AFFLUENCE

Energy conservation, technology absorption, R&D cell and foreign exchange earnings and outgo

Your Directors present to you the 18th Annual Report on the working of the Company together with the audited accounts for the year ended March 31st, 2013.

Highlights

Shankara Infrastructure Materials Limited (SIML) along with its wholly owned subsidiary company M/s Vishal Precision Steel Tubes and Strips Pvt. Ltd. has achieved a reasonable performance in the just concluded year despite a very difficult economic environment.

• Sales - Rs. 1767 cr (Rs. 17666 million)

• EBITDA - Rs. 88 cr (Rs. 880 million)

• PAT - at Rs. 32 cr (Rs. 318 million)

The Year 2012 – 2013

The slide of the Indian economy which began in 2011-12 continued unabated last year. The Central Bank focused its attention in taming inflation and was partially successful. Inflation stood at around 6% by the year end. There was a marginal decline in interest rates which did not give a fillip to the economy. Liquidity conditions remained tight. Banks had become very cautious with their lending policies.

India, as a whole saw a repeat performance of the previous year. The Government seemed paralyzed, struck repeatedly by scam after scam. A threat of downgrading India’s sovereign rating by international rating agencies sent the finance ministry running for cover. Control of the fiscal deficit and putting the Governments finances in order assumed priority. This meant, further reduction in useful government spend. Populist schemes were, of course, spared the parsimony!

The US economy has shown signs of recovery. Europe seems to be holding on to the lows of the previous year. They have come together to put on a brave face and the veneer holding the fabric together probably does not clearly reveal the truth underneath. China is also maintaining their reduced momentum of 2011-12. India has moved a notch below, with a GDP growth rate of around 5%.

Virtually every sector of the Indian economy has experienced a slow down. The auto sector, which had been growing at a robust pace over the last decade, has braked abruptly. Several car and truck manufacturers are posting negative growth. The auto sector is often regarded as a beacon to the manufacturing sector of a country. This last bastion fell in 2012-13. The infrastructure sector continued to remain in the doldrums. Many states reeled under severe power shortages with the Governments having no clue or showing no action to mitigate the problems. The core sector of the economy as well as the manufacturing sector showed flat to negligible growth.

The monsoon was average and failed in some parts of India which added fat to fire. The rupee continued to slide against the dollar. In the last two years the rupee has depreciated by around 20% making imports costlier, particularly oil which is the single largest component of our imports. This costlier oil fuels inflation in India. Foreign investments have been cautious. For some strange reason, which has nothing to do with the economic performance of India, the stock markets have performed well and the BSE index breached the 20,000 mark. On the whole, a bad year for India!


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In these extremely trying conditions, your Company, has performed reasonably well with a revenue growth of 25% and an EBITDA growth of 24%.

Most of the projects undertaken in the earlier years have been completed. All segments of the Hyderabad manufacturing unit have been commissioned and crossed the break even mark. Revamping and modernizing our Bangalore warehouse is almost complete. We now have a state of art modern warehouse capable of handling around 15,000 MT per month of steel, pipes and tubes at a single location.

12 new retail counters were opened in the year and retail continues to be an important vertical of our business.


Business Performance

1. The Company sold about 3,45,400 tons of all its products in FY 13, which is about 21% more as compared to FY 12.

2. SIML sold 2,91,000 tons of steel pipes and tubes as against 2,32,400 tons in the previous year and about 51,100 tons of steel as against 47,600 tons in the preceding year.

3. SIML produced 89,250 tons steel tubes and 25,000 tons of cold rolled and galvanized strips which is an increase of 83%.

4. Distribution and Manufacturing sales accounted for Rs. 1376 cr of the total sales.

5. Retail operations were around Rs. 390 cr.

6. SIML today operates around 6 lakh sq.ft of warehousing space for its distribution and retail operations. The Company has 21 distribution locations and 56 retail outlets.


Financial Performance

There was reasonable growth in your company’s sales and profits for the year as compared to the previous year.

Rs. Million
Description Year ended March 31st
2013 2012
Sales 17,666 14,140
PBIT 831 681
Interest 352 230
Provision for Tax
Current Year
Earlier Year
Deferred Tax 134 124
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27 15
PAT 318 316
(figures rounded off)


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Share Capital

During the year there was no change in the authorized share capital. However, subscribed and paid up capital changed in Shankara as follows:



Particulars Equity Shares
Numbers Amount (Rs.)

Shares outstanding at the beginning of the year
2,03,13,657
20,31,36,570

Shares issued during the year
8,56,559
85,65,590

Shares outstanding at the end of the year
2,11,70,216
21,17,02,160

During the year 8,56,559 debentures were converted into 8,56,559 equity shares at a face value of Rs. 10 at a premium of Rs. 95 as per the Share Holders Agreement between the Company and the Investors.


Dividend

An interim dividend of 10% was paid in March 2013. No further dividend is recommended.


