Directors' Report to the Shareholders Your Directors have pleasure in presenting the 31st Annual Report and Audited Accounts for the year ended 31st March 2016. FINANCIAL AND OPERATIONAL PERFORMANCE Your Company's sales has gone up as compared to the previous year by 3.57% in value terms. Profit before tax and exceptional items, has increased by around 9.7% over the previous year because of increased level of sales and cost reduction initiatives undertaken. 3. MANAGEMENT DISCUSSION AND ANALYSIS a. Overall economic view: The Indian economy continued to battle with many challenges such as muted demand from industry, rising inflation, sagging FDI and contracted consumption from consumers. Though the repo rates have been slashed by RBI, banks chose not to pass it on to the customers. This has not spurred the demand from the customers with the hope interest rates will fall in future. Manufacturing and Industrial activities remained sluggish like last year mainly due to depressed rural demand on account of two consecutive years of poor monsoon. b. Industry structure and developments: Two wheeler industry has witnessed moderate growth of 2% as compared to the previous year. Scooter segment registered a positive growth of 12% whereas the Motor cycle, Three wheeler and Moped had registered negative growth of 1.5%,1.6% and 2.3% respectively against the positive growth witnessed last year. c. Performance Review: Your company's sales grew by 4% compared to two/three wheeler industry growth of 2% . The company had grown in motor cycle and three wheeler segments mainly due to higher share of business from various customers. However, scooter and moped segments have not grown much in terms of valuebut the company has retained the share of business with key customer. The company was successful in increasing the export business by 54%. The direct sales to aftermarket also recorded a growth of 36% by expanding the dealer network and the product portfolio. d. Business Outlook: The long term prospects for Indian economy are expected to be positive. Manufacturing industry will have sustained growth in the medium term. In the short term, growth in automotive industry appears to be clouded in view of the unclear market conditions due to introduction of new strict emission norms. Two factors are expected to boost consumption viz. increased spending from higher wage levels mainly coming out of implementation of seventh pay commission and expected good monsoon. Downward trend in interest rates, inflation and good governance are also expected to help the growth of industry. Indian Government is in advanced stages of preparing for GST implementation which is expected to result in reduction in manufacturing cost of components. The company stands to gain from the improving economic environment and investing in technologies and delivering higher value to customers by enabling them to stay ahead of global competition. Your company has been successful in developing and securing the business for EGR controllers for small diesel engines to meet forthcoming BS IV emission norms. Your company has also been identified for development of ECU for the EFI system jointly with our technical partner, by one of the two wheeler manufacturers for their popular model of motorcycle as well as by another US based engine manufacturer. The company plans to invest in design and development of these new technology products. The company has further identified its electronic range of products as a potential growth segment and offered innovative value propositions to customers which are expected to fetch more businesses. On the cost front, your company is taking aggressive cost reduction and productivity improvement initiatives to make its products more competitive. Your company has developed excellent business relationship with the US based customer because of sterling performance. On account of this, new businesses have been awarded by the customer which are expected to help the growth of export business in a significant way. e. Human Resources and Industrial Relations: The long term wage settlement for Hosur and Rewari have been completed successfully. The long term wages settlement at the Pondicherry plant is due and negotiations are under way. The industrial relations in all the units of the company continue to be harmonious. The total number of people employed in the company as on 31st March 2016 was 506. f. Risks and Concerns: The excessive drought witnessed recently has affected the agricultural production in most parts of India. This may leave the consumers, especially in rural markets, with less savings resulting in contraction of demand and high inflation in food prices. The effects of this has already started becoming evident with distinct slow down in the demand of two wheelers in rural market. Expectations of normal monsoon conditions during the current year might improve the demand in later half of the year. Economic outlook indicates that rupee depreciation will continue and correspondingly high oil prices, which may affect the automotive industry. While on one hand the labour costs are going up due to increase in minimum wages in many states, the intensifying competition for the range of products manufactured by the company on the other hand creates pressure on customer pricing. These pose challenges to maintain the profitability, as customers may not fully offset the cost escalations. Your Company is focussing on development of new technology products which offer customers good value propositions, improving operational efficiencies and cost reduction in every possible area of operation to protect the bottom line. g. Risk Management Policy: Your Company takes cognizance of each business risk and has a risk management plan and policy in line with the overall objectives of the Company. The Company tracks the ever changing business risks and evaluates their impact on business results. Mitigation plan and counter measures are prepared and monitored to keep the impact minimal. Your Company had also formulated Risk Management Policy to identify and address the various risks. h. Internal Control System and their adequacy: Your Company views internal audit as a continuous process to keep the management regularly