Directors' report Dear Members 1. Your directors are pleased to present the 35th annual report including the audited financial statements of your company for the year ended 31st March, 2015. 2. State of affairs Your company's sales grew to Rs. 14899 lakhs from Rs. 14471 lakhs, an increase of 3% over previous year. Gross profit decreased by 25% from Rs. 1767 lakhs to Rs. 1328 lakhs. Profit before tax has decreased 41% from Rs. 1295 lakhs to Rs. 762 lakhs. Net profit for the year came down by 42% to Rs. 532 lakhs from Rs. 921 lakhs. Basic EPS has decreased to Rs. 6.10 from Rs. 11.25 for the previous year. 3. Operations Production of explosives increased to 24,066 tonnes from previous year's 20,703 tonnes. Production of detonators decreased to 42.20 million pieces from 53.27 million pieces a year ago due to lower demand from mining and infrastructure industries, caused by unseasonal / long rains, restrictions on movement of explosives during elections, etc. These factors together with severe competition has resulted in un-remunerative prices for accessories like detonators and detonating fuse. Defence products contribution has been satisfactory and the company expects a decent growth with improved order book on hand. Operations & maintenance contracts at Sriharikota and Jagdalpur have been satisfactory. Contract at Jagdalpur has been extended by five years, i.e. from April 2015 till April 2020. Windmill generated 13.67 lakh units of power compared to 19.84 lakh units during the previous year, a decline of 31%. Previous year 2013-14 was exceptionally good year for wind power generation but weather dynamics were not favourable in 2014-15. 4. Capital expenditure During the year the company incurred a net capital expenditure of Rs. 398.53 lakhs including land development at new site and balancing equipment and incremental assets at the existing sites. 5. Dividend Your directors recommend a dividend of Rs. 2.00 per share for the year ended 31st March, 2015 on the amount of paid up share capital as on record date for dividend. The dividend, if approved and declared at the forthcoming annual general meeting, would result in a cash outflow of Rs. 177.17 lakhs towards dividend and Rs. 36.07 lakhs towards tax on dividend, totalling to Rs. 213.24 lakhs. 6. Share capital and reserves a) Share capital Equity share capital has increased from Rs. 835.86 lakhs as on 31.03.2014 to Rs. 885.86 lakhs as on 31.03.2015 upon allotment of 5,00,000 equity shares against an equivalent number of warrants. b) Securities premium Securities premium account has gone up by Rs. 258.85 lakhs with receipt of premium @ Rs. 51.77 per share on allotment of 5,00,000 equity shares referred above. c) Transfer to general reserve Your directors propose to transfer an amount of Rs. 150 lakhs (previous year Rs. 200 lakhs) from the current year profit to general reserve. d) Total reserves as at 31st March, 2015 Including the share premium received on allotment of equity shares mentioned above and net of the proposed dividend and tax thereon, total reserves and surplus as on 31st March, 2015 increased to Rs. 5305 lakhs from last year's Rs. 4810 lakhs. 7. Utilisation of proceeds from preferential issue of share warrants During 2013-14 and 2014-15 your company issued a total of 7,31,000 equity shares of Rs. 10 each at a premium of Rs. 51.77 per share and received a total of Rs. 451.54 lakhs. The amount so received was utilized for working capital and fixed assets, being objects of the issue. 8. Deposits During the year the company has repaid all the fixed deposits in terms of Section 74 of the Companies Act, 2013 and has not accepted any new deposits. 9. Material changes after end of the financial year a) Voluntary retirement scheme With a view to rationalize the human resources the company has agreed for retirement of 56 employees in 2015-16 which will have a onetime cost of Rs. 369.56 lakhs. b) Industrial licenses Your company has received industrial licenses for manufacture of various defence products, namely, Mob dispersion devices, Ammunition of 40mm and above calibre, Rockets and missiles, Mines related to Defence, Bombs, Flexible liner shape charge, Explosives reacting armour, Single base propellant, Military fuses of all types including filling and assembling, Munitions of 20 mm and above calibre including filling and assembling. Your company is taking necessary steps to obtain technology tie ups and to prepare business plans in respective of a few of the above products. Your company also received industrial licenses for capacity expansion of Site mixed explosives and Cartridge explosives. Related new or expansion plants would be set up at an opportune time. 10. Future outlook Recent coal mining auctions, amendment of mining regulations, relaxation of foreign direct investment in construction sector and general improvement in economy are expected to result in increased demand for commercial explosives and accessories. 'Make in India' initiative, accelerated issuance of defence licenses, encouragement of private sector for defence production, revised defence procurement and offset policies, etc. would help the company in scaling up military explosives business. 