Public Deposits

Your company has complied with the provisions of Section 58A of the Companies Act, 1956 read with the Companies (Acceptance of Deposits Rules) 1975.

Board of Directors and Management

The Board of Directors at present consists of seven Directors, four of whom are Independent. The Independent Directors are Mr. Zafar Saifullah who is also the Chairman of the Board of Directors, Mr.V. Ravichandar, Mr. Snehal Shah and Mr. Siddhartha Mundra. The latter two represent the investor Company, M/s. Reliance Alternative Investments Services Pvt. Ltd. The other members of the Board are Mr. C. Ravikumar, Mr. RSV Prasad and Mr.Sukumar Srinivas who is the Managing Director of the company.

Mr. V Ravichandar and Mr. RSV Shivaprasad will be retiring by rotation in the ensuing AGM and, being eligible they offer themselves for reappointment.

Corporate Governance

Your Company is an unlisted Company and as such compliance with the statutory provisions regarding corporate governance is not mandatory. However, your Company believes in adopting the best corporate practices in order to maintain the utmost level of transparency, accountability and ethics.





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The Board of Shankara Infrastructure has four Independent Directors and three Executive Directors. The particulars of the Directors, their attendance and other Directorships are given as under.


Name of the Director Designation Status Attendance Directorship
Mr. Zafar Saifullah Chairman Non Executive and Independent 2 3
Mr. V Ravichandar Director Non Executive and Independent 3 2
Mr. Snehal Shah Director Non Executive and Independent 5 2
Mr. Siddhartha Mundra Director Non Executive and Independent 5 1
Mr. Sukumar Srinivas Managing Director Executive 5 4
Mr. C Ravikumar Director Executive 5 3
Mr. R S V Shiva Prasad Director Executive 5 1
Total Meetings = 5


Audit Committee

Your Company has an Audit Committee, which has been constituted pursuant to provisions of the Companies Act, 1956. The Audit Committee was reconstituted by the Board of Directors on 5th April 2011. The Audit Committee of the Board consists of three members, all of whom are Independent Directors.

The Audit Committee has the following terms of reference:

• To oversee the Company’s financial reporting system and ensuring correct, adequate and credible disclosure of financial information.

• Recommending appointment and removal of internal as also external auditors and fixing of their fees.

• Reviewing with management the annual financial statements before submission to the Board with special emphasis on accounting policies and practices, compliance with accounting standards and other legal requirements concerning financial statements.

• Reviewing the adequacy of the audit and compliance functions, including their policies, procedures, techniques and other regulatory requirements, and

• Any other term of reference assigned by the Board from time to time.

The Audit Committee consists of the following members:

Name of the Director Designation Status
Mr. Siddhartha Mundra Chairman Independent
Mr. Zafar Saifullah Member Independent
Mr. V Ravichandar Member Independent

The Audit committee met on 5th June 2012.




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Remuneration Committee

Your Company has a Remuneration Committee, which was approved and reconstituted by the Board of Directors on 5th April 2011. The Remuneration Committee of the Board consists of three members, all of whom are Independent Directors.


The Remuneration Committee has the following Terms of Reference:

• To make recommendations to the Board on remuneration packages applicable to the Managing Director, the Executive Directors and the Senior Executives of the Company.

• During the course of its review, the Committee may also decide on the commission and or other incentives payable, taking into account individual performance as well as that of the Company.

• To assess the overall compensation structure and policies of the Company with an objective to attract, retain and motivate employees, consider grant of stock options to employees, etc.

The Remuneration Committee consists of the following members:
.
Name of the Director Designation Status
Mr. Zafar Saifullah Chairman Independent
Mr. V Ravichandar Member Independent
Mr. Siddhartha Mundra Member Independent


The Remuneration committee met on 5th June 2012.

General Body Meetings

Particulars of the last three Annual General Meetings of your company are as follows:

Financial Year Nature of Meeting Date Time Venue
2010 - 11 AGM 10.07.2010 11.30 AM G-2,Farah Winsford, 133, Infantry Road, Bangalore – 01
2011 - 12 AGM 24.06.2011 12.30 PM G-2,Farah Winsford, 133, Infantry Road, Bangalore – 01
2012 - 13 AGM 04.07.2012 11.30 AM G-2,Farah Winsford, 133, Infantry Road, Bangalore – 01


Directors’ Responsibility Statement

To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 217(2AA) of Companies (Amendment) Act, 2000:

1. The applicable accounting standards have been followed in the preparation of the Annual Accounts along with proper explanations relating to material departures.

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2. Accounting policies are selected and applied consistently and judgments and estimates are made which are reasonable and prudent so as to give a true and fair view of the state of the affairs as at the end of a financial year and of the profit of the Company for the year under review.

3. The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safe guarding the assets of the Company and for preventing and detecting fraud and other irregularities.

