DIRECTORS' REPORT Dear Members, Your Directors have the pleasure in presenting this Thirty Second Directors' Report together with the audited Financial Statements of the Company for the financial year ended March 31, 2015 AUTOMOTIVE INDUSTRY The Indian Automotive industry's growth is directly linked to the growth of economic activity of our country. Indian economy after 2 subdued years rebound and registered a growth of approximately 5% in FY 201415. This was mainly on account revival of the construction and mining activity, reduced interest cost and lower fuel prices. Moreover, increased confidence in the new Government contributed to the economic turnaround in India. Compared to a decline of 9% in FY 2013-14, the auto industry bounced back by registering an overall growth of 8% in FY 2014 - 15. Within the auto industry, the commercial vehicle segment declined by approximately 1.3% mainly on account of a sharp decline in the Light Commercial Vehicles (LCV) segment. However, the Medium & Heavy Commercial Vehicles (MHCV) segment, where the Company enjoys a dominant position, grew by an impressive 17% compared to a massive decline of 25% in the FY 2013-14. This phenomenon is expected to continue in the future. Taking forward the leadership position in the MHCV clutch segment, the Company's Original Equipment Manufacturers (OEM) segment grew by 45% compared to the industry growth of 17%. The Company expanded its OEM customer base by starting supplies of its LIPE brand clutches to renowned vehicle manufacturers like MAN India and Mahindra & Mahindra. The Independent Aftermarket segment grew by 38% and the international business grew by 17%. Thus, an overall growth of 39% was registered in the year under review compared to the previous year. With the Company's dominant presence in both OEM and Aftermarket segments, the Company is well placed to deal with the cyclical vagaries of the industry. DIVIDEND During the financial year 2014-15, interim dividend at 15% (Rs. 1.50/- per Equity Share of Rs. 10/- each) was declared by the Board of Directors and was paid to the shareholders. Your Directors are pleased to recommend for the approval of the shareholders the Final Dividend for the financial year 2014-15 at 15% (Rs. 1.50/- per Equity Share of Rs. 10/- each) on equity shares for the year ended March 31, 2015. Accordingly, the dividend payout for the financial year 2014-15 will aggregate to 30% from 26.50% for the financial year 2013-14, subject to the approval of shareholders at the ensuing annual general meeting of the Company. The aggregate Dividend distribution would result in cash outflow of Rs. 9.61 crore (including Dividend Distribution Tax). SHARE CAPITAL During the financial year 2014-15, the Company issued 41,311 Equity Shares of face value Rs. 10/- each under Setco Automotive Limited Employees Stock Option Scheme, 2010, thereby increasing the paid-up Share Capital to Rs. 26,71,93,350/-. FIXED DEPOSITS Your Company has not accepted any fixed deposits during the year and as such no amount of interest and principal fixed deposit was outstanding as on the balance sheet date. MANAGEMENT DISCUSSION AND ANALYSIS REPORT Your Directors have analyzed Company's operations, state of affairs and financials in detail in Management Discussion and Analysis in a separate section forming part of this Annual Report. Material changes and commitments, if any, affecting the financial position of the Company between the end of the year under review and the date of this Report are also mentioned therein. SUBSIDIARIES During the year under review, Lava Cast Private Limited, a joint venture between the Company and Lingotes Especiales S.A. became a subsidiary of the Company. Implementation of the project is in progress as per schedule. Company's overseas subsidiaries have performed well during the year under review despite continued slowdown, elaborated in detail under Management Discussion & Analysis Report. A report on the performance and financial position of each of the subsidiaries, associates and joint venture companies in the prescribed format AOC-1 is provided as Annexure 1 to the Directors' Report. The Policy for determining material subsidiaries as approved may be accessed on the Company's website at the link <http://www.setcoauto.com/statutory-information>. In accordance with Section 136 of the Companies Act, 2013, the audited financial statements, including the consolidated financial statements and related information of the Company and audited accounts of each of the subsidiaries of the Company are available on the website of the Company www.setcoauto.com These documents shall also be available for inspection at the Registered Office of the Company between 11.00 a.m. to 1.00 p.m. on all working days except Tuesdays, up to and including the date of the Meeting. BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL Changes in the Board At the Annual General Meeting held on September 9, 2015, the members approved the re-appointments of Mr. Harish Sheth as the Chairman and Managing Director, Mr Udit Sheth and Mr Shvetal Vakil as Executive Directors. At the same Meeting, the members also approved the appointments of Mr Arun Arora, Mr Ashok Kumar Jha, Mr Bhalchandra Naik, Mr Pratap Merchant and Mrs. Suhasini Sathe as Independent Directors. Mr. Harshal Shah, Non-Executive Director of the Company resigned from the Board effective from November 