DIRECTOR'S REPORT 2014-15 Dear Members, Your Directors present the 44th Annual Report on the business and operations of Kinetic Engineering Limited and the Audited Financial Accounts for the financial year ended 31 st March, 2015. Financial Highlights During the financial year 2014-15, the company has made remarkable progress in building the financial strength of the company. Efforts taken for debt reduction and costs rationalization have yielded into strengthening of key financial ratios for the company ensuring a strong success for the business in the long term. As a result, the financial highlights are as follows: Key Take Aways include: • Decrease in material costs: from 60.82% to 58.40%. • Profit for the company of Rs. 10.22 Cr during the year as against a loss of Rs. 59.00 Cr in the previous year. • Decrease in total debt of the company by Rs. 86.16 Cr. Major factors contributing to net profit were as under: - A. Backward integration into forgings and turning to become a 100% vertically integrated facility for transmission assemblies manufacturing B. Rationalisation of businesses to focus on profitable verticals C. Reduction in overheads through re-layout of plant facilities D. Negotiation and arriving at a settlement of FCCB bonds worth $ USD 23 MN E. Settlement of Promoter ICDs worth Rs. 7.25 Crores. Resulting in a net gain to Rs. 26.75 Crores; and resulting in a net profit for the company of Rs. 10.22 The Company has undertaken the strategic decision to transform its traditional 2 wheeler business to auto-components in the year 2009 in order to tap its immense technical expertise and infrastructure available to become a unique and credible supplier of auto parts & systems, focused on transmission assemblies. Overthe period, since the inception, the company has achieved a strong strategic direction to explore the immense potential of this business and has been taking constructive steps to build a robust business ahead. These include: • A Larger Focus on International Customers and make in India initiative • Technology partnerships to add to the company's competitiveness and product portfolio • Focus on transmission assemblies as core business area • Control on costs through backward integration • Upgradation of Facilities anid Equipments • Upgradation of Quality systems ¦ Make in India: In line with the Honorable Prime Ministers Mantra for "Make in India", your company has been the winner of the prestigious EEPC's award for export excellance consecutively for the last 5 years. Taking forward this strength, the company has won various prestigious, high volume business from international customers such as: These businesses are under various stages of development, and are expected to commence in 2014 - 2015 and ramp up in the coming years to the desired volumes. As you can see, your company has been successful in bagging business across the globe amongst diverse market segments and is well poised to grow its business substantially. In addition the company continues to maintain its relationship with existing customers including Mahindra Group, TATA motors, Carraro India and various others. The company has also proudly developed various parts for India's favorite small car Nano's new versions which have recently hit the market. Your company continues to partner with technology suppliers to build horizontal and vertical capabilities and offer to customers end to end solutions as noted below: - The Company is a proud partner with Magna Styer, India as a partner under its existing "technical alliance agreement", whereby MSIA complements KEL's manufacturing capabilities in terms of design, testing and validation of transmission assemblies for its customers. Magna Styer India is a subsidiary of Magna Styer GMBH, Austria, one of the world's largest design xxx - The Company also has a technical agreement with CTI (Chief Transmissions Limited, formerly Taiwan Golden Bee), a Taiwanese company focusing on making CVT's from 50 cc to 1000 cc. The company hopes to expand its CVT business in the growing scooter market in India together with this alliance. - The Company also has developed its strength in forgings through backward integration. The company has recently added 1 hammer and 1 press of 1300 tons and has over 95% of its forgings done in house. These technological partners give the Company a unique position in the market to offer its customer products of international standards at reasonable costs In line with the customer profile, the company has taken various initiatives to upgrade its facilities to international standards. These include: Set up of a modern & automatic assembly line Creation of a conveyorised single piece flow line for high volume customer Addition of in-house press forge shop Addition of new machines for various critical processes like induction hardening and rack rolling. These shops have been upgraded with a new 5 S initiative to maintain cleanliness and automisation required to deliver the precision quality demanded by the business. With a quality system set up in tune with the requirements of ISO 9001, and with ISO/TS16949:2002 certification, the Company plans to leverage its skills in domestic as well as international market, by further striving for total customer satisfaction through relationship building and providing superior products and technological solutions to its custome" The Company has further strengthened its quality systems by an internal quality assessment system called as "KQAA" (Kinetic Quality Assessment and Awards") which reviews and rewards exceptional practices in Quality at each cell. Various efforts and initiatives have been taken to have a larger focus on Kaizens, Pokayoke, Quality Analysis methodlogy, APQP documentation and other systems that will ensure a sustainable effort for the business. The company has launched "KEDS"; a training center called as "Knowledge Enhancement & Development of Skills Center" for its employees in its Ahmednagar facility which focuses on motivational and training of its staff and workers at regular intervals. Overview of Settlement with FCCB holders: A. On 13 February 2008, the Company issued USD 18,000,000 (United States Dollars Eighteen Million) 2% Convertible Bonds due 2013 i.e. 180 (one hundred and eighty) bonds of face value USD 100,000 (United States Dollars One Hundred Thousand)each. B. The Bonds were issued pursuant to the terms of the Offering Circular, the Subscription