DIRECTORS' REPORT DEAR SHAREHOLDER, Your directors have pleasure in presenting the Thirty-fifth Annual Report, together with the audited financial statements of your company for the year ended March 31, 2016. Annual Performance Your company posted a total revenue of Rs. 4,462 crore for the financial year 2015-16, against last year's Rs. 4,719 crore, a decrease of 5.4%. The shortfall in revenue was largely due to challenging market conditions and the absence of big-sized orders predominantly from the domestic market. In spite of efforts from the government to revive the investment cycle, surplus capacities and the low commodity prices have not been conducive for it. The core sectors such as power, steel, cement, oil & gas, etc., on which the capital goods industry depend, continue to remain stagnant. Investments in these sectors continue to languish. Thermax's Energy segment contributed 82.6% of the Group's operating revenue while the Environment segment accounted for the remaining 17.4%, same as last year. Despite adverse market conditions, your company continued to invest in research and innovation initiatives. During the year, the revenue from exports, including deemed exports, was Rs. 1,446 crore against Rs. 1,092 crore in the previous year. This growth was primarily attributable to a large project order invoiced during the year. Profit before tax at Rs. 437 crore was 9.8% of the total revenue, compared to Rs. 497 crore, at 10.5% in the previous year. Profit after tax stood at Rs. 306 crore compared to Rs. 336 crore in the previous year. Earnings per share (EPS) were at Rs. 25.64 (Rs. 28.19 in FY 2014-15). Order booking for the year was Rs. 3,701 crore against Rs. 3,951 crore last year, registering a decrease of 6.3%. The drop is mainly on account of lower orders in international markets. Your company completed the year with an order backlog of Rs. 3,747 crore as against Rs. 4,396 crore in the previous year. Dividend The directors have recommended a dividend of Rs. 6/-(300%) per equity share of the face value Rs. 2/- each. The dividend, if approved by the shareholders, will translate in a payout of Rs. 86 crore, including dividend distribution tax of Rs. 15 crore. Share Capital The paid-up equity share capital of the company was Rs. 23.83 crore as on March 31, 2016. There was no public, rights, preferential or bonus issue during the year. The company has neither issued any shares with differential voting rights, sweat equity shares, nor has it granted any stock options. Subsidiaries Annual accounts of the subsidiary companies and related detailed information are available to the shareholders of the parent company, subsidiary companies and to the statutory authorities. On request, these documents will be made available for inspection at the company's corporate office. The company does not have any 'material subsidiary' whose net worth exceeds 20% of the consolidated net worth of the holding company in the immediately preceding financial year or has generated 20% of the consolidated revenue during the previous financial year. The report on performance of subsidiary companies is included in the section, Management Discussion and Analysis. Information on Newly Incorporated Subsidiaries and Acquisition During the Year The company has set up a step-down subsidiary company in Nigeria (through the Mauritius based wholly-owned subsidiary), named 'Thermax Nigeria Limited' which was incorporated on October 5, 2015. This subsidiary will mainly cater to erection, commissioning and operation & maintenance services for upcoming power projects in Nigeria The company has acquired 33% stake in First Energy Pvt. Ltd., Pune, an alternative energy solution company, pursuant to an agreement entered into in July 2015. The agreement envisages stage-wise acquisition of First Energy over next four to six years. Oorja, the popular brand of First Energy, substitutes fossil fuels by combining a 'micro-gasification' stove and biomass-based pellet fuel. The acquisition is expected to offer Thermax new opportunities in the commercial segment. Management Discussion and Analysis The Management Discussion and Analysis report, highlighting the performance and prospects of the company's energy and environment segments, including details of subsidiaries, information on company's health, safety and environment measures, human resources, risk management and internal controls systems, is attached as Annexure -1 on page no. 28. Corporate Governance Report A detailed Corporate Governance Report in terms of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 which also includes disclosures required as per Sections 134 and 177 of the Companies Act, 2013, is attached as Annexure - 2 on page no. 50. A certificate from the statutory auditors of the company regarding compliance with the conditions of corporate governance as required under Schedule V of the said Listing Regulations is a part of this report. Vigil Mechanism / Whistle Blower Policy The Company has a vigil mechanism named 'Whistle Blower Policy' to deal with instances of fraud and