4. The Directors have prepared the accounts on a “going concern” basis.


Energy conservation, technology absorption, RandD cell and foreign exchange earnings and outgo

The information pursuant to Section 217 (1) (e) of the Companies Act, 1956, read with the Companies (Disclosure of particulars in the Report of the Board of Directors) Rules, 1988, in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo are as follows:


Hyderabad Unit Units Amt in Rs. Rate per Unit
Total Energy purchased 4428500 2,80,69,738 6.34

Bangalore Unit Units Amt in Rs. Rate per Unit
Total Energy purchased 3289400 1,94,39,483 5.91

Foreign exchange earnings and outgo - Nil


Human Resources

SIML, today employs around 1000 people. They have contributed significantly to the progress and development of the Company.

Our employees and our retail customers are members of the ‘Shankara Parivaar’.

? Under the aegis of this Parivaar about 300 retailers and their families and 30 members of our sales and managerial team enjoyed a Cruise in Malaysia and Thailand.

? Member of the senior management team visited Finland for a tube conference. These programs help our Parivaar members get an exposure of the latest developments in different parts of the world.

? The Company also provides regular training programs to our business influencers like Plumbers, Mechanics and Fabricators. The Company has a Plumber Orientation Centre at Hyderabad to help plumbers develop best practices in their vocations. An “at your doorstep” plumbing initiative was launched at Hyderabad for individual house builders.

? The Company continued its training programs for borewell mechanics in interior Karnataka to help the mechanics update their knowledge and develop their skills.

? Your Company along with Tata Pipes continued the Bandhan program for our Retailers. This program helps Retailers sales staff enhance their skills.

? Induction programs are conducted for fresh recruits.
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? A training program for our retail staff was conducted in Bangalore. More than 25 sales staff benefited from this initiative.

? Regular vocational training is conducted for workers at our factories. A training program on safety measures for workers was initiated at the Hyderabad Works.

? In-house fabrication activities were launched and the requisite skills were imparted to the workers.


Internal Controls

Your Company is taking continuous action to strengthen the prevalent internal control systems and internal audit system to meet the demands of the enlarging business activities of the Company. An independent internal auditor was appointed during the course of the year. This means that there will be an impartial assessment of and help in improving the existing controls and systems.

Future Outlook

Your Company proposes to consolidate its operations in the coming year.

• The investments in manufacturing over the last two years have been completed. The year 2013-14 should benefit fully from the manufacturing activities.

• The Company started revamping its warehousing and logistic facilities in the previous year and will continue to do so.

• SIML will upgrade some of the existing machinery to enhance productivity.

• The Company continues to repose its faith in Retail operations and will rapidly grow in this area in the coming year.
• Shankara will continue to expand its distribution operations in steel products and pipes.


Corporate Social Responsibility

Your Company firmly believes in its contribution to society. Some of the initiatives taken by SIML along with NGOs like Concern India, SMILE foundation, Amar Seva Sangam are

• Ongoing program to sponsor an old age outreach program ‘Dhrithi’ in Bangalore.
• Sponsored a painting competition, ‘Splash’ for challenged children and a Sports Competition for under privileged children
• Ongoing financial support to rehabilitate and educate physically and mentally challenged children in remote areas.
• Distribution of school materials to needy children in rural areas.
• Contribution to self help women’s program in interior Karnataka.
• Sponsor cultural programs like classical dance and music in local communities in Bangalore.
• Supporting an educational and livelihood program for abandoned girls in Hyderabad.





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Other Information

Information required to be provided under section 217(2A) of the Companies Act, 1956 and the Rules made there under is as follows:

Mr. Sukumar Srinivas, the Whole Time Managing Director of the company was paid a total remuneration of Rs.67,20,000 (previous year Rs. 67,20,000). His educational qualifications are B.Com, MBA (IIM Ahmedabad). He has been the Managing Director of your Company since its inception. He did not hold any employment previously. He was previously engaged as the Managing Partner of a family concern which was carrying on a business similar to the business of your Company.

Auditors

M/s Haribhakthi and Co is retiring at the conclusion of the ensuing AGM. They, being eligible have communicated their consent for reappointment as statutory Auditors for the year ended 31st March 2014. The Board recommends the same.

Company Secretary

Mr. Murali Srinivasan continues to be the Company Secretary.

Acknowledgement

Your Directors acknowledge the co-operation extended by the employees and business associates of the Company and thank them for their services and continued support. Your Directors would particularly like to acknowledge and thank our Bankers, M/s IDBI Bank Ltd., Citibank N.A, Kotak Mahindra Bank Ltd., IndusInd Bank Ltd, Standard Chartered Bank and ING Vysya Bank.

For and on behalf of the Board of Directors,




Sukumar Srinivas
Managing Director




C Ravikumar
Director


Place: Bangalore
Date : 11th June 2013

Information required to be provided under section 217(2A) of the Companies Act, 1956 and the Rules made there under is as follows: