DIRECTORS' REPORT TO THE MEMBERS, The Directors are pleased to present the 35th Annual Report and the Company's Financial Statement for the financial year ended March 31, 2015 Dividend Your Directors are pleased to recommend a dividend of Rs. 10 per share for the financial year ended March 31, 2015. Management Discussion and Analysis While the global recovery was still slow and witnessing divergent trends, Indian Economy grew at 7.3% in the Financial Year (FY) 2014-15, against 6.9% in 2013-14 (Source: Indian Statistical Office (CSO) of India data). The major contributor was the manufacturing sector which registered 7.1% growth for the year. The Government has initiated a slew of steps to take the economy forward. Industry structure and developments As per the vehicle sales data published by the apex industry body - SIAM (Society of Indian Automobile Manufacturers) for the FY 2014-15, all vehicle categories, other than Commercial Vehicles, were in positive territory. Riding on the back of a gradual uplift in market sentiment, excise duty cuts continuing through to December 2014 and the opening up of the mining and infrastructure sectors, the Indian Automobile Industry registered a growth of 8.3% in FY 2014-15. While, the Medium and Heavy Commercial Vehicles clocked 17% growth in sales after two years of down cycle, the Light Commercial Vehicles declined by 10%. Therefore, the overall Commercial Vehicles segment registered nominal de-growth of 1.3% for the year. Your Company supplies its Mechanical Steering Gears mainly to the Tractor industry. After seeing robust performance in earlier years, the Tractor industry witnessed contraction in volume by 13% in FY 2014-15, due to host of unfavourable factors which include delayed and deficient monsoon, decline in Kharif output, softening commodity prices and farm losses due to extensive crop damages due to unseasonal rainfall and hail storms in several key Rabi cropping states. This affected adversely the sales-numbers of Mechanical Steering Gears of the Company. Review of Operations and the State of Company's Affairs Operations and Financial Performance of the Company Auto Components Renewable Energy-Solar Energy Your Company's 5 MW Solar Power Project at Gujarat Solar Park, Charnka Village, District Patan (Kutch) Gujarat generated 8.55 million Units of Electricity with sales-revenue of Rs. 95.6 million in the FY 2014-15. The entire electricity is purchased by Gujarat Urja Vikas Nigam Limited (GUVNL), a Government of Gujarat Company. Wind Energy Seven Wind Turbine Machines, owned and operated by the Company, located in districts of Satara and Ahmednagar, having aggregate capacity of 6.7 MW, generated a total of 6.17 million units in the FY 2014-15. All the units generated were used as captive consumption, which accounted for approximately 54.5% of the energy-consumption of the Company's factory at Village Vadu Budruk. Other Income During the financial year, Income received on financial-investments, held by the Company, was Rs. 60.95 million, marginally higher compared to Rs. 59.60 million for the FY 201314. Finance Finance cost was Rs. 8.52 million against Rs. 6.9 million. During the year, the Company was sanctioned an Overdraft facility of Rs. 200 million, against security of financial investments. There was no other fresh borrowing by the Company. Investments Total Investments increased by Rs. 379 million, from Rs. 994.5 million at March 31, 2014 to Rs. 1373.5 million at March 31, 2015, primarily due to increase in investment in the capital of the Joint Venture Company. Credit Rating ICRA, the Credit Rating Agency, has reaffirmed the A+ and A1 + rating for long and short term borrowing of the Company. Profitability Net Profit for the year jumped impressively from Rs. 141 million to Rs. 355.6 million. Earnings Per Share is Rs. 39.20 for the year ended March 31, 2015. Outlook, Opportunities and Threat The global economic climate continues to be volatile, uncertain and prone to geo-political risks. The marked slowdown in global markets is expected to continue in 2015. In this global backdrop, India is expected to perform better, aided by improving macroeconomic fundamentals. However, execution of the reform agenda and kick starting the investment cycle will be key determinants of India's economic performance. Indian Meteorological Department (IMD) has predicted a second consecutive year of weak rainfall. 'Deficient' monsoon has been indicated. This may hit badly the plans to revive/ boost the economy. A weak monsoon - leading to high inflation and low growth - would be the biggest challenge. There has been sharp recovery in Medium and Heavy Commercial Vehicle sales post October 2014. In Credit Rating Agency - ICRA's view, this segment is likely to register a growth of 12 to 14% in FY 2016, driven by expectations of pick-up in demand from infrastructure, mining and industrial sectors in view of various reforms, including 'Make in India' and 'Smart City', being initiated by the Government. In contrast, the Light Commercial vehicle segment continues to struggle and expected to grow at a modest pace of 4 to 6%. The Indian Commercial Vehicle Industry is witnessing sizeable investments by Original Equipment Manufacturers (OEMs) towards upgrading their product portfolio, introducing new models and expanding manufacturing capacities. Sustained economic growth of Indian economy continues to drive power demand in India. The Government of India's focus to attain 'Power For All' has accelerated capacity addition in the country. Solar as well as Wind energy market are expected to grow at a rapid pace. 