mismanagement, if any. The details of the said policy are provided in the Corporate Governance Report and also posted on the website of the Company. Employee Strength The total number of permanent employees on the rolls of the company as on March 31, 2016 were 3,872 compared to 4,027 employees in the previous year. Wage Agreements During the year, amicable wage settlements were signed with Thermax Kamgar Sanghatana (representing workmen at Chinchwad works) and with the Bharatiya Kamgar Karmachari Mahasangh (representing workmen at Paudh works). Particulars of Employees The information required pursuant to Section 197 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the company, will be provided upon request. In terms of Section 136 of the Act, the Annual Report excluding the aforesaid information is being sent to all the members and others entitled thereto. Any shareholder interested in obtaining such particulars may write to the company secretary at the corporate office of the company. The said information is also available for inspection at the corporate office during working hours up to the date of the Annual General Meeting. Details of Trusts for the Benefit of Employees a) ESOP Trust The company has an ESOP trust which holds 29, 06,250 (2.44%) equity shares of Rs. 2/- each of Thermax. The trust has not made any buying or selling transactions in the secondary market. The company presently does not have any ESOP scheme. b) Employee Welfare Trusts The company has a few Employee Welfare Trusts primarily for providing housing loans / medical / educational benefit / aid to its employees and their families. These trusts presently hold 36,35,190 (3.05%) Equity shares of Rs. 2/- each of the company. None of the trusts had any dealings in the secondary market. Approval of the shareholders is being sought at the ensuing 35th Annual General Meeting in accordance with the provisions of the SEBI (Share Based Employee Benefits) Regulations, 2014 for also extending benefits like imparting training and education to the employees of the company and consequently change in nomenclature of the ESOP trust to 'ESOP and Welfare Trust' to reflect the extended scope of the ESOP scheme and to continue offering benefits / schemes like housing loans / medical / educational benefit / aid to the employees of the company through the Employee Welfare Trusts. The relevant disclosures as required under the SEBI (Share Based Employee Benefits) Regulations, 2014 on Employee Welfare Trusts are available on the company's website: www.thermaxglobal.com Disclosure - Anti Sexual Harassment Policy The company has in place, an Anti-Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. All employees (permanent, contractual, temporary, trainees) are covered under this policy. An Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. The following is a summary of sexual harassment complaints received and disposed of by it during the year 2015-16: • Number of complaints received - Nil • Number of complaints disposed of - NA Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of The Companies (Accounts) Rules, 2014, is annexed as Annexure - 3 on page no. 65 Corporate Social Responsibility Initiatives As a part of its initiatives under 'Corporate Social Responsibility' (CSR), the company has undertaken projects predominantly in the area of education. The projects are largely in accordance with Schedule VII of the Companies Act, 2013. Since 2007, the CSR initiatives are undertaken through Thermax Foundation (earlier known as Thermax Social Initiative Foundation). The details of the CSR committee and CSR policy, are available on the company's website. As per the said policy, the company would continue its CSR initiatives through Thermax Foundation. The Annual Report on CSR activities is annexed as Annexure - 4 on page no. 67. Directors All independent directors of the company have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and the Listing Regulations. The company has formulated a policy on 'Familiarisation programme for independent directors' which is available on the company's website: www.thermaxglobal.com In accordance with the provisions of the Companies Act, 2013 and the company's Articles of Association, M.S. Unnikrishnan retires by rotation at the ensuing 35th Annual General Meeting and being eligible, offers himself for re-appointment as a director. Meetings A calendar of meetings is prepared and circulated in advance to the directors. During the year, five Board meetings were convened and held, the details of which are given in the Corporate Governance Report. Remuneration Policy The Remuneration policy in brief for selection, appointment and remuneration of directors and senior management is given in the Corporate Governance Report. The renumeration policy is available on the company's website: www.thermaxglobal.com Board Evaluation Pursuant to the provisions of the Companies Act, 2013 and Listing Regulations, the Board has carried out an annual evaluation of its own performance. The details of Board evaluation are given in