appraised on the existence, adequacy and effectiveness of the internal control systems/processes in the company. Based on the annual review and feedback received from the units and statutory auditors, audit plan is prepared and updated every year and approved by the Audit Committee. Internal auditors independently verify and test the adequacy and operating effectiveness of internal control systems and this provides assurance to the Audit Committee of continued compliance. The internal audit reports are also shared with statutory auditors. Your Company has started implementing ERP to improve internal control systems and accuracy of information on costs in real time which will help to analyse and exercise better control. i. Internal financial control: The company has established internal financial framework including internal controls over financial reporting and anti-fraud framework. The framework is reviewed regularly by the management and strengthened, from time to time to ensure adequacy and effectiveness of internal financial controls. j. Corporate Social Responsibility Your Company has constituted the Corporate Social Responsibility Committee (CSR Committee) and laid down the CSR policy which is available on the Company's website. Your Company has fully spent the amount it is required to spend on activities listed in Schedule VII of the Companies Act, 2013. The annual report on CSR activities is annexed to this report as 'Annexure -5 ' k. Cautionary statement Statements in the Management Discussion and Analysis Report describing your Company's objectives, projections, estimates and expectations are "forward looking statements" within the meaning of applicable securities and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to your Company's operations include, among other things, economic conditions affecting demand / supply and prices in the domestic and overseas markets in which your Company operates, changes in Government regulations, tax laws, other statutes and other incidental factors. 4. SUBSIDIARY COMPANY AND ASSOCIATE COMPANY AND THE CONSOLIDATED FINANCIAL STATEMENTS 4.1 Subsidiary Company The efforts taken by the subsidiary of your company, PT Automotive Systems Indonesia to get some business opportunities were not fruitful as the manufacturers of two wheelers in that country have their own sources for the products in the range of its manufacture. As the approval given by the Government authorities of Indonesia is valid only till March 2017, it has been decided to take necessary steps to liquidate the subsidiary. In this regard, attention is drawn to note no.5 under "Other Disclosure' against Note no.8 to the accounts. The details relating to the subsidiary have been provided in the prescribed form as part of the accounts. The annual accounts of the subsidiary company will be available at the Registered office of the Company and of the subsidiary company concerned, if any member or investor wishes to inspect them during the business hours on any working day. 4.2. Associate Company Synergy Shakthi Renewable Energy Private Limited (SSREPL) was not in operation since June 2015 due to restrictions on sale of power to third parties, unviable tariff offered by TNEB and adverse changes in regulatory policies. As a result, the associate company incurred a loss of Rs. 389.46 lakhs as against a profit of Rs. 70.52 lakhs during the previous year. Financial position of the subsidiary and the associate company are provided in AOC-1 as required under Section 129 (3) of the Companies Act 2013 as part of the financial statements. 4.3. Consolidated Financial Statements The Consolidated Financial Statements of the Company prepared in accordance with the provisions of Section 129 (3) of the Companies Act 2013 and relevant Accounting Standards issued by the Institute of Chartered Accountants of India form part of the Annual Report. 5. DIVIDEND Your Company had paid two interim dividends of Rs.4 and Rs. 5 per share totalling to Rs.9 per share during the year. Your directors recommend consideration of the same as total dividend for the year. The total dividend for the year will absorb a sum of Rs. 1017.96 lacs besides an additional outgo on dividend distribution tax of Rs. 209.09 lacs. 6. PUBLIC DEPOSITS Your Company has not accepted any deposits falling within the ambit of Section 73 of the Companies Act, 2013 read with Companies [Acceptance of Deposits] Rules 2014. 7. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE OUTGO AND EARNINGS Please refer to Annexure-1 to the Directors' Report to the Shareholders. 8. PARTICULARS OF EMPLOYEES The information required under Section 197 (12) of the Companies Act, 2013 and the rules made thereunder, as amended, has been given in Annexure 2 appended hereto and forms part of this report. The comparative analysis of the remuneration paid to Directors and Key Managerial Personnel with the Company's performance is given in Annexure 3. 9. ANNUAL RETURN Extract of Annual Return is given as Annexure 4 to this report. 10. CORPORATE GOVERNANCE Pursuant to the Listing Regulations 2015, the 'Report on Corporate Governance' is enclosed as part of this report. A certificate from the Auditors of Your Company regarding compliance of the conditions of the Corporate Governance as stipulated by the SEBI (LODR) Regulations 2015, is attached to this report as Annexure 6. The certificate required from Managing Director is also attached to this report. 11. DIRECTORS' RESPONSIBILITY STATEMENT As required under Section 134 (5) of the Companies Act, 2013, the Board of Directors hereby confirm:- i. That in the preparation of the Annual Accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; ii. That the Directors had 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 the affairs of the Company at the end of the Financial Year and of the profit of the Company for that period; iii. That the Directors had 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. That the Directors had prepared the Annual Accounts on a going-concern basis; v. That the directors, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; vi. That the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. DIRECTORS Mr. Tadaya Momose, will be retiring by rotation at the ensuing Annual General Meeting and is eligible for re-appointment. Mr. Mukesh Kumar Somani was inducted into the Board of Directors in the Board meeting held on 28th May 2016 in the casual vacancy caused by the resignation of Mr. Masaru Namatame, He will be proposed for appointment as a non-retiring Director in the Annual General Meeting. The Company has received a notice from a shareholder to appoint Mr. Mukesh Kumar Somani as a Director along with the requisite deposit amount. The Board places on record its appreciation of the valuable contributions provided by Mr. Masaru Namatame during his tenure as Director. 