DIRECTORS' REPORT AND MANAGEMENT DISCUSSION & ANALYSIS DEAR SHAREHOLDERS, Your Directors present the 70th Annual Report, together with the audited accounts of the Company for the financial year ended March31,2015. Company's Performance Your Company's financial performance was affected adversely due to non-remunerative order for wagons procurement placed by the Indian Railways resulting in loss of Rs.549.28 lacs incurred during the financial year ended the31st March, 2015. In the last tender opened for wagons procurement by the Indian Railways prices offered were even lower than the cost of materials making the contract entirely a loss making proposition and hence your Company had no option but to decline the order. This situation appears to have arisen out of predatory pricing resorted to by some of the Wagon manufacturers who have quoted absurdly low prices. Marketing efforts have been stepped up for securing orders for wagons from private sector customers. As part of your Company's endeavor to mitigate the risk of predominant dependence on business from Indian Railways , ajoint venture has been entered into with two group companies for manufacture of tractors/agriculture implements at Bhagalpur plant which is under implementation while development of other products within the core competencies of your Company is receiving consistently focused attention. Active efforts are also being made to pursue orders for custom designed wagons from private sector customers. Further, your Company has been issued Industrial License by the Government of India for manufacture of various products for defence sector of the country and steps are being taken in this direction. With uncertainty in wagons procurement by the Indian Railways persisting, the outlook for the current year is cautious. OVERALL REVIEW The overall performance of the Company during the financial year ended the 31st March, 2015 declined due to non-remunerative contract from the Indian Railways . BUSINESS SEGMENT Wagons a) Industry Outlook: Wagons industry is beset with irregular and decremental Wagons procurement orders by Indian Railways compounded by predatory pricing being resorted to by some of the wagon manufacturers. Though the Government of India has announced various steps viz. focus on safety and environment protection through Green initiatives, strengthening of Railway Tariff Regulatory Authority etc. to improve the infrastructure of Indian Railways, however, procurement policy has to improve to provide the much needed impetus to the industry. b) Opportunities: Rail is expected to be the preferred mode of movement of cargo being an effective and more economical mode of carrying goods across the country. The Government's plans to expand the railway net work and the project of dedicated freight corridors if implemented in right earnest, Wagon industry offers substantial opportunity which can be seized particularly by the established units to fullest extent. c) Challenges: Uncertainty in timely placement of wagons procurement orders by Indian Railways and availability of funds coupled with the stressed margins due to unhealthy competition in the industry besides rising cost of inputs are major challenges for Wagon Industry in India. The dependence on one customer i.e. Indian Railways is a serious concern in as much as any change in the Government policy stands to directly impact the industry. Review of operations: Performance of the Wagons segment has been affected adversely due to unremunerative contract placed by the Indian Railways for substantially lower quantity during the year under review. e) Uncertainty persists with regard to placement of wagons procurement order by the Indian Railways even as development of markets for other products takes substantial time and hence the outlook for current fiscal is cautious. Dividend In view of the loss sustained, the Directors do not recommend any dividend for the year under review. Risks and Concerns The Company has laid down a risk management mechanism which is reviewed periodically. A Risk Management Policy to identify and assess the key risk areas, monitor mitigation measures and report compliance has been adopted. Based on the review, the following key risks have been identified: Dependence on the Indian Railways The Company is engaged in the business of manufacturing wagons which is entirely dependent upon the policies of Indian Railways and any change in the policies whether positive or negative directly impacts the business of the Company. Increase in the cost of raw materials and other inputs (i) The major raw materials required by the Company include steel, specialized components including bogies, coupler sets, air brakes etc. which are exposed to volatility in prices and availability in required specifications. (ii) Steel based raw materials being the principal inputs in manufacturing wagons and heavy engineering equipment, cost of finished goods totally depends on the prices of steel prevalent in both National and International markets which are highly volatile and cyclical in nature. However the risk is mitigated to some extent as the most of the contracts have price variation clause. Risk of performance guarantee, product warranty and liquidated damages The contracts involve performance guarantee based on contract value and warranty periods within which if any defect is detected in the products, the Company may have to incur expenditure for correcting the defects or even replacing the products. Delay in scheduled delivery may attract liquidated damages. Subsidiary Companies There is no subsidiary of your Company. Extract of Annual Return The details forming part of the extract of the annual return in the Form MGT-9 is annexed and marked as Annexure DR-1. Number of Board Meetings The Board of Directors met eight (8) times during the