the Corporate Governance Report. DIRECTORS' RESPONSIBILITY STATEMENT In terms of Section 134 (3)(c) of the Companies Act, 2013, your directors, to the best of their knowledge and belief and according to the information and explanations obtained by them in the normal course of their work, state that, in all material respects: a) In the preparation of the annual financial statements for the year ended March 31, 2016, the applicable accounting standards have been followed; b) Appropriate accounting policies have been selected, applied consistently and judgement 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 as at March 31, 2016 and of the profit of the company for the year ended on that date; c) 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; d) The annual financial statements have been prepared on a going concern basis; e) Proper internal financial controls were in place and the financial controls were adequate and operating effectively; and f) Proper systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively. Change in Key Managerial Personnel (KMP) Consequent to the resignation of Gajanan P. Kulkarni as Vice President - Legal & Company Secretary and Compliance Officer, effective January 12, 2016, Amit Atre, has been appointed as the Company Secretary as well as KMP as per the provisions of Section 203 of the Companies Act, 2013 effective January 29, 2016. He has also been designated as the Compliance Officer of the company in terms of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 effective January 12, 2016. Related Party Transactions All related party transactions entered into during the financial year were on an arm's length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the company with promoters, directors, key managerial personnel or other designated persons which may have a potential conflict with the interest of the company at large. All related party transactions are placed before the Audit Committee for approval. Prior omnibus approval of the Audit Committee is obtained on a quarterly basis for the transactions which are of a foreseen and repetitive nature. The transactions entered into pursuant to the omnibus approval so granted and a statement giving details of all related party transactions are placed before the Audit Committee for their approval on a quarterly basis. The company has developed a Related Party Transactions' Manual and Standard Operating Procedures for purpose of identification and monitoring of such transactions The policy on Related Party Transactions as approved by the Board is available on the company's website. None of the directors have any pecuniary relationships or transactions vis-à-vis the company except as disclosed under Sr. No. 2 A of the Corporate Governance Report. Standalone and Consolidated Financial Statements The financial statements for the year ended March 31, 2016 have been prepared as per Schedule III to the Companies Act, 2013. The consolidated financial statements of the group are prepared in compliance with the Accounting Standards and Listing Regulations as prescribed by SEBI. The cash flow for the year 2015-16 is attached to the balance sheet. A separate statement containing the salient features of subsidiaries/ associate companies and joint ventures in the prescribed Form (AOC-1) is also attached. Indian Accounting Standards (lnd AS)-IFRS Converged Standards The Ministry of Corporate Affairs vide notification dated 16th February, 2015 has notified the Companies Indian Accounting Standard) Rules, 2015. Companies having a net worth of Rs. 500 crore or more (as per the standalone financial statements as on 31st March, 2014) are required to comply with Ind AS (Accounting standards converged with the International Financial Reporting Standards - IFRS) in the preparation of their financial statements for accounting periods beginning on or after 1st April, 2016, with the comparatives for the periods ending 31st March, 2016, or thereafter. In pursuance of the above notification, the company, its domestic subsidiaries and joint ventures will adopt Ind AS with effect from 1st April, 2016. The implementation of Ind AS is a major change process for which the company has taken preparatory steps and dedicated considerable resources. The impact of the change on adoption of Ind AS on the company's reported reserves and surplus and on the net profit for the relevant periods is being assessed. In particular, the current accounting policies for revenue recognition, leasing, investments, income tax, consolidation and proposed dividends differ for Ind AS. This list of differences identified by the company is indicative and not an exhaustive one. Significant and Material Orders Passed by the Regulators or Courts During the year, the Commissioner of Central Excise, has passed orders raising demands of excise duty on bought out items [Refer contingent liabilities note no. 28A (i) (a) to the Financial Statements] and based on an independent legal advice, the company is confident that the issue will be ultimately decided in its favour. There are no significant material orders passed by the regulators / courts which would impact the going concern status of the company. Public Deposits The company had no unpaid/ unclaimed deposit(s) as on March 31, 2016. The company has not accepted any fixed deposits during the year. Particulars of Loans, Guarantees or Investments Details of loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the financial statements. Material Changes and Commitments There have been no material changes and commitments, affecting the financial position of the company, which have occurred between the end of the financial year and the date of this Report. Committees of the Board Risk Management Committee Your company had constituted a Risk Management Committee in terms of Clause 49 of the erstwhile Listing Agreement. However, as per Regulation 21 of the Listing Regulations, the Risk Management Committee is not a mandatory committee for your company. The company also has an existing Risk Council represented by business and function heads to identify and mitigate risks. In view of this, the said committee has been dissolved by the Board at its meeting held on May 25, 2016. However, the Audit Committee will review the risk identification and mitigation process of the company. Borrowing & Investments Committee The company had constituted a Borrowing & Investments Committee, to exercise certain powers delegated by the Board for administrative convenience. The provisions of Section 186 of the Companies Act, 2013, necessitated for the board resolution while granting loan / guarantee / security. This has invalidated the purpose of constitution of the said committee as well as the delegation of powers by the Board. In view of this, the Borrowing & Investments Committee has been dissolved by the Board at its meeting held on May 25, 2016. The details of all committees and their terms of reference are set out in the Corporate Governance Report. Auditors Statutory Auditors M/s. B. K. Khare & Co., Chartered Accountants, retire as statutory auditors at the ensuing Annual General Meeting (AGM) and are eligible for re-appointment. As required under the provisions of Section 139(1) of the Companies Act, 2013, the Company has obtained a written consent from them to the effect that their re-appointment, if made, would be in conformity with the limits specified in the said section. The appointment of M/s. SRBC & Co. LLP, Chartered Accountants, as Joint Auditors for a period of five years commencing from the Thirty-fourth AGM until the conclusion of the Thirty-ninth AGM, will require ratification by the shareholders at the ensuing AGM. A resolution for such ratification is proposed to be passed at the ensuing AGM. As required under the Listing Regulations, the auditors have confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India. Cost Auditors In terms of Section 148 of the Companies Act, 2013 read with The Companies (Cost Records and Audit) Amendment Rules, 2014, M/s. Dhananjay V. Joshi & Associates, Cost Accountants, Pune, have been appointed as the Cost Auditors of the company for FY 2016-17. Secretarial Audit In accordance with the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the company has appointed M/s. SVD & Associates, Company Secretaries, Pune, to undertake the Secretarial Audit of the company for FY 2016-17. The Secretarial Audit Report for FY 2016-17 is annexed as Annexure - 5 on page no. 70. The observations of the secretarial auditors in their report are self-explanatory and therefore, the directors do not have any further comments to offer on the same. Extract of Annual Return The details forming part of the extract of the annual return in Form No. MGT-9 is annexed herewith as Annexure - 6on page no. 74 Awards and Recognition Your company has received the following awards during the year: • Thermax received the Platinum Greentech Safety Award 2015 and Safety Innovation Award 2015 for innovative health, safety and environment (HSE) practices at its manufacturing facility. • Thermax Foundation won the 1st prize in the manufacturing category for its outstanding CSR initiatives, from the Amity Global Business School, Pune. • Chiller - heater from the company's Cooling business won the first prize in the 'Energy saving' category at ACREX 2016, a leading industry event for air conditioning and refrigeration. The high efficiency system simultaneously provides an output of 1°C chilled water and 90°C hot water. Acknowledgements Your directors place on record their appreciation for the continued support extended during the year by the company's customers, business associates, suppliers, partners, bankers, investors, government authorities and joint venture partners. They also place on record their appreciation for the dedication and contributions made by all the employees for their commitment, hard work and support. Your directors would also like to thank all the shareholders for continuing to repose faith in the company and its future. For and on behalf of the Board Meher Pudumjee Chairperson Place : Pune date : May 25, 2016 |