DIRECTORS REPORT To, The Members, Your Directors are pleased to present the Twenty Third Annual Report together with the Audited Financial Accounts of the Company for the year ended on 31st March, 2015 RESULTS OF OPERATIONS AND THE STATE OF COMPANY’S AFFAIRS Our total income on a standalone basis decreased to INR 2422.76 Crore from INR 2674.29 Crore in the previous year. Our Conductors generated revenue of INR 671.78 Crore compared to last year INR 738.90 Crore. Power Cable generated total revenue of INR 1350.78 Crore as compared to last year INR 1485.74 Crore, Power Infrastructure generated total revenue of INR 103.83 Crores as compared to last year INR 157.87 Crore. Tower generated total revenue of INR 341.94 Crore as compared to Last Year INR 383.29 Crores. Our total income on a standalone basis Increased to INR 10.28 Crore from INR 6.59 Crore in the previous year. Our total Loss for the financial year 2014-15 is Rs. 115.74 Crores Compared to past years profit Rs. 103.96 Crores. The cash flow mismatch is cumulative impact of certain external factors combined with other economic factors. The rising cost of finance and execution delays have resulted in transmission and distribution projects not being taking off as expected, translating to slower demand growth for conductors and cables. Further, delay in implementation of the Expansion Project has also contributed significantly towards the current stressed position of the Company. The detailed reasons for current liquidity constraints are presented as below: (i) S lowdown in economy – resulting in sluggish growth in Power Sector: Growth of the transmission and distribution equipment industry (viz. conductors, cables, towers) majorly depends on the growth of the economy and investment in power sector, by public as well as private sectors. However, from 2012-13 to 2014-15, growth has slowed down considerably resulting into cascading effect on all industries. As the Power sector is positively correlated with the growth of the economy, the decline GDP growth has resulted in sluggish growth in Power sector. (ii) I ncrease in Price of Key Raw Material (viz. Aluminium, XLPE Compound): Aluminium and XLPE Compound are key raw materials used in manufacturing of conductors, cables and towers. Aluminium comprises approximately 80-95% of the total raw material cost of the finished goods based on the type of product (viz. conductors, cables etc.). The price of Aluminium and other key raw material has increased consistently over a period of last 1 year which has lead to significant increase in the cost of production. Further, it is important to note that the Company was unable to pass on the cost of the higher input costs to the customers and has eroded margins of the company as cost of production has significantly increased with no corresponding increase in price of existing orders due to following factors: (i) Fixed rate orders taken up at the time of lower Aluminium prices have become loss making and cannot be re-negotiated due to nature of contract. (ii) There are orders with price escalation clauses which have also become loss making as the variations is received only on 60/90 trailing though prices are varying every 6/7 days. Further, for some orders price escalation clauses are ineffectual in case actual delivery is not as per pre-agreed delivery schedule. The Company was unable to meet pre-agreed delivery schedule due to inadequate working capital funds and hence it could not take benefit of the said price escalation clauses. (iii) Lack of adequate working capital: In Feb 2014, the Company’s working capital requirement (both fund-based and non-fund based limits) for FY-14 & FY-15 was assessed by the Lead Bank at Rs. 1,710 Cr and Rs. 2,250 Cr for an estimated turnover of Rs. 2,702 Cr and Rs. 3,774 Cr, respectively. However, the revised working capital limits were not available for FY-14 and FY-15 even though the Company has achieved Gross Sales of approx. Rs. 2,764 Cr and Rs. 1,611 Cr in FY-14 and FY-15, respectively. Therefore, it is very evident that company has inadequate working capital facility and is facing stress on liquidity. Hence, due to the non-release of sanctioned working capital facility for FY-14 by banks the company had a total working capital limits shortfall of about Rs. 280 Cr as per the assessed limits. It is pertinent to note that additional WC of Rs. 281 Cr (i.e. increase from Rs. 1,429 Cr to Rs. 1,710 Cr) for FY- 14 is assessed by considering Aluminium price of Rs. 