financial year ended 31st March, 2015 as per the details provided in the Corporate Governance Report forming part of the Annual Report. Authorised Capital and Issue of Preference Shares In June, 2014 your Company's authorised capital has been reclassified and then increased from Rs.50 crore of equity to Rs.50 crore of Preference Shares and Rs.25 crore of equity divided into 2,50,00,000 equity shares and 5,00,00,000 preference shares of Rs.10/- each to facilitate issue and allotment of 8% Non Convertible Non Cumulative Preference Shares of Rs.10/- each aggregating Rs.40 crore to the promoter group entities. Loans, Guarantees and Investments Particulars of loans, guarantees and investments made by the Company pursuant to the Section 186 of the Act are furnished under notes to financial statements. Significant and material orders There were not material/significant orders passed by any regulator, tribunal impacting the going concern status and the Company's operations in future Composition of Audit Committee The Board has constituted the Audit Committee comprising ShriJ K Shukla as the Chairman, Shri Anil Kumar Agarwal and Shri K S B Sanyal as the members and the details are provided in the Corporate Governance Report annexed. Shri D N Davar has resigned from the Board of the Company w.e.f. 13th February, 2015and may attend the Audit Committee Meeting as Special Invitee. Related Party Transactions All Related Party Transactions (RPTs) are entered in compliance with the applicable laws and also in accordance with the policy on the subject adopted by the Board. Audit Committee reviews and approves all the RPTs as stipulated by the Listing Agreement and based thereon final approval of the Board obtained. RPTs as approved by the Board during the financial year 2015 are furnished in the form AOC 2 annexed hereto and marked as Annexure DR-2. Corporate Governance Report The Company has complied with the corporate governance requirements under the Act and Listing Agreement. A separate section on corporate governance under Listing Agreement along with a certificate from a company secretary in practice confirming the compliance, is annexed to and forms part of the Annual Report. Internal Control System The Company has system of internal controls and necessary checks and balances which are being strengthened so as to ensure a. that its assets are safeguarded b. that transactions are authorised, recorded and reported properly; and c. that the accounting records are properly maintained and its financial statements are reliable. The Company has appointed external firm of Chartered Accountants to conduct internal audit whose periodic reports are reviewed by the Audit Committee and management for bringing about desired improvement wherever necessary. Vigil Mechanism A fraud free and corruption free environment as part of work culture of the Company cannot be over emphasized and with that objective a Vigil Mechanism policy has been adopted by the Board and is uploaded on the web site of the Company at www.cimmco.in No complaint of this nature was received by the Audit Committee during the year. Internal Complaints Committee As per the requirement of Section 4 of The Sexual Harassment of Women At Workplace (Prevention, Prohibition and Redress) Act, 2013 an Internal Complaints Committee has been formed by the Company, the details of which are given in the Corporate Governance Report. No complaint has been lodged with the Committee during the year. Directors Cessation Shri D N Davar, Independent Director resigned from the Board w.e.f. 13th February,2015. Retirement by rotation Shri Umesh Chowdhary, Vice-Chairman & Managing Director retires by rotation pursuant to the provisions of Section 152 of the Act and is eligible for re-appointment. Appointment Shri R N Tiwari's term as Director (Works) ended on 25th February, 2015.The Board at its meeting held on February 13,2015 has subject to approval of the shareholders reappointed him for two years w.e.f. February 25,2015 at the remuneration approved by the Nomination and Remuneration Committee. Shri Nandan Bhattacharya is proposed to be appointed as an Independent Director in accordance with the provisions of Sections 149 and 152 of the Act read with the rules made there under and the Clause 49 of the Listing Agreement with the Stock Exchanges concerned. He was appointed as an Additional Director w.e.f. February 28, 2015. Smt.Vinita Bajoria is proposed to be appointed as Non-Executive Director in accordance with the provisions of Section 152 of the Companies Act, 2013 read with the rules made there under and the Clause 49 of the Listing Agreement with the Stock Exchanges concerned. She was appointed as an Additional Director w.e.f. 11th September, 2014 in conformity with the Clause 49 stipulating appointment of woman director. The information prescribed by Clause 49 of the Listing Agreement in respect of the above said Directors is given in the Notice of Annual General Meeting. Evaluation of the Board's performance, Committee and Individual Directors In compliance with the Act and Clause 49 of the Listing Agreement, the performance evaluation of the Board, Committees and Individual Directors was carried out during the year under review as per the details given in Corporate Governance Report. Declaration by Independent Directors Declarations pursuant to the Sections 164 and 149(6) of the Act and Listing Agreement and affirmation of compliance with the Code of Conduct as well as the Code for Regulation of Insider Trading adopted by the Board, by all the Independent Directors of the Company have been made. Remuneration Policyand remuneration A policy approved by the Nomination and Remuneration Committee and the Board is followed by the Company on remuneration of Directors and Senior Management Employees, as per the details provided