12.1 Declaration by Independent Directors as required u/s 149: All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149 of the Companies Act, 2013 and SEBI (LODR) Regulations 2015. 12.2 Terms of appointment of Independent Directors of India Nippon Electricals Limited The terms of appointment is available on the website of the company viz., ww.indianippon.com . 12.3 Number of meeting of the Board Six meetings of the Board were held during the year. For details of the meetings of the Board, please refer to the corporate governance report, which forms part of this report. 12.4 Board Evaluation The Nomination & Remuneration Committee (N&RC) of the company approved an evaluation policy which provides for evaluation of the Board, the Committees of the Board and individual directors. Pursuant to Sch IV of the Companies Act 2013, the independent directors of the company convened on 26th March 2016 an exclusive meeting without the attendance of non-independent Directors and members of management and reviewed (i) the performance of non-independent Directors of the Board as a whole; (ii) the performance of the Chairman of the Company; and (iii) Assessed the quality, quantity and timeliness of flow of information between the Company management and the Board that is necessary for the Board to effectively and reasonably perform their duties. On the same day, the performance evaluation of the independent directors was also done by the entire Board excluding the directors being evaluated. 13. AUDITORS (i) Statutory Auditors Pursuant to Section 139 of the Companies Act, 2013 and Rules made thereunder, M/s Brahmayya & Co., Chartered Accountants, were appointed for a period of three years from the conclusion of the 29th Annual General Meeting held on 27th August 2014 until the conclusion of the 32nd Annual General Meeting. Their continuation in the appointment is placed for ratification in the ensuing Annual General Meeting as required under the Act. (ii) Cost Auditor Mr. K Suryanarayanan who was appointed as Cost Auditor for the financial year 2015-16 will be submitting his report within the time limit applicable under the Companies (Audit and Auditors) Rules 2014. He has been appointed as cost auditor for the financial year 2016-17 also and a remuneration of Rs. 2.20 lacs has been fixed for the audit. The ratification of his remuneration is included as an item in the Notice of the Annual General Meeting as required under Section 148 (3) of the Companies Act 2013 read with Rule 14 of the Companies (Audit and Auditors) Rules 2014. (iii) Secretarial Auditor & the Secretarial Audit Report Ms. B Chandra, Practicing Company Secretary was appointed as Secretarial Auditor by the Board of Directors for the financial year 2015-16 whose report is attached separately to this report (Annexure 7). (iv) Qualification/reservation/adverse remark in Audit Report There were no qualification / reservation / adverse remark in the auditor's report or in the secretarial audit report. 14. Particulars of Contracts or Arrangements With Related Parties All the transactions with related parties are in the ordinary course of business and on arm's length basis and there are no 'material' contracts or arrangements or transactions at arm's length basis and thus disclosure in form AOC - 2 is not required. 14.1 Policy on Related Party Transactions of the Company The Company has a policy on Related Party Transactions and the same is displayed on the Company's website viz., www.indianippon.com . 15. PARTICULARS OF LOANS, GUARANTEES U/S 186: The company has not given any loans or guarantee as specified under Section 186 of the Companies Act 2013. 16. PARTICULARS OF INVESTMENTS U/S 186 The investments made by the company during the period 2015-16 are depicted below. The same is well within the prescribed limits under provisions of Section 186 of the Companies Act 2013. 17. EMPLOYEE STOCK OPTION: There is no scheme of employees' stock option in your Company. 18. PREVENTION OF SEXUAL HARASSMENT OF WOMEN AT WORKPLACE: As per the requirements of the Sexual Harassment of women at workplace (Prevention, Prohibition & Redressal) Act 2013 and Rules made thereunder, your Company has constituted Internal Complaints Committee. During the year under review, your Company has not received any complaints of sexual harassment from any of the women employees of the Company. 19. POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION INCLUDING CRITERIA FOR DETERMINING QUALIFICATIONS, POSITIVE ATTRIBUTES, INDEPENDENCE OF DIRECTORS, KEY MANAGERIAL PERSONNEL AND OTHER EMPLOYEES The Board shall have minimum 3 and maximum 12 Directors. The Nomination and Remuneration Committee of your Company has laid down criteria and qualification for appointment of Directors and Key Managerial Personnel. The person for such appointment should possess adequate qualification, expertise, experience and integrity. Some of the additional reports as required under the Companies Act 2013 and forming part of the Directors Report are attached to this report. 20. ACKNOWLEDGEMENTS Your Directors wish to place on record their appreciation for the good work of all the employees of the Company. Your Directors also acknowledge the continued support received from Lucas Indian Service Ltd, Chennai, Mahle Electric Drives Japan Corporation, Japan and also wish to thank the Governments at the Centre and in the States of Tamil Nadu, Haryana and Puducherry, Bank of Baroda, ICICI Bank Ltd, Axis Bank Ltd, and SIPCOT for the assistance rendered by them from time to time. For and on behalf of the Board of Directors T K BALAJI DIN No.:00002010 Chairman Chennai 28th May 2016 |