11, 2014. During his tenure on the Board, his vast and rich experience was very useful in formulating Company's strategies. The Board places on record its deep appreciation and gratitude for his guidance and contribution to the Company. Mrs. Urja Shah was appointed as an Additional Director with effect from November 11, 2014 in pursuance of Sections 196 and 197 of the Companies Act, 2013 ['the Act'), subject to the approval of the members. In accordance with Section 161 of the Companies Act, 2013 and the Articles of Association of the Company, Mrs. Urja Shah holds office up to the date of the forthcoming Annual General Meeting of the Company. Resolution for appointment of Mrs. Urja Shah as Executive Director for the term of 3 years with effect from November 11, 2014 is placed in the Notice for the ensuing Annual General Meeting for consideration / approval of the members. Your Directors recommend her appointment and remuneration as set out in the Notice. Mr. Udit Sheth has been re-designated by the Board of Directors of the Company as the Joint Managing Director of the Company with effect from July 15, 2015 subject to the approval of the shareholders of the Company. Resolution for the same is placed in the Notice for the ensuing Annual General Meeting for consideration / approval of the members. Your Directors recommend re-designation of Mr. Udit Sheth as the Joint Managing Director of the Company. Re-appointment In terms of the provisions of the Companies Act, 2013 and the Articles of Association of the Company, Mr. Shvetal Vakil, Executive Director of the Company retires by rotation as Executive Director at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. Your directors recommend reappointment of Mr. Shvetal Vakil as Executive Director of the Company. A resolution to the effect is placed in the Notice for the ensuing Annual General Meeting for consideration / approval of the members. The information on the particulars of Directors seeking appointment / re-appointment in terms of provisions of Clause 49 of the Listing Agreement of the Stock Exchange is provided in Report on Corporate Governance annexed to this report. The disclosure in pursuance of Schedule V to the Companies Act, 2013 and Clause 49 of the Listing Agreement pertaining to the remuneration, incentives etc. to the Directors is given in the Corporate Governance Report. The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence as prescribed both under the Companies Act, 2013 and Clause 49 of the Listing Agreement with the Stock Exchanges. The Board has carried out an evaluation of its own performance, the directors individually as well as the evaluation of the working of its Committees. The evaluation process and criteria has been explained in the Corporate Governance Report. The details of programs for familiarisation of Independent Directors with the Company, their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates, business model of the Company and related matters are put up on the website of the Company at the link <http://www.setcoauto.com/statutory-information>. The policy of the Company on directors' appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of Section 178 of the Companies Act, 2013 and Clause 49 of the Listing Agreement adopted by the Board is appended as Annexure 2 to the Directors' Report. We affirm that the remuneration paid to the directors is as per the terms laid out in the Remuneration Policy of the Company. AUDITORS Statutory Auditors M/s. Manesh Mehta & Associates, Chartered Accountants, the Statutory Auditors of the Company hold office from the conclusion of the 31st Annual General Meeting till the conclusion of the 34th Annual General Meeting, subject to ratification of their appointment by the members at the Annual General Meetings. Your directors recommend ratification of appointment of M/s. Manesh Mehta & Associates, Chartered Accountants as Statutory Auditors of the Company from the conclusion of the 32nd Annual General Meeting until the conclusion of the 33rd Annual General Meeting of the Company pursuant to Section 139 of the Companies Act, 2013 and the rules made thereunder. A resolution to the effect is placed for your consideration and approval in the Notice for the ensuing Annual General Meeting. They have confirmed their eligibility to the effect that the ratification of their appointment, if made, would be within the prescribed limits under the Act and that they are not disqualified for re-appointment. Directors' comments on Auditors Qualification in Consolidated Auditors Report: The Auditors have made qualification in their Report for the Consolidated Accounts on having not ascertained and eliminated the unrealized profit element in the stocks lying with the subsidiaries out of inter-company transactions, in terms of the Accounting Standard-21, "Consolidated Financial Statements". In view of the accounting method followed at the subsidiaries, it was very difficult / not possible to segregate the stock from different sources and work out its valuation. However, the steps are being taken to modify the accounting software to enable the extraction of the relevant information. This will enable the subsidiaries to provide information on unrealized profits in the stocks received from the Company. Internal Financial Controls The Company has in place effective internal financial controls with reference to