in the Corporate Governance Report. Particulars of Remuneration of Directors/KMP/ Emplyoees The disclosure stipulated by Section 197(12) of the Companies Act, 2013 read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is not applicable. Disclosure pertaining to Remuneration and other details as required under Section 197 (12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed and marked as Annexure DR-3. Directors' Responsibility Statement The Directors state that: • Appropriate Accounting Standards as are applicable to the Annual Statement of Accounts for the financial year ended March 31, 2015 have been followed in preparation of the said accounts and there were no material departures there from requiring any explanation; • The Directors have selected and followed the accounting policies as described in the Notes on Accounts and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end of financial year and of the profit and loss statement of the Company for that period; • Proper and sufficient care has been taken for maintaining 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; • The Annual Accounts have been prepared on a going concern basis; and • The Directors have laid down Internal Financial Controls (IFC) to be followed by the Company and that such IFCare adequate and operating effectively. Statutory Auditors Messrs S R Batliboi & Co. LLP, Chartered Accountants, Auditors of the Company were appointed at the 69th AGM until the conclusion of 71st AGM subject to ratification of their appointment at the AGM every year and the Board recommends the same. As regards the qualified opinion expressed by the Statutory Auditors, the Note 12.2 in the relevant notes on the financial statement (the Notes) is self explanatory requiring no further specific response from the Directors at this stage The Company with its persistently diligent efforts is reasonably confident of recovering the entire amount receivable and address the issue in due course. Cost Auditors Messrs D. Radhakrishnan & Co., Cost Accountants have been reappointed as Cost Auditors to conduct cost audit of the accounts maintained by the Company in respect of the products manufactured by the Company, for the Financial Year 2015-16 subject to ratification of their remuneration by the shareholders in accordance with the provisions of Section 148 of the Companies Act, 2013 and the Companies (Cost Records and Audit) Rules, 2014. The Cost Audit Report for the financial year ended 31st March, 2014 has been filed as stipulated by the applicable provisions of law. Secretarial Auditor Secretarial Audit has been conducted by Messrs M Rathi & Co, Practicing Company Secretaries appointed by the Board and their report is annexed hereto and marked as Annexure DR-4. Fixed Deposits The Company did not accept any deposits during the financial year ended March31,2015. Personnel Human Resources A. Empowering the employees The Company considers its organizational structure to be evolving consistently over time while continuing with its efforts to follow good HR practices. Adequate efforts of the staff and management personnel are directed on imparting continuous training to improve the management practices. B. Industrial Relations Industrial relations at all sites of the Company remained cordial. C. No. of Employees : Manpower employed as at March 31, 2015 was 146 Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo A statement pursuant to Section 134(3)(m) of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014 on conservation of energy, technology absorption, foreign exchange earnings and outgo is annexed to and marked as Annexure DR-5. Listing with Stock Exchanges The equity shares of the Company are listed at The National Stock Exchange of India Limited (NSE),The Bombay Stock Exchange Limited (BSE), The Delhi Stock Exchange Limited (DSE),The Calcutta Stock Exchange Limited (CSE) and The Madhya Pradesh Stock Exchange Limited (MPSE) and Listing fees for the financial year ending the 31st March, 2016 have been duly paid. Discussion on Financial Performance with respect to Operational Performance To mitigate the risk factors referred to hereinabove impacting the operations, better manufacturing processes, improved productivity and focus on optimization ofresource deployment are undertaken for a reasonable performance, viewed in the backdrop of the trends witnessed in the industries in which the Company operates. Corporate Social Responsibility Your Company continues its endeavors to contribute suitably to the society by being involved in a series of Community Welfare Programs, directly or through philanthropic organizations. Bharatpur plant is located close to the Bharatpur Bird Sanctuary amidst vast green area and all care is taken to preserve the environment to allow the nature's expanse to remain green and grow healthily. Forward Looking Statement The statements in this report describing the Company's policy, strategy, projections, estimation and expectations may appear forward looking statements within the meaning of applicable securities laws or regulations. These statements are based on certain assumptions and expectations of future events and the actual results could materially differ from those expressly mentioned in this Report or implied for various factors including those mentioned in the paragraph "Risks and Concerns" herein above and subsequent developments, information or events. Acknowledgements Your Directors wish to place on record their appreciation for the cooperation and support of the Banks and Governments of Rajasthan, Madhya Pradesh and Delhi, local administration (West Bengal)/other Government Departments; for contribution of the employees of the Company and all other stakeholders. On behalf of the Board J. P. Chowdhary Executive Chairman Place :Kolkata Date:August12,2015 |