and on behalf of the Board of Directors ( S. Girish Kumar) Chairman & Managing Director Place: Bangalore Date: 10-08-2015 |