the preparation of Financial Statements. The scope of the Company's internal audit team includes conductings periodic audits, checks and laying down controls to prevent, detect and correct any irregularities in the operations of the Company. The Company has in place effective internal financial controls with reference to the Financial Statements. The Company's internal audit team conducts periodic audits, checks and has laid down controls to prevent, detect and correct any irregularities in the operations of the Company. Secretarial Auditor The Board has appointed M/s. P. P. Shah & Co., Practicing Company Secretaries, to conduct Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report for the financial year ended March 31, 2015 is annexed herewith marked as Annexure 3 to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to Section 134(5) of the Companies Act 2013, your Directors state that: (a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with no material departures; (b) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates 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, 2015 and of the profit of the Company for the year ended on that date; (c) the Directors have taken proper and sufficient care 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 Directors have prepared the annual accounts on a 'going concern' basis; (e) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and (f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively CORPORATE GOVERNANCE A report on Corporate Governance along with a certificate from M/s. P P Shah & Co., Practicing Company Secretaries regarding the compliance with provisions of Corporate Governance as also the Management Discussion and Analysis Report as stipulated under Clause 49 of the Listing Agreement is annexed to this Report. EMPLOYEE STOCK OPTION SCHEME (ESOS) During the year, the Nomination and Remuneration (Compensation) Committee allotted 41,311 equity shares of Rs.10/- each of your Company on exercise of stock options by the employees. The details of shares issued to Directors under the Scheme are provided in the Corporate Governance Report attached herewith. The disclosure, under Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Regulations, 2015 ('SEBI Regulations') and Companies Act, 2013 is set out in Annexure 4 to this Report. The Company confirms that no options were granted to key managerial personnel during the year under review and that no employees have been issued share options during the year equal to or exceeding 1% of the issued capital of the Company at the time of the grant. A certificate from the Statutory Auditors of the Company certifying that the Setco Automotive Limited Employee Stock Option Scheme, 2010 has been implemented in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines 1999, as also the resolution passed by the members would be placed before shareholders at the Annual General Meeting for inspection of the Members. Setco Employee Stock Option Scheme, 2015 The Members of the Company at the Extra-ordinary General Meeting held on June 5, 2015 have approved the Setco Employee Stock Option Scheme, 2015 for issue and allotment of not more than 5,00,000 equity shares under the Scheme to senior management staff and such equity shares shall rank pari-passu in all respects with the then existing equity shares of the Company. The members have also approved extension of such Scheme to the employees of holding company and subsidiary companies of the Company. CORPORATE SOCIAL RESPONSIBILITY (CSR) The Corporate Social Responsibility Committee (CSR Committee) formulated and recommended to the Board, the Corporate Social Responsibility Policy (CSR Policy) of the Company indicating therein the CSR activities to be undertaken by the Company. The CSR Policy has been approved by the Board of Directors. The CSR Policy may be accessed on the Company's website at the link <http://www.setcoauto.com/> statutory-information. During the year under review, the Company has spent Rs. 61.15 lac on CSR activities. The Annual Report on CSR activities is given at Annexure 5 hereto. Even before the statutory provisions in respect of mandatory CSR expenditure by the companies were enacted, your company has aimed to contribute 5% of its annual net profits or Rs.50 lacs, whichever is higher to CSR activities, demonstrating a sense of responsibility towards society. Our CSR initiatives are focused towards preventing malnutrition, improving pre-school education standards and empowering women to become economically more independent and confident. Malnutrition ratio in the areas covered by the Anganwadis has fallen to less than 15% as compared to state level average of more than 40%. Today, your company has built and upgraded 12 Anganwadis covering around 1200 children below 6 years and around 250 nursing & expecting mothers from economically weaker sections of the society. RISK MANAGEMENT The Company has framed the risk management policy and has identified therein the elements of risk and the measures to minimise and mitigate the major risks. Adequate risk management framework capable of addressing the risks is in place. CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES All contracts / arrangements / transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis and that the provisions of Section 188 of the Companies Act, 2013 were not attracted. Thus, disclosure in Form AOC 2 is not required. During the year, the Company had not entered into any contract / arrangement / transaction with related parties which could be considered material related party transaction under the provisions of the Companies Act, 2013 or the Listing Agreement. The Policy on materiality of related party transactions and dealing with related party transactions may be accessed on the Company's website at the link <http://www.setcoauto.com/statutory-information>. The details of related party transactions are given in Note 29 to the financial statements. PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES In terms of the provisions of Section 197(12) of the Companies Act, 2013 (the Act) read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Mr. Harish Sheth, Chairman and Managing Director, Mr Udit Sheth, Joint Managing Director and Mr. Shvetal Vakil, Executive Directors draw remuneration in excess of the limits set out in the said rules. The details of remuneration paid to them is detailed in the Corporate Governance Report. The information required pursuant to Section 197 of the Act read with Rule 5(1)(i) of the Companies (Appointment and Remuneration) Rules, 2014 in respect of ratio of remuneration of each director to the median remuneration of the employees of the Company for the year under review will be made available for inspection at the Registered Office of the Company during the working hours of the Company for a period of 21 days before the date of the Annual General Meeting of the Company pursuant to Section 136 of the Companies Act, 2013 and any member interested in obtaining such information may write to the Company and the same will be furnished on request. DISCLOSURES: CSR Committee The CSR Committee of the Board of Directors comprises of Mr. Udit Sheth, Joint Managing Director (Chairman), Mrs. Urja Shah, Additional Director, Mrs. Suhasini Sathe, Independent Director and Mr. Arun Arora, Independent Director. Audit Committee The Audit Committee comprises of Independent Directors namely Mr. B. L. Naik, (Chairman), Mr. Ashok Kumar Jha and Mr. Arun Arora. All the recommendations made by the Audit Committee were accepted by the Board. Vigil Mechanism The Vigil Mechanism of the Company, also incorporates a whistle blower policy in terms of the Listing Agreement. The Policy on vigil mechanism and whistle blower policy may be accessed on the Company's website at the link <http://www.setcoauto.com/statutory-information>. I think we have to mention whether any complaints / matters were referred under this and final outcome. Is it right? Meetings of the Board During the year, four meetings of the Board of Directors were held, the details of which are given the report on Corporate Governance. Particulars of Loans, Guarantees or Investments Particulars of loans given, investments made, guarantees given and securities provided are provided in the notes to the standalone financial statement. Extract of Annual Return Extract of Annual Return of the Company is annexed herewith as Annexure 6 to this Report. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO: A. Conservation of Energy: The operations of the Company are not energy - intensive. However, the Company takes necessary steps wherever applicable, to conserve energy. To this extent, employees and operators are regularly educated about saving energy. B. Technology Absorption: The Company's product i.e. clutches for commercial vehicles are manufactured under the proprietary technology and heritage 'Lipe' Brand. Most of the components for manufacturing clutches are procured indigenously except for certain critical components, for offering better quality at a competitive price to customers, being imported. C. Foreign Exchange Earnings and Outgo: Details of foreign exchange earnings and outgo during the financial year 2014-2015 are furnished in Notes to the Accounts. QUALITY STANDARD ACCREDIATION Your Company is ISO 9002 as well as TS 16949 certified in line with the global requirements of the automotive sector by Bureau Veritas Certification (formerly BVQI). Further, the Company's Unit is accredited with Environmental Management System (EMS) (ISO 14001) as well as Occupational Health and Safety Standards (OHSAS 18001) Certification. GENERAL Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review: 1. Issue of equity shares with differential rights as to dividend, voting or otherwise. 2. Issue of shares (including sweat equity shares) to employees of the Company under any scheme save and except ESOS referred to in this Report. 3. Neither the Managing Director nor the Whole-time Directors of the Company receive any remuneration or commission from any of its subsidiaries. 4. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future. Your Directors further state that during the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. APPRECIATIONS: Your Directors take this opportunity to thank the customers, shareholders, suppliers, bankers, business partners/associates, financial institutions and Central and State Governments for their consistent support and encouragement to the Company. The Board places on record its appreciation for the dedication and commitment of the employees at all levels, which has continued to be our major strength. For and on behalf of the Board Harish Sheth Chairman and Managing Director Place: Mumbai Date: July 15, 2015 |