BOARD'S REPORT The Directors are pleased to present the 68th Annual Report and the Audited Financial Statement for the year ended March 31, 2016, together with the Auditors' Report thereon. DIVIDEND Your Directors had declared first interim dividend of Rs.6.50 per equity share of Rs.2 each on March 11, 2016 for the financial year 2015-16. This dividend was paid on March 28, 2016 to the shareholders of the Company as on record date of March 23, 2016. Having declared this interim dividend, your Board has not recommended a final dividend for the financial year 2015-16. TRANSFER TO RESERVES With a view to conserve reserves for future growth, your Directors propose to transfer Rs.12.28 crores from the Net Profits to the General Reserve. OPERATING PERFORMANCE Total Revenue of the Company increased by over 15% to Rs.3547.37 crores during the year under review. Revenue from Electro-Mechanical Projects and Packaged Air Conditioning Systems has grown by 10% to Rs.1770.39 crores from Rs.1602.41 crores. This resulted in an increase of 18% in the Segment Result from Rs.60.67 crores to Rs.71.58 crores. Unitary Products' revenue grew significantly by 19% to Rs.1579.43 crores as against last year. This resulted in an increase of 15% in the Segment Result from Rs.144.78 crores to Rs.165.93 crores. EXPANSION Blue Star Limited is in the process of expanding its manufacturing footprint. The Company would be setting up two plants, one at Samba in the State of Jammu & Kashmir, and another at Sri City in Andhra Pradesh. Total investment on this expansion is expected to be Rs.215 crores over the next 3-4 years. PERFORMANCE/FINANCIAL POSITION OF SUBSIDIARIES AND JOINT VENTURE COMPANIES Subsidiary Companies: a) Blue Star Engineering & Electronics Limited (formerly known as Blue Star Electro-Mechanical Limited) During the year under review, the Bombay High Court vide its order dated December 18, 2015 had sanctioned the Scheme of Amalgamation of Blue Star Design and Engineering Limited with Blue Star Engineering & Electronics Limited and their respective shareholders and creditors with effect from Appointed Date of February 1, 2015. This amalgamation took effect from January 29, 2016 and as a consequence, Blue Star Design and Engineering Limited has been wound up. Total revenue of Blue Star Engineering & Electronics Limited was Rs.132.47 crores, as against its previous year's revenue of Rs.36.02 crores, primarily due to the performance of the Professional Electronics & Industrial Systems business, which was transferred from the Company to this subsidiary effective March 31, 2015. This subsidiary achieved a net profit of Rs.2.15 crores for the year under review, as against last year's loss of Rs.18.48 crores. b) Blue Star Qatar (WLL) This company is principally engaged in the business of designing, engineering, installation, maintenance, mechanical, electrical and plumbing contracts, and all works relating to heating, ventilation and air conditioning systems. Its total income for the year ended March 31, 2016 was Rs.71.36 crores as compared to Rs.87.62 crores in the previous financial year. Net profit after tax of this venture for the year ended March 31, 2016 was Rs.1.84 crores as compared to Rs.3.90 crores in the previous year. The Company has reassessed its effective control and interest in this venture, and has given necessary accounting treatment of the same in the Consolidated Financial Statement. The Company shall provide a copy of the annual accounts of subsidiary companies to the members, on their request in writing. Its annual accounts will also be kept open for inspection by any member at the registered office of the Company. It will also be uploaded on the corporate website. Joint Venture Companies: a) Blue Star M & E Engineering (Sdn) Bhd This company is principally engaged in the field of mechanical, electrical and plumbing contracting, which includes operation and maintenance of heating, ventilation and air conditioning systems. There have been no significant changes in the nature of its activities during the financial year. Its total income for the year ended March 31, 2016 was Rs.102.97 crores as compared to Rs.52.59 crores in the previous financial year. Net profit after tax for the year ended March 31, 2016 was Rs.4.97 crores as compared to Rs.2.99 crores in the previous year. b) Blue Star Oman Electro-Mechanical Company LLC During the financial year, the Company had acquired 50% voting rights in Oman Electro Mechanical Contracting Co LLC, a company registered under the Commercial Companies Law of Oman, which was a 100% subsidiary of W J Towell & Co LLC. This entity was thereafter renamed as Blue Star Oman Electro-Mechanical Company LLC. This company is engaged in mechanical, electrical and plumbing contracting services in Oman. The income for the year ended March 31, 2016 was Rs.17.90 crores. Net profit after tax of this venture for the year ended March 31, 2016 was Rs.0.47 crores. CORPORATE RESTRUCTURING Composite Scheme of Amalgamation of Blue Star Infotech Limited and Blue Star Infotech Business Intelligence & Analytics Private Limited with the Company and their respective Shareholders and Creditors: During the year, as a part of the Blue Star Group's strategic corporate restructuring, Blue Star Infotech Limited (BSIL) sold its IT business undertaking to Infogain India Private Limited and divested its shareholding in its three overseas subsidiaries