11. Board matters A. Directors' responsibility statement pursuant to section 134 of the Companies Act, 2013 Your directors confirm that a) the applicable accounting standards have been followed; b) the accounting policies selected were applied consistently and the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at 31st March, 2015 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 Act 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) adequate internal financial controls have been laid down, have been followed and have been operating effectively; f) proper systems have been devised to ensure compliance with the provisions of all applicable laws and those systems have been adequate and operating effectively. B. Declaration of independent directors All the independent directors confirmed that they have met the criteria of independence as required u/s 149 of the Companies Act, 2013. C. Training of directors During the year, both independent and non-independent directors were provided a technical session by a senior practicing company secretary regarding provisions of the Companies Act, 2013. D. Board meetings During the financial year 2014-15 there were 4 Board meetings held on 24th May, 2014, 13th August 2014, 06th November, 2014 and 07th February, 2015. E. Board evaluation Criteria and other details of Board evaluation has been provided in the Annexure -1 Report on Corporate Governance. F. Change in directors a) Mr. K. Chalil had retired as Director upon reaching Superannuation on 30th of September, 2014 and the company places on record its appreciation of the valuable services rendered by him during his tenure as director. b) Filling the above casual vacancy, the Board has appointed Colonel Vikram Mahajan (Retd.) as Additional Director on 06th of November, 2014, to hold office until the conclusion of this Annual General Meeting and being eligible offers himself for re-appointment as Director. The Board recommends reappointment of Colonel Vikram Mahajan (Retd.) as a Director. G. Rotation of director Dr. N.V. Srinivasa Rao will retire by rotation at the ensuing Annual General Meeting and being eligible offers himself for reappointment. The Board recommends reappointing him as a Director. H. Company's policy on appointment and remuneration of directors Criteria for appointment of directors and policy on directors' remuneration are given at paras 2.7 and 4.5 of the Report on corporate governance, Annexure-1. I. Formal annual evaluation by the Board The Board has evaluated its own performance and of individual directors. The details as required u/s 134(3) (p) of the Companies Act, 2013, are mentioned in the Annexure 1: Report on Corporate Governance. Company Secretary & Compliance Officer Mr. Avinash Kumar Singh resigned on 20th March, 2015 as Company Secretary & Compliance Officer. Subsequently, the Board has appointed Ms. K. Vijayashree in that position on 20th May, 2015. Auditors a) Independent auditors The Independent auditors M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants (Firm's Registration Number: 0022835) have been appointed as Statutory Auditors of the Company at the Annual General Meeting held on 13th of August, 2014 to hold office until the conclusion of the Annual General meeting to be held in the year 2019 subject to ratification of their appointment at every AGM. Accordingly, the reappointment is placed for ratification by the members at this Annual General Meeting. The Board recommends ratification of their re-appointment. b) Internal auditors M/s M. Venkata Ratnam & Associates, Chartered Accountants were the internal auditors for the year 2014-15 and they being eligible, the Board has re-appointed them for the year 2015-16. c) Cost auditors M/s S. S. Zanwar & Associates, Cost Accountants were cost auditors for 2014-15 and they being eligible, the Board has re-appointed them for the year 2015-16 and their remuneration is subject to the ratification of shareholders in the ensuing annual general 20. meeting. The Board recommends ratification of their remuneration. d) Secretarial auditor Mr. K.V. Chalama Reddy, a practicing company secretary, was the secretarial auditor for the financial year 2014-15 and he being eligible, the Board has re-appointed him for the year 2015-16. 14. Independent auditors' report Independent Auditors' report contains a matter of emphasis that managerial remuneration of the Chairman & Managing Director exceeded the limit prescribed under provisions of the Companies Act, 2013. The company is taking necessary steps to obtain the Central Government approval required in this respect. 15. Ratings ICRA has maintained the long-term credit rating at '(ICRA) 21. A- (Stable)' and short-term credit rating at '(ICRA)A2+'. Dun & Bradstreet allotted D&B D-U-N-S® NUMBER: 65063-6121 to the company and assigned the rating '4A2 Condition: Good'. 16. Management discussion and analysis 22. A report on management discussion and analysis is placed as a separate section in the annual report. 17. Corporate governance Pursuant to clause 49 of the listing agreement with the stock exchange, a detailed report is given at Annexure-1 along with the auditors' certificate in the Annexure-2 and CEO and CFO certificate in the Annexure-3. 18. Secretarial audit report Pursuant to section 204 of the Companies Act, 2013, every listed company shall annex the secretarial audit report with the Board's report. Secretarial Audit Report contains an observation that the Remuneration paid to the Chairman and Managing Director, for the year 2014-15 is in excess of the limits prescribed under Section 197 read with Schedule V of the Companies Act, 2013 by Rs. 40,90,981. The Company is taking necessary steps to obtain the Central Government approval required in respect of the aforesaid amount. The secretarial audit report is attached as Annexure-4. 