'Robert Bosch Automotive Steering GmbH'. During the year, there was a change in the Shareholding/ Ownership pattern of 'ZF Lenksysteme, GmbH' (ZFLS), the foreign-promoter of your Company. Previously, entire share-capital of ZFLS was held between ZF Friedrichshafen AG and Robert Bosch GmbH in the ratio of 50:50. In January 2015, Robert Bosch GmbH agreed to buy the shares held by ZF Friedrichshafen AG in ZFLS and became 100% owner of ZFLS. Consequent upon this change, name of ZFLS has been changed to 'Robert Bosch Automotive Steering GmbH'. Subsidiaries, Associates and Joint Ventures The Company does not have any subsidiary. Joint Venture (JV) 'ZF Lenksysteme India Private Limited' (now 'Robert Bosch Automotive Steering Private Limited') (Joint Venture with ZF Lenksysteme GmbH, Germany) (hereinafter 'the JV Company') With change in the name of its Holding Company ('Robert Bosch Automotive Steering GmbH'), the JV Company, too decided to change its name to 'Robert Bosch Automotive Steering Private Limited'. After the incorporation in the year 2007, the JV Company had set up, in April 2012, an assembly and manufacture of Steering Gears for Commercial Vehicles. Subsequently, in FY 2013-14, the JV Company set-up a state of the art assembly-line for manufacture of Electric Power Steering Systems (EPS) for Passenger Cars, wherein series production has started and regular supplies are made for Tata Motors Passenger Cars. Recently, an assembly-line has been added for manufacture of EPS for Ford Motors. All the above facilities are situated at Village Phulgaon, Alandi-Markal Road, Dist. Pune. Additional capital, by way of Rights issues, has been raised by the JV Company. Consequently, the paid-up share-capital of the JV Company presently stands at Rs. 3,565 million and your Company holds 26% of the total paid up share-capital of the JV Company, as per the contractual and regulatory obligations. Total investment of the Company in the JV Company as of date stands at Rs. 926.9 million. The Company, as per its obligations, continues to support the JV Company and has invested the additional equity capital in the JV Company. The JV Company plans to further raise additional capital, by way of Rights issue, in the current financial year. The JV Company has reported a turnover of Rs. 889 million and incurred a loss of Rs. 573 million for Financial Year 2014-15. The major contributor to the sales-revenue is EPS for passenger-cars. A statement, pursuant to Section 129(3) of the Companies Act, 2013 (the Act) read with Rule 5 of the Companies (Accounts) Rules, 2014, containing the salient features of the financial statement of the JV Company is appended with the financial statement. Expansion and Capital Expenditure Steering Gear Systems The Company is in a process of gradually enhancing its installed capacity of Steering Gears and modernize its plant at Vadu Budruk, mainly from internal accruals. Renewable Energy The Company is exploring the avenues of further investments in this sector by way of new project/ expanding capacity to the existing project. Internal Control System and its Adequacy The Internal Control Systems of the Company, comprising internal audit department and independent internal auditor, are responsible for the financial reporting, assets, adherence to management policies and to conduct audit, so as to ensure ethical conduct and compliance with set procedures within the organization. The Company has independent Internal Auditors for conducting internal audits of the financial reporting and operations of the Company. The Company's existing system of internal controls is commensurate with its size and nature of business. The Company's internal control ensures reliable financial reporting, better utilization of the Company's resources, and effectiveness of operations, compliance with the legal obligations and the Company policies and procedures. The Company's Audit Committee also regularly reviews the financial management reports and data, and interacts with the External and Internal Auditors for ascertaining the adequacy of internal controls. Human Resources/ Industrial Relations The industrial relations remained cordial during the year. As at end of March 31, 2015, the Company had 576 permanent employees on its roll. Cautionary statement The above 'Management Discussion and Analysis Report' is a forward looking Statement based on the Company's projections, estimates and perceptions. These statements reflect the Company's current views with respect to the future events and are subject to risks and uncertainties. Actual results may vary materially from those projected here. Conservation of Energy, Research and Development, Technology Absorption and Innovation, Foreign Exchange Earnings and Outgo: The details as required under the Companies (Accounts) Rules, 2014 are given in Annexure I to this Report. Directors and Key Managerial Personnel Mr. Carl Magnus Backlund resigned as Director of the Company with effect from January 1, 2015. Consequently, Mr. Klaus Traeder, who was Alternate Director to Mr. Backlund, too ceased to be Director of the Company. The Board places on record its appreciation for the services rendered by Mr. Carl Magnus Backlund and Mr. Klaus Traeder, during their association with the Company. During the year under review, the Board appointed Mrs. Eitika Munot as a non-executive non-independent Director of the Company. In light of the provisions of the Act, Mr. Utkarsh Munot, retires from the Board by rotation this year and being eligible, offers himself for re-appointment. Profiles of Mrs. Eitika Munot and Mr. Utkarsh Munot, as required by Clause 49 of the Listing Agreement are provided in the Notice convening the Annual General Meeting. The Board recommends both the appointments. appointments of Mr. M. L. Rathi, Mr. Shridhar S Kalmadi, Mr. Ajinkya Arun Firodia, Mr. Jitendra A. Pandit and Mr. S. A. Gundecha as Independent Directors, who are not liable to retire by rotation. 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 Act and Clause 49 of the Listing Agreement with the Stock Exchange. The Company has devised a Policy, for performance evaluation of Independent Directors, Board, Committees and other individual Executive/ Non-Executive Directors. The Policy includes criteria for performance evaluation. The criteria are based upon age, experience, quality of participation in Board/ Committee proceedings, attendance at meetings, contribution by strategic inputs and others. The criteria along with additional requirements prescribed by Section 149 of the Act are used for selection of Independent Directors. The Company carried out the performance evaluation during the year. During the year, there was no change in Key Managerial Personnel of the Company. Awards and Recognition During the year, Mr. Dinesh Munot - Chairman & Managing Director of the Company, received an award from ACT (ACMA Centre for Technology), a division of ACMA (Automotive Component Manufacturers of India) for his outstanding leadership and exemplary contribution as the Chairman of ACT (2003-2004). Directors' Responsibility Statement Your Directors state that: i) in the preparation of the annual accounts for the financial year ended March 31, 2015, the applicable Accounting Standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same; ii) 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. iii) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. iv) the Directors have prepared the annual accounts on a 'going concern' basis. v) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and vi) 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 Report Pursuant to Clause 49 of the listing agreement, a detailed report on Corporate Governance is given in Annexure - II along with the Auditors' Certificate on its compliance, which forms part of this report. Particulars of Loans given, Investments made, Guarantees given and Securities provided The Company has not given any loan or guarantee or provided any security in connection with any loan covered under the provisions of Section 186 of the Act. During the year, as stated above, the Company invested a sum of Rs. 317.20 million in the equity shares of the JV Company. The Company also made investments of its surplus funds. The details of the investments, including as of April 1, 2014 and held as on March 31, 2015, are disclosed in the Note No. 11 to the financial statement. Contracts and Arrangements with Related Parties All contracts/ arrangements/ transactions entered into by the Company with related parties during the financial year were on an arm's length basis and were in the ordinary course of business. During the year, the Company had not entered into any contract/ arrangement/ transaction with related parties, which could be considered material in accordance with the policy of the Company on materiality of related party transactions. Considering the provisions of Section 134 of the Act, as all transactions with related parties referred to sub-section (1) of Section 188 of the Act and exemption is available only from the procedural compliance for transactions, which are in ordinary course of business and based on arm's length prices, the disclosure in the prescribed Form AOC - 2, including part 2 thereof is attached as Annexure III to this Report. Corporate Social Responsibility (CSR) With the enactment of the Act and as per the Companies (Corporate Social Responsibility) Rules, 2014, read with various clarifications issued by the Ministry of Corporate Affairs, the Company has framed a CSR Policy, which is available on the Company's website www.zfindia.com The Company has undertaken activities as per the CSR Policy. The Annual Report on CSR activities is annexed herewith marked as Annexure IV. Risk Management During the year, your Directors have constituted a Risk Management Committee which has been entrusted with the responsibility to assist the Board in (a) Overseeing and approving the Company's enterprise wide risk management framework and (b) Overseeing that all the risks that the organization faces such as strategic, financial, credit, market, liquidity, security, property, legal, information