to Infogain Corporation, USA. In addition, at its meeting held on September 29, 2015, your Board of Directors had approved the Composite Scheme of Amalgamation of BSIL and Blue Star Infotech Business Intelligence & Analytics Private Limited (BSIBIA), a subsidiary of BSIL, with the Company and their respective Shareholders and Creditors, subject to applicable approvals from the relevant authorities and sanction by the High Court of Judicature at Mumbai. This merger integrates and enables consolidation of the Group's resources and assets for optimal deployment and enhanced overall efficiencies. Availability of additional resources would help to grow the core air conditioning and refrigeration business of the Company and improve returns to create long-term sustainable value for all shareholders. The Bombay High Court vide its order dated April 16, 2016, sanctioned the said Composite Scheme of Amalgamation, with effect from the Appointed Date of April 1, 2015. Subsequent to the financial year under review, the Composite Scheme of Amalgamation became effective on May 21, 2016. A record date would be accordingly fixed for issuance of equity shares to BSIL shareholders in the approved share swap ratio of seven equity shares of Rs.2 each in the Company for every ten equity shares of Rs.10 each held in BSIL. CLOSURE OF FACTORIES During the year under review, the Company closed its manufacturing operations of its plant at Bharuch, subsequent to the Voluntary Retirement Scheme announced for its workmen of the said plant in the preceding year. The Company had also introduced a Voluntary Retirement Scheme for its workmen at Thane as operating the said plant had become unviable due to high cost of manufacturing, leading to incurring losses for the last four years. All the manufacturing activities at the said plant have since been closed. Consequent to the amalgamation of BSIL and BSIBIA with the Company, the issued capital of your Company would increase by 53,91,383 equity shares of Rs.2 each. Further, your Company had allotted 15,000 equity shares of Rs.2 each on March 16, 2016, and 14,000 equity shares of Rs.2 each on May 25, 2016 on the exercise of stock options under the Blue Star Limited Employee Stock Option Scheme. CONSOLIDATED RESULTS As required under Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred as the 'Listing Regulations') and Section 129 of the Companies Act, 2013 (hereinafter referred to as the 'Act'), the Consolidated Financial Statement has been prepared by the Company, in accordance with the applicable Accounting Standards, which forms part of this Annual Report. A statement containing the salient features of the financial statements of the subsidiaries, joint ventures and associate companies in Form AOC-1, as required under Rule 5 of the Companies (Accounts) Rules, 2014, forms part of the Consolidated Financial Statement. The Consolidated Financial Statement for the year reflects a total income of Rs.3,786.95 crores as compared to Rs.3,190.43 crores for the previous year. The Company has achieved a consolidated net profit of Rs.108.38 crores as compared to Rs.54.18 crores in the previous year. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO The Company incurred a total expenditure of Rs.49.82 crores on research and development for the year as against Rs.40.74 crores in the previous year. During the year, the Company clocked a significant increase in its foreign exchange earnings from export of its products, software services, commission and other income, aggregating to Rs.349.09 crores as against Rs.197.15 crores in the previous year. There was a corresponding increase in foreign exchange outflow, which stood at Rs.925.46 crores as compared to Rs.861.14 crores in the previous year. The information on Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo, as required under Section 134(3)(m) of the Act, read with Rule 8 of the Companies (Accounts) Rules, 2014, is annexed herewith as Annexure 1. DIRECTORS a) Directors and Key Managerial Personnel (KMP): Mr Satish Jamdar, Managing Director of the Company, opted for early retirement from the office of Managing Director and Director of the Company w.e.f. April 1, 2016. He had been associated with the Company for about two decades in various capacities. The Board places on record its appreciation of the invaluable contribution and guidance provided by him. In view of the said early retirement, there was a vacancy in the office of the Managing Director in the Company. Mr Vir S Advani was considered for being appointed as Managing Director of the Company and Mr B Thiagarajan as Joint Managing Director of the Company w.e.f. April 1, 2016. Mr Vir S Advani has contributed immensely to the Company's growth and has been instrumental in leading the strategic transformation of its various business processes to position it on the growth path as a highly competitive player in the global HVAC space. With his strategic thinking, Mr B Thiagarajan has successfully steered the Company to acquire increased market share and profits in the white goods space in India and positioned it as a contender in international markets. The terms and conditions of their appointment and remuneration have been provided in the Notice convening the 68th Annual General Meeting. Mr Suneel M Advani, Director of the Company, who is retiring by rotation at the ensuing Annual General Meeting, offers himself for re-appointment. b) Declaration by Independent Directors The Company has received necessary declaration from each Independent Director of the Company under Section 149(7) of the Act that they meet with the criteria of their independence laid down in Section 149(6) of the Act, read with Regulation 25 of the Listing Regulations. c) Formal Annual Evaluation Pursuant to the provisions of Section 178 of the Act, read with Regulation 17 of the Listing Regulations, the Board of Directors carried out an annual evaluation of the performance of the Board as a whole, the Directors individually and the working of the committees of the Board. In a separate meeting of Independent Directors held on March 23, 2016, the performance of Non-Independent Directors, performance of the Board and the performance of the Chairman were evaluated, taking into account the views of the Executive and Non-Executive Directors. This would be further deliberated by the Board to ensure effective implementation of the findings of the evaluation. MEETINGS OF BOARD OF DIRECTORS There were 7 Meetings of the Board of Directors during the year under review; i.e. on May 29, 2015; July 28, 2015; September 29, 2015; October 26, 2015; January 29, 2016; March 8, 2016 and March 11, 2016. The gap between these Meetings was within the period prescribed under the Act and Regulation 17 of the Listing Regulations. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the provisions contained in Section 134(3)(c) read with Section 134(5) of the Act, the Directors would like to state that: a) in the preparation of the annual accounts for the financial year ended March 31, 2016, the applicable accounting standards have been followed along with proper explanation relating to material departures; b) 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 the Company as at March 31, 2016, and of the profit of the Company for that period; c) the Directors have 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; d) the Directors have prepared the annual accounts for the year ended March 31, 2016, on a going concern basis; e) the Directors have laid down internal financial controls to be followed by the Company, and that such internal financial controls are adequate and are operating effectively; and f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws, and that such systems are adequate and operating effectively. STATUTORY AUDITORS M/s S R B C & CO LLP, Chartered Accountants (Regn No. 324982E/E300003) were appointed as the Statutory Auditors of the Company at the Annual General Meeting held on July 28, 2014 to hold office for a term of five years, i.e. till the conclusion of the Annual General Meeting to be held for the financial year 2018-19, subject to ratification of their appointment at every Annual General Meeting during the said term. The Board of Directors of the Company, at its meeting held on May 30, 2016, has recommended ratification of appointment of M/s S R B C & CO LLP as the Statutory Auditors of the Company for financial year 2016-2017 by the members at the ensuing Annual General Meeting. The Company has received a letter from M/s S R B C & CO LLP, Chartered Accountants, to the effect that ratification of their appointment, if made, would be in accordance with the relevant provisions of Chapter X of the Act, read with Rule 4(1) of the Companies (Audit and Auditors) Rules, 2014. The Report given by the Auditors on the Financial Statement of the Company is part of the Annual Report. There has been no qualification, reservation, adverse remark or disclaimer given by the Auditors in their Report. AUDIT COMMITTEE The Audit Committee of the Company comprises Mr Shailesh Haribhakti, Mr Pradeep Mallick and Mr M K Sharma. Mr Shailesh Haribhakti is the Chairman of the Committee. Mr Vir S Advani has stepped down as a member of the Audit Committee w.e.f. May 30, 2016, consequent to his elevation to the position of Managing Director of the Company. The composition of the Audit Committee is in compliance with the requirements of Section 177 of the Act and Regulation 18 of the Listing Regulations. The charter of the committee is in conformity with the Act and the Listing Regulations as more particularly set out in the Corporate Governance Report, which forms a part of this Report. During the year under review, there was no instance wherein the Board had not accepted any recommendation of the Audit Committee. VIGIL MECHANISM FOR DIRECTORS AND EMPLOYEES Pursuant to the provisions of sub-sections 9 and 10 of Section 177 of the Act and as per the Listing Regulations, the Company has established a Vigil Mechanism to enable the Directors and employees of the Company to report concerns of any unethical behaviour, unacceptable and improper practices or suspected fraud. The Company has a Whistle Blower Policy in place which has also been uploaded on its website. An Ethics Committee has been constituted comprising the Chief Financial Officer, HR Head and Company Secretary (Ethics Officer) to administer this Policy. This Policy has adequate safeguards against victimisation of the whistle blower and ensures protection of the whistle blower's identity. In addition, as part of the vigil mechanism framework, an independent internal audit mechanism has also been put in place to review and report instances of non compliances with laws, regulations and policies to the Audit Committee. The Company has also adopted a Code of Conduct which is uploaded on the website of the Company. The Audit Committee reviews on a quarterly basis, complaints, if any, and implements corrective actions, whenever necessary. INTERNAL FINANCIAL CONTROLS The Company has established an internal control system, commensurate with the size, scale and complexity of its operations. In order to enhance the standards of controls and governance, the Company has adopted COSO 2013 framework to ensure that robust internal financial controls exist in relation to operations, financial reporting and compliance. Significant features of the Company's internal control system are: • A well-established, independent, Internal Audit team operates in line with best governance practices. It reviews and reports to the Audit Committee about compliance with internal controls and the efficiency and effectiveness of operations as well as key process risks. • The Audit Committee annually reviews internal audit plans, significant audit findings and adequacy of internal controls. • Self certification of adherence to key internal controls, as part of control self assurance by process owners, monitors and reviewers. • The Company also maintains a comprehensive information security policy and undertakes continuous upgrades to its IT systems for strengthening automated controls. During the year, the internal controls were tested and found effective, as part of the Management's control testing initiative. Accordingly, the Board, with concurrence of the Audit committee, is of the opinion that the Company's Internal Financial Controls were adequate and effective for the year ended March 31, 2016. LOANS, GUARANTEES AND INVESTMENTS Details of loans, guarantees and investments covered under the provisions of Section 186 of the Act, as may be applicable, are given in the Financial Statement. CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES All related party transactions that were entered into during the financial year were on an arm's length basis and in the ordinary course of business. All the related party transactions are approved by the Audit Committee. In view of this, disclosure in form AOC-2 has not been provided as the same is not applicable to the Company. There are no material transactions with any related party as defined under Section 188 of the Act, read with Companies (Meetings of Board and its Powers) Rules, 2014. A policy governing the related party transactions has been adopted and the same has been uploaded on the Company's website. RISK MANAGEMENT The Company has constituted a Risk Committee comprising Mr Suneel M Advani, Mr Vir S Advani, Mr B Thiagarajan and Mr Neeraj Basur. Mr Vir S Advani is the Chairman of this Committee. Mr Satish Jamdar, Chairman of the Committee, stepped down as a member w.e.f. January 29, 2016 due to his impending retirement from the Company. The Committee has adopted a formal charter outlining its terms of reference. The Committee also oversees and monitors effectiveness of the implementation of various elements of the risk management framework across the Company. The Company has also set up a core risk management team comprising its senior management. As a part of the enterprise-wide risk management initiative, a process and framework have been established that involve identification of key risks significant to the Company, assigning appropriate risk rating, formulating adequate mitigation plans, and institutionalising implementation of these action plans to manage and mitigate all the identified risks. Key residual risks, along with their mitigation action plans are reviewed by the Board. CORPORATE SOCIAL RESPONSIBILITY (CSR) The CSR Committee comprises Mr Suneel M Advani, Mr B Thiagarajan and Ms Shobana Kamineni. Mr Suneel M Advani is the Chairman of this Committee. Mr Satish Jamdar stepped down as a member of the Committee w.e.f. January 29, 2016 due to his impending retirement from the Company. During the year under review, the Company was required to spend an amount of Rs.134 lakhs towards activities as stipulated under Schedule VII of the Act, of which an amount of Rs.118.56 lakhs has been spent. The brief outline of the CSR Policy and the initiatives undertaken by the Company on CSR activities during the year, along with the rationale for the amount that could not be spent are set out in Annexure 2 of this Report in the format as prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. The Policy is also available on the website of the Company. NOMINATION AND REMUNERATION COMMITTEE The Nomination and Remuneration Committee comprises Mr Gurdeep Singh, Mr Ashok M Advani, Mr Suneel M Advani and Mr Pradeep Mallick. Mr Gurdeep Singh is the Chairman of this Committee. The Committee is constituted in line with the requirements mandated by the Act and of the Listing Regulations. The terms of reference of the Committee are in conformity with the said requirements, as more particularly set out in the Corporate Governance Report, which forms a part of this Report. MANAGERIAL REMUNERATION Details of the ratio of the remuneration of each Director to the median employee's remuneration and other details, in terms of Section 197(12) of the Act, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given below Non-Executive Directors of the Company are paid sitting fees and commission as per the statutory provisions and, within the limits approved by the shareholders. The ratio of remuneration and percentage increase for Non-Executive Directors Remuneration is therefore not considered for the purposes above. The details of remuneration of Non-Executive Directors are provided in the Corporate Governance Report. PARTICULARS OF EMPLOYEES Particulars of employees as required under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are required to be annexed to the Board's Report. In accordance with the provisions of Section 136 of the Act, the Annual Report excluding the aforesaid information is being sent to all the members of the Company and others entitled thereto. Any member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company. EMPLOYEE STOCK OPTIONS The Nomination and Remuneration Committee of the Board of Directors of the Company, inter alia, administers and monitors the Employees' Stock Option Scheme of the Company in accordance with the SEBI (Share Based Employee Benefits) Regulations, 2014. Details of the shares issued under Employee Stock Option Plan (ESOP), as also the disclosures, in compliance with Section 62 of the Act, and Rule 12 of Companies (Share Capital and Debentures) Rules, 2014, and SEBI (Share Based Employee Benefits) Regulations, 2014 are set out in Annexure 3 to this Report. SECRETARIAL AUDIT REPORT Pursuant to the provisions of Section 204 of the Act, read with the Rules therein, the Secretarial Audit Report given by M/s N L Bhatia & Associates, Practicing Company Secretaries has been provided as per Annexure 4 to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. COST AUDITORS In terms of the provisions of Section 148 of the Act, read with the Companies (Cost Records and Audit) Amendment Rules, 2014, the Board of Directors has, on the recommendation of the Audit Committee, appointed M/s Narasimha Murthy & Co, Hyderabad, Cost Accountants, as Cost Auditors, to conduct cost audit for the financial year ended March 31, 2016. As required under the Act, the remuneration payable to the cost auditor is required to be placed before the members in a general meeting for their ratification. Accordingly, a resolution seeking members' ratification for the remuneration payable to Cost Auditors, forms part of the Notice. EXTRACT OF THE ANNUAL RETURN Pursuant to Section 92(3) and Section 134(3)(a) of the Act, read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of annual return in Form MGT-9 has been provided as per Annexure 5 to this Report. DEPOSITS The Company has not accepted any deposit from the public falling within the ambit of Section 73 of the Act and the Companies (Acceptance of Deposits) Rules, 2014. MANAGEMENT DISCUSSION AND ANALYSIS REPORT The Management Discussion and Analysis Report for the year under review, as stipulated under the Listing Regulations, is annexed to this report. CORPORATE GOVERNANCE The Company is committed to maintaining the highest standards of Corporate Governance and adhering to the disclosure norms as set out by Securities and Exchange Board of India. The Report on Corporate Governance, as stipulated under Regulation 27 of the Listing Regulations, forms part of the Annual Report. The certificate from the Auditors of the Company confirming compliance with the conditions of Corporate Governance, as stipulated under Regulation 27 of the Listing Regulations, has been annexed with this report. MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE COMPANY There have been no material changes and commitments affecting the financial position of the Company, which have occurred between the end of the financial year under review and the date of this report. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS There have been no significant and material orders passed by any regulators or courts or tribunals, impacting the going concern status of the Company and its future operations. DISCLOSURES UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013 Your Company has zero tolerance for sexual harassment at workplace and has adopted a Policy on prevention, prohibition and redressal of sexual harassment at workplace, in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules thereunder for prevention and redressal of complaints of sexual harassment at workplace. All employees (permanent, contractual, temporary and trainees) are covered under this Policy. The Company has set up an Internal Complaints Committee to redress complaints received regarding sexual harassment. The Company organises workshops and awareness programmes at regular intervals for sensitising the employees with the provisions of the Act. During the year under review, 2 complaints with allegations of sexual harassment were filed with the Company, and the same were investigated and resolved as per the provisions of the Act. ACKNOWLEDGMENTS The Directors place on record, their sincere appreciation for the assistance, guidance and co-operation provided by the Government of India and other regulatory authorities. The Directors thank the financial institutions and banks associated with your Company for their support as well. The employees of Blue Star Limited are instrumental in the Company scaling new heights year after year, and their commitment and contribution is deeply acknowledged. Shareholders' involvements are greatly valued. The Directors look forward to your continuing support. For and on behalf of the Board of Directors Ashok M Advani Chairman PLACE : Mumbai: DATE May 30, 2016 |