19. Conservation of energy, technology absorption and foreign exchange earnings and outgo Information required under Section 134(3) (m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is given in Annexure- 5 to this Report. Particulars of loans, guarantees or investments in terms of section 186 of the Companies Act, 2013 Your company a) has not given any loan to any person or other body corporate other than usual advances for supply of materials and services b) has not given any guarantee or provide security in connection with a loan to any other body corporate or person and c) has not acquired the securities of any other body corporate by way of subscription, purchase or otherwise, exceeding sixty percent, of its paid-up share capital, free reserve and securities premium account or one hundred percent of its free reserves and securities premium account whichever is more. 21. Particulars of contracts or arrangements with related parties Contracts or arrangements with related parties referred in section 188(1) of the Companies Act, 2013 have been at arm's length and the particulars are reported in the Annexure - 6. 22. Risk management policy Your company recognizes Risk Management as a very important part of business and has kept in place necessary policies, procedures and mechanisms. The company proactively identifies monitors and takes precautionary and mitigation measures in respect of various risks that threaten the operations and resources of the company. In accordance with Clause 49 of the Listing Agreement, the Company has constituted a Risk Management Committee and formulated a policy on the Risk Management. Details of Committee and its terms of reference are set out in the Corporate Governance Report forming part of the Board's Report. The Risk Management Policy of the company is available at the link <http://www.pelgel.com/prm.htm>. 23. Vigil mechanism policy Pursuant to the provisions of Section 177 (9) and (10) of the Companies Act, 2013 a Whistle Blower policy has been established. The policy is available at the website link <http://www.pelgel.com/pwb.htm>. 24. Corporate social responsibility (CSR) activities During the year your company has spent an amount of Rs. 29.70 lakhs on CSR activities, against the minimum mandatory amount of Rs. 29.63 lakhs, being 2% of average profit for the last three years. Details of CSR activities are given in Annexure - 7. 25. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (Nirbhaya Act) There are 107 women employees in your company as on 31st March, 2015 and your company has formulated an anti harassment policy to ensure safe working environment. Your company also has set up an Internal Complaint Committee to redress complaints of women employees. Details of awareness programmes and complaints are listed in Annexure - 8. 26. Disclosure of significant and material orders passed by regulators etc. under Rule 8(5)(vii) of the Companies (Accounts) Rules 2014 There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future. 27. Disclosure of internal financial control systems and their adequacy Rule 8(5)(viii) of the Companies (Accounts) Rules 2014 The company has in place adequate internal financial controls with reference to financial statements through - reviews of operations by Board and committees - vetting of various reports by management - periodical internal audits - setting and implementing financial policies - checks and balances in the ERP system and other measures. 28. Extracts of annual return and other disclosures under the Companies (Appointment & Remuneration) Rules, 2014 Extract of Annual Return in form no. MGT-9 as per Section 92(3) of the Companies Act, 2013 and Rule 12 (1) of the Company (Management & Administration) Rules, 2014 is annexed hereto and forms part of this report as Annexure 29. Remuneration of directors and employees and related disclosures Remuneration is paid to directors and employees in accordance with the remuneration policy of the company and applicable statutory provisions. Particulars required u/s 197(12) of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given as Annexure 30. Listing on stock exchange Your Company's shares are listed on the Bombay stock exchange. During the year under review, your company's share price had moved between a maximum of Rs. 329.70 and a minimum of Rs. 70.30. The price closed at Rs. 240.80 on 31st March 2015, an increase of 209% over the price of Rs. 78.00 on 31st March, 2014. The strength of shareholders has increased from 5,895 on 31.03.2014 to 8,811 on 31.03.2015. 31. Asia Pacific Entrepreneurship Award to Dr. A.N.Gupta The Board is pleased to inform you that Dr. A.N.Gupta, Chairman and Managing Director of the company, has been conferred the Asia Pacific Entrepreneurship Award in Outstanding category on 21st March, 2015. 32. Industrial relations Your directors thank all the employees for their cooperation and the contribution towards harmonious relationship and progress of the company. 33. Acknowledgements Your directors place on record their appreciation of the continued support and cooperation from all employees, customers, suppliers, financial institutions, banks, regulatory authorities and other business associates. Dr. A.N. Gupta Chairman & Managing Director Secunderabad 11.08.2015 |