technology, Regulatory and other risks have been identified and assessed and there is an adequate risk management infrastructure in place capable of addressing those risks. The Company manages, monitors and reports on the major risks and uncertainties, those can impact its ability to achieve its strategic objectives. The Company has introduced several improvements in internal control management to drive a common integrated view of risks, optimal risk mitigation, responses and efficient management of internal control and assurance activities. Auditors and Auditors' Report Statutory Auditors M/s. MGM and Company, Chartered Accountants, Statutory Auditors of the Company, hold office till the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. They have confirmed (i) their eligibility to the effect that their re-appointment, if made, would be within the prescribed limits prescribed under the Act, (ii) that they are not disqualified for re-appointment and (iii) They hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India. The Auditors' Report does not contain any qualification, reservation or adverse remark. Secretarial Auditor The Board had appointed Mr. I. U. Thakur (PCS Registration No. 1402), Practicing Company Secretary, to conduct Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report for the same is annexed herewith as Annexure V. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. Disclosures Meetings of the Board Five meetings of the Board of Directors were held during the financial year. Detailed information is given in the Report on Corporate Governance, forming part of this Annual Report. Committees of the Board Audit Committee The Audit Committee comprises Independent Directors namely Mr. S. A. Gundecha (Chairman), Mr. M. L. Rathi and Mr. Jitendra A. Pandit as other members. All the recommendations made by the Audit Committee were accepted by the Board. The details of all committees and its terms of reference are set out in the Corporate Governance Report. Remuneration Policy The Board has, on the recommendation of the Nomination & Remuneration Committee, approved a policy for selection, appointment and remuneration of directors and senior management. The detailed Remuneration Policy is placed on the Company's website www.zfindia.com Vigil Mechanism/ Whistle Blower Policy The Vigil Mechanism of the Company also incorporates a Whistle Blower Policy, in terms of the Listing Agreement. Protected disclosures can be made by a Whistle Blower through an e-mail/ telephone/ letter to the Chairman of the Audit Committee. The Policy on Vigil Mechanism and Whistle Blower may be accessed on the website of the Company at www.zfindia.com Extract of the Annual Return Extract of the Annual Return of the Company in Form MGT 9 is annexed herewith as Annexure VI to this Report. Particulars of Employees and related disclosures Considering the provisions of Section 197(12) of the Act read with the relevant rules and having referred to provisions of the First Proviso to Section 136(1) of the Act, the Annual Report is being sent to the members of the Company, excluding details of particulars of employees and related disclosures. The said information / details are available for inspection at the Registered Office of the Company during working hours, on any working day. Any Member interested in obtaining this information may write to the Company Secretary and this information would be provided on request. The Company has three employees, including Working Directors, who drew remuneration exceeding Rs. 60 lac per annum or Rs.5 lac per month (if employed for part of the year). 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 Workplace (Prevention, Prohibition & Redresssal) Act, 2013. An Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, temporary, trainee etc.) are covered under this Policy. Number of sexual harassment complaints received and disposed of during the financial year 2014-15 is one. General 1. The Company held no deposits at the beginning of the year, nor accepted any deposits during the year under report. 2. All equity shares issued by the Company rank pari-passu in respect of right to receive dividend, voting rights or otherwise. 3. During the year under report, no shares were issued as sweat equity to any of the employees or others. 4. As the Company does not have any subsidiary, no remuneration was received by any Whole-time Director of the Company from a subsidiary. 5. During the year under report, no strictures or material orders were passed by any Regulator or a Court or a Tribunal, which may impact on the going concern status of the Company or its operations in future. 6. There are no material changes or commitment affecting the financial position of the Company from March 31, 2015 till date of this Report. Acknowledgement The Board of Directors takes this opportunity to express their appreciation for the assistance and co-operation received from Banks, Government Authorities, Customers, Suppliers, Members, Collaborators and other Business Associates. The Board also acknowledges the understanding and support shown by all its employees. For and on behalf of the Board of Directors Pune Dinesh Munot Chairman & Managing Director Date : July 28, 2015 |