136/ Kg vis-à-vis actual average purchase price of Rs. 164/ Kg (Nov-2014). Further, the working capital limit presently available to the Company of Rs. 1,429 Cr was assessed in FY-13 (i.e. in Oct-2012) by considering Aluminium price of Rs. 115/ Kg. In the above backdrop, it is very much evident that there is significant difference in the actual purchase price of key raw material and the purchase price considered during FY-13 assessment at which working capital limits are currently available to the Company. Non availability of adequate bank guarantee has also contributed to the stress on liquidity as the Company could not raise advance payments from clients. Presently, the Company could not take advance payment of approximately Rs. 33 Cr from PGCIL alone due to lack of APBG. (iv) Elongated working capital cycle: The Company has been facing elongated working capital cycle due to various industry issues. The stress on working capital cycle can be seen from increasing trend in inventory holding period As can be seen from above, the aggregate of inventory holding period has increased from 141 days to 176 days in Sep-14. (v) D isproportionate debt repayment obligations of Term Loans and High finance cost: It is important to note that significant amount of term loan repayment obligations (excluding interest) aggregating to about Rs. 246 Cr is falling due in next 2 years (i.e. till FY-17). The aggregate payment includes principal payment towards Expansion Term Loans of about Rs. 75 Cr. Continuous repayment of the said term loans more particularly expansion loans will create cash flow mismatch as the expansion project is expected now to be completed by 31st December, 2015. As the cash generation from expansion project will get delayed, the company does not expect to generate adequate cash flows in FY-15 and FY-16 for servicing of entire debt repayment obligations. Further, increase in overall finance cost has also contributed to deterioration in liquidity position of the company. The company is currently paying interest rate from 12% to 15.55% on various loans. (vi) Delay in Receipt of Payments from Customers: The payment from customers in the power segment have been delayed in the recent past due to cash flow problems faced by the individual customers on account of the global meltdown of the economy as discussed above. Receivable amounting to Rs. 84 Cr is outstanding for more than 180 days as on 30th November, 2014 out of which Rs. 70 Cr is slow moving and the same are expected to be recovered over a period of 2-3 years. Also, due to the delay in release of appraised working capital limits, the Company was unable to progress on various orders in hand leading to further delay in receipt of the operational cash flows. However, now the industry scenario is changing which will help streamline the cash flows going forward. (vii) Other reasons a. Slow moving stock: The Company has implemented Quality Control system to minimize material rejection at the time of sale. At the time of stock audit, it was observed that stock costing Rs.65.28 Cr was slow moving. Since major raw material required for production is Aluminium, Copper wire and PVC compound. This stock can be reprocessed and converted into raw material for re-use. This stock is now re-valued by stock auditor at Rs. 56.32 Cr. b. Loss due to Penalty on account of delayed delivery: The Company has defaulted in several contracts during the year as it was unable to deliver goods as per the schedule committed in contract due to working capital issue. On account of delayed delivery, company have to now bear penalty of about Rs. 15 Cr on these contracts. c. Loss of goods due to floods: There were unprecedented rains in Gujarat in FY15 which lead to flooding and loss of material at site. Material worth Rs. 70 Cr was affected by the flood for which only Rs. 40 Cr of Insurance claim was admitted and due to which company has incurred loss of Rs. 30 Cr. However, damaged stock is expected to yield Rs. 7.50 Cr as salvage value. Moreover the insurance claim of Rs. 40 Cr is yet to be received which lead to cash flow shortfall. (viii) Cost & Time Overrun in Expansion Project: The Company envisaged the total cost of expansion project at Rs. 753.37 Cr, which was stipulated to be funded by Term Loan, Internal Accrual & Fresh Equity of Rs. 440 Cr, Rs. 163 Cr and Rs. 150 Cr, respectively. However, in view of the unforeseen delay in the implementation, the overall project cost has increased from Rs. 753.37 Cr to Rs. 1,003.22 Cr. An escalation of Rs. 150.63 Cr in the Hard Cost of the Project is estimated. Besides, an increase in IDC by Rs. 72.39 Cr on account of time overrun and escalation in pre-operative expenses of Rs. 26.83 Cr is estimated. Our Company principally being in conductor & cables industry, was directly impacted due to the slowdown in execution of ongoing projects on account of delay owing to land acquisition, environmental clearances, rising interest rates, considerable increase in raw material cost owing to inflation. The aforesaid project level issues constrained ability of Company’s private customers’ to mobilize additional funds and execute projects on time, which impacted offtake of finished goods by the Company’s customers on time leading to build up of inventory. However, the Management would like to submit that there has been positive movement in both the macro level indicators such as GDP & IIP numbers and also improvement in industry level issues. The Company is well positioned to take benefit of the expected improvement in the industry provided timely implementation of the expansion project by December 2015 and adequate support from our esteemed stakeholders. CONSOLIDATED ACCOUNTS The consolidated financial statements of your Company for the financial year 2014-15, are prepared in compliance with applicable provisions of the Companies Act, 2013, Accounting Standards and Listing Agreement as prescribed by the Securities and Exchange Board of India (SEBI). The consolidated financial statements have been prepared on the basis of audited financial statements of the Company, its subsidiary and associate companies, as approved by their respective Board of Directors. SUBSIDIARIES & ASSOCIATE COMPANIES Separate financial statements of all subsidiary of your Company are provided in this report and said financials forms part of consolidated financial statements in compliance with Section 129 and other applicable provisions, if any, of the Companies Act, 2013. M/s. Diamond Power Transformers Limited and M/s. Diamond Power Global Holdings Limited are wholly owned subsidiaries of your company. However, M/s. Maktel Power Limited and M/s. Maktel Control & Systems Pvt. Ltd. are the two Companies which are associate Companies of M/s. Diamond Power Transformers Ltd. Please refer Annexure [A] to the Board Report. MANAGEMENT’S DISCUSSION AND ANALYSIS REPORT Management’s Discussion and Analysis Report for the year under review, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is presented in a separate section forming part of the Annual Report. DIVIDEND Looking into the long term interest of the Company, your Directors have not recommended any dividend for the financial year ended on 31st March, 2015. TRANSFER TO RESERVES Since company incurred negative profit during the financial year under review, there is no amount transfer to general reserve. PUBLIC DEPOSITS During the financial year 2014-15, your Company has not accepted any deposit within the meaning of Sections 73 and 74 of the Companies Act, 2013 read together with the Companies (Acceptance of Deposits) Rules, 2014. CORPORATE GOVERNANCE REPORT In compliance with the provisions of Clause 49 of the Listing Agreement, a separate report on Corporate Governance along with a certificate from the Auditors on its compliance forms an integral part of this Report. INDUSTRIAL RELATIONS The Company is having its presence in middle east countries and planning to expand its business in overseas countries too. Further Company has strong dealer network to accelerate growth of the Company. Company’s ambitious project is expected to complete around end of 2015 and after completion Company will backed up with additional production capacity. DISCLOSURE RELATING TO REMUNERATION OF DIRECTORS, KEY MANAGERIAL PERSONNEL AND PARTICULARS OF EMPLOYEES In accordance with Section 178 and other applicable provisions if any, of the Companies Act, 2013 read with the Rules issued there under and Clause 49 of the Listing Agreement, the Board of Directors at their meeting held on 13th August, 2014 reconstituted the Nomination and Remuneration Policy of your Company on the recommendations of the Nomination and Remuneration Committee. The salient aspects covered in the Nomination and Remuneration Policy, covering the policy on appointment and remuneration of Directors and other matters have been outlined in the Corporate Governance Report which forms part of this Report The Managing Director and Jt. Managing Director of your Company do not receive remuneration from any of the subsidiaries of your Company. The information required under Section 197 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of Directors/ employees of your Company is set out in “Annexure [B]”. DIRECTORS AND KEY MANAGERIAL PERSONNEL Appointments: During the financial year 2014-15, in compliance with the provisions of Sections 149, 152, Schedule IV and other applicable provisions, if any, of the Companies Act, 2013 read with Companies (Appointment and Qualification of Directors) Rules, 2014, Shri Ashok Kumar Krishan Singh Gautam (DIN 06947087) and Shri Ashok Kumar Singh (DIN 01489637), were appointed as Additional/Non- Executive Directors of your Company on 9th August, 2014 and 3rd September, 2014 respectively and subsequently they were appointed as a Non- Executive Independent Directors by the shareholders at the AGM held on 30th September, 2014 to hold office up to 5 (five) consecutive years up to 31st March, 2019. Further, Ms. Nivedita Muljibhai Pandya (DIN 02992638) was appointed as Additional Non- Executive Director of your Company on 31st March, 2015. Resignations/Retirements: Shri Karthik Athreya (DIN 01797014), Non-Executive/ Nominee Director of the Company resigned from the Board due to his pre-obligation on 26th September, 2014 Shri Kirit Vyas (DIN : 01376501), Non-Executive/Independent Director of the Company resigned from the Board due to his health reasons on 22nd December, 2014. Shri S N Bhatnagar (DIN : 01661444), Executive Chairman of the Board of Director and Founder Promoter of the Company resigned from the Board to infuse young blood into the Management on 31st March, 2015. The Board places on record its appreciation for their valuable contribution during their association with your Company. DIRECTORS RETIRE BY ROTATION Shri Amit Bhatnagar (DIN : 00775880) and Shri Sumit Bhatnagar (DIN : 00776129), are liable to retire by rotation at the ensuing AGM pursuant to the provisions of Section 152 of the Companies Act, 2013 read with the Companies (Appointment and Qualification of Directors) Rules, 2014 and the Articles of Association of your Company and being eligible have offered themselves for reappointment. Appropriate resolutions for their re-appointment are being placed for your approval at the ensuing AGM. The brief resume of the Directors and other related information has been detailed in the Notice convening the 23rd AGM of your Company. Your Directors recommend their re-appointment. Evaluation of Board’s Performance: In terms of the provisions of the Companies Act, 2013 read with Rules issued there under and Clause 49 of the Listing Agreement, the Board of Directors on recommendation of the Nomination and Remuneration Committee, have evaluated the effectiveness of the Board/Director(s) at their meeting held on 14th February, 2015. NUMBER OF MEETINGS OF THE BOARD AND AUDIT COMMITTEE The details of the number of Board and Audit Committee meetings of your Company are set out in the Corporate Governance Report which forms part of this Report. DECLARATION OF INDEPENDENCE Your Company has received declarations from all the Independent Directors confirming that they meet the criteria of independence as prescribed under the provisions of Companies Act, 2013 read with the Schedules and Rules issued there under as well as Clause 49 of the Listing Agreement. DIRECTORS’ RESPONSIBILITY STATEMENT Pursuant to Section 134(3)(c) of the Companies Act, 2013, the Directors confirm that: a) in the preparation of the annual accounts for the financial year ended on 31st March, 2015 the applicable accounting standards and Schedule III of the Companies Act, 2013 have been followed and there are no material departures from the same; 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 your Company as at 31st March, 2015 and of the profit and loss of the Company for the financial year ended 31st March, 2015; 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 accounts have been prepared on a ‘going concern’ basis; e) proper internal financial controls laid down by the Directors were followed by the Company and that such internal financial controls are adequate and were operating effectively; and f) proper systems to ensure compliance with the provisions of all applicable laws were in place and that such systems were adequate and operating effectively. AUDITORS AND AUDITORS’ REPORT Statutory Auditors At the 22nd AGM of your Company, M/s. Vijay N. Tewar & Co., Chartered Accountants (Firm Registration No. 111422W) was appointed as the Auditor to hold office till the conclusion of the 23rd AGM of your Company. The Companies Act, 2013 has introduced the concept of rotation of auditors as well as audit firms. It states that in case of listed companies, it would be mandatory to rotate auditors every five years in case of the appointment of an individual as an auditor and every 10 years in case of the appointment of an audit firm with a uniform cooling off period of five years in both the cases. The Act has allowed a transition period of three years for complying with the requirements of the rotation of auditors. Further, the Companies Act, 2013 also grants an option to shareholders to further require rotation of the audit partner and staff at such intervals as they may choose. In light of this provisions M/s. Vijay N. Tewar & Co., is retiring in ensuing AGM and the Board of Directors at its meeting held on 30th May, 2015 and on the recommendations of the Audit Committee, in accordance with the provisions of Section 139 (8) of the Companies Act, 2013 appointed M/s. B S R & Co. LLP and M/s. A. Yadav & Associates, Chartered Accountants, to act as the Joint Statutory Auditors of your Company till the conclusion of the 24th AGM of the Company. The Board places on record its appreciation for the contributions of erstwhile M/s. Vijay N. Tewar & Co., Chartered Accountants. Cost Auditor The Board of Directors had appointed M/s. S. S. Puranik & Associates., Cost Accountants, as the Cost Auditor of your Company for the financial year 2014-15 to conduct the audit of the cost records of your Company. As per Section 148 and other applicable provisions, if any, of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014, the Board of Directors of your Company has appointed M/s. S. S. Puranik & Associates., Cost Accountants as the Cost Auditor for the financial year 2015-16 on the recommendations made by the Audit Committee. The remuneration proposed to be paid to the Cost Auditor, subject to the ratification by the members at the ensuing AGM, would be not exceeding Rs. 90,000 (Rupees Ninety Thousand only) excluding service tax and out of pocket expenses, if any. Your Company has received consent from M/s. S. S. Puranik & Associates., Cost Accountants, to act as the Cost Auditor of your Company for the financial year 2015-16 along with a certificate confirming their independence. Secretarial Auditor Pursuant to the provisions of Section 204 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, your Company has appointed M/s. Devesh Vimal & Co., Practicing Company Secretaries to conduct the Secretarial Audit of your Company. The Secretarial Audit Report is annexed herewith as “Annexure - [C]” to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. EXTRACT OF ANNUAL RETURN The details forming part of the extract of the Annual Return in Form MGT- 9 in accordance with Section 92(3) of the Companies Act, 2013 read with the Companies (Management and Administration) Rules, 2014, are set out herewith as “Annexure [D]” to this Report. RELATED PARTY TRANSACTIONS During the financial year 2014-15, your Company has entered into transactions with related parties as defined under Section 2(76) of the Companies Act, 2013 read with Companies (Specification of Definitions Details) Rules, 2014, which were in the ordinary course of business and on arms’ length basis and in accordance with the provisions of the Companies Act, 2013, Rules issued there under and Clause 49 of the Listing Agreement. During the financial year 2014-15, there were no transactions with related parties which qualify as material transactions under the Listing Agreement. The details of the related party transactions as required under Accounting Standard - 18 are set out in Notes to the financial statements forming part of this Annual Report. The Form AOC- 2 pursuant to Section 134 (3)(h) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Accounts) Rules, 2014 is set out as “Annexure [E]” to this Report. LOANS AND INVESTMENTS The details of loans, guarantees and investments under Section 186 of the Companies Act, 2013 read with the Companies (Meetings of Board and its Powers) Rules, 2014 are as follows: A. D etails of investments made by the Company as on 31st March, 2015 RISK MANAGEMENT Your Company recognizes that risk is an integral part of business and is committed to managing the risks in a proactive and efficient manner. Your Company periodically assesses risks in the internal and external environment, along with the cost of treating risks and incorporate risk treatment plans in its strategy, business and operational plans. Your Company, through its risk management process, strives to contain impact and likelihood of the risks within the risk appetite as agreed from time to time with the Board of Directors. VIGIL MECHANISM Your Company is committed to highest standards of ethical, moral and legal business conduct. Accordingly, the Board of Directors has formulated a Whistle Blower Policy which is in compliance with the provisions of Section 177 (10) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. The policy provides for a framework and process whereby concerns can be raised by its employees against any kind of discrimination, harassment, victimization or any other unfair practice being adopted against them. More details on the vigil mechanism and the Whistle Blower Policy of your Company have been outlined in the Corporate Governance Report which forms part of this report. CORPORATE SOCIAL RESPONSIBILITY In accordance with Section 135 of the Companies Act, 2013 the Board of Directors of the Company at their meeting held on 30th May, 2014 framed CSR Committee. On the recommendations of the CSR Committee. The CSR Policy outlines the CSR vision of your Company which is based on embedded tenets of trust, fairness and care. The initiatives undertaken by your Company during the financial year 2014-15 in CSR have been detailed in this Annual Report. The Annual Report on CSR activities in accordance with the Companies (Corporate Social Responsibility Policy) Rules, 2014, is set out herewith as “Annexure [F]” to this Report. SHARE CAPITAL DURING THE YEAR UNDER REVIEW Your Company in the financial year 2013-14 has increased its Authorised Share Capital from 5,58,58,500 (Five Crores Fifty Eight Lacs Fifty Eight Thousand Five Hundred Only) Equity Shares of Rs.10/- (Rupees Ten) each and 41,41,500 (Forty One Lacs Forty One Thousand Five Hundred Only) Preference Shares of Rs. 10/- (Rupees Ten) Each to 8,00,00,000 (Eight Crores Only) divided into 7,58,58,500 (Seven Crores Fifty Eight Lacs Fifty Eight Thousand Five Hundred Only) Equity Shares of Rs. 10 /- (Rupees Ten) each and 41,41,500 (Forty One Lacs Forty One Thousand Five Hundred Only) Preference Share of Rs. 10/- (Rupees Ten) each. Further, Company has issued 55,00,000 Share Warrants during the year under review convertible into Equity Shares ranking parri passu with existing Equity Shares of the Company CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO The information on conservation of energy, technology absorption and foreign exchange earnings and outgo as stipulated under Section 134 of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014, is set out herewith as “Annexure [G]” to this Report. DETAILS OF INTERNAL FINANCIAL CONTROLS RELATED TO FINANCIAL STATEMENTS Your Company has put in place adequate internal financial controls with reference to the financial statements, some of which are outlined below: Your Company has adopted accounting policies which are in line with the Accounting Standards prescribed in the Companies (Accounting Standards) Rules, 2006 that continue to apply under Section 133 and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 and relevant provisions of the Companies Act, 1956 to the extent applicable. These are in accordance with generally accepted accounting principles in India. Changes in policies, if any, are approved by the Audit Committee in consultation with the Auditors. SIGNIFICANT/MATERIAL ORDERS PASSED BY THE REGULATORS There are no significant/material orders passed by the Regulators or Courts or Tribunals impacting the going concern status of your Company and its operations in future. GENERAL a) Your Company has not issued equity shares with differential rights as to dividend, voting or otherwise; and b) Your Company does not have any ESOP scheme for its employees/Directors. APPRECIATION Your Directors wish to convey their gratitude and place on record their appreciation for all the employees at all levels for their hard work, solidarity, cooperation and dedication during the year. Your Directors sincerely convey their appreciation to customers, shareholders, vendors, bankers, business associates, regulatory and government authorities for their continued support For & on behalf of the Board Amit Bhatnagar Managing Director & Chairman of the Meeting Date : 13th August, 2015 Place : Vadodara |