Agreement and the trust deed dated 13 February 2008 entered into between the Company and the Trustee as amended by a supplemental deed dated 15 February 2013 (each as may be amended and/ or restated from time to time, collectively, the "Trust Deed"). The Company had also entered into an Agency Agreement in relation to the appointment of the Principal Agent, the Registrar, the Conversion Agent and the Transfer Agent. C. The Bonds are listed on the Singapore Exchange Securities Trading Limited, Singapore under ISIN Code: ISIN XS0345165020. D. As per the terms of the Trust Deed, the Bonds were scheduled to be redeemed by the Company on 15 February 2014 (the "Maturity Date") but have not been redeemed, repurchased, cancelled or converted. E. The Bondholders and the Company have discussed and negotiated in good faith, terms and conditions for a full and final settlement of the Bonds and have entered an Agreement to record their understanding. F. Accordingly, the FCCB liability of about Rs. 142 Crores as on 31.03.2015 will be settled as under: 1. Rs. 70 Crores Cash Payment; and 2. By way of issuing 23,40,499 shares of the Company at a price of Rs. 156 per share. The above settlement is subject to approval of RBI and Company will be making an application to RBI. Similarly, Micro Age Instruments Pvt. Ltd. a promoter group Company also agreed to a settlement whereby, its dues of Rs. 7.25 Crores will be settled at Rs. 3.50 Crores by way of issuing 2,24,359 shares of the Company at a price of Rs. 156 pershare. The above referred negotiations and settlements helped the Company to improve its Net Worth to Rs. 41.91 Crores as on 31.03.2015 and reduction of its liabilities byRs. 149.25 Crores. G. Company is also in discussion with Reliance Capital Limited for the settlement of liability. The above referred negotiations will further help the Company to improve its Net Worth and make it a virtually debt free Company. While the global recovery was still slow and witnessing divergent trends, Indian Economy grew at 7.3% in the Financial Year (FY) 2014-15, against 6.9% in 2013-14 (Source: Indian Statistical Office (CSO) of India data). The major contributor was the manufacturing sector which registered 7.1 % growth for the year. The Government has initiated a slew of steps to take the economy forward. INDUSTRY OVERVIEW Industry structure The Auto Component Industry in India has a strong positive multiplier effect as a key driver of economic growth. Indian auto components are exported to more than 160 countries and it is indeed very heartening that component exports have been growing at a CAGR of 29% over the past six years. The major business of your Company comes from exports. Company also benefitted from the strengthening of the rupee. All these factors have helped the Company immensely. Outlook, Opportunities and Threat Your company has successfully bagged business across the globe amongst diverse market segments and is well poised to grow its business substantially. Company also benefitted from the strengthening of the rupee. The Company has got orders however, the same are in development stage and the management is of the view that it is will take another 2 to 3 quarters to operationalise the orders. Deposits During the year under review, your Company did not accept any deposits within the meaning of provisions of Chapter V - Acceptance of Deposits by Companies of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014. Share Capital The paid up equity share capital as on 31 March 2015 was Rs. 13.57 cr. There was no public issue, rights issue, bonus issue or preferential issue etc. during the year. Research & Development Research and development is viewed as crucial for development of the Company. These activities add in expanding and upgrading the product portfolio and improving the offerings to the customers. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo as required under section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is furnished in Annexure I and is attached to this Report. Auditors The auditors M/s P. G. Bhagwat, Chartered Accountants, hold office until the ensuing Annual General Meeting, and have furnished a certificate in terms of Sec. 224(1) of the Companies Act, 1956, about their eligibility. Secretarial Auditor Pursuant to the provisions of section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr. Devendra V. Deshpande, Practicing Company Secretary (Certificate of Practice Number: 6099) to undertake the Secretarial Audit of the Company. In terms of provisions of sub-section 1 of section 204 of the Companies Act, 2013, the Company has annexed to this Board Report as Annexure II, a Secretarial Audit Report given by the Secretarial Auditor. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. Employees Key Managerial Personnel (KMP) The following have been designated as the Key Managerial Personnel of the Company pursuant to sections 2(51) and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: a) Mr.Arun H. Firodia-Chairman b) Ms. Sulajja Firodia Motwani-Vice Chairperson c) Mr.AjinkyaA. Firodia-Managing Director d) Mr. Mukund V. Tasgaonkar - Chief Financial Officer (CFO) e) Mr. RohitPurandare-CompanySecretary(CS) Other than Mr. Pranvesh Tripathi, Company Secretary and Mr. Ravindra Yadav, Company Secretary, none of the KMP has resigned during the year under review. Particulars of Employees and related disclosures In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said Rules are provided in the Annexure forming part of the Annual Report. Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in the Corporate Governance Report which is attached as Annexure III forming part of the Annual Report. Having regard to the provisions of Section 136(1) read with its relevant provision of the Companies Act, 2013, the Annual Report excluding the aforesaid information is being sent to the members of the Company. The said information is available for inspection at the Registered Office of the Company during working hours and any member interested in obtaining such information may write to the Company Secretary and the same will be furnished without any fee and free of cost. Board Meetings and Annual General Meeting During the year, 6 meetings of the Board of Directors were held. The details of the meetings are furnished in the Corporate Governance Report which is attached as Annexure-llltothis Report. During the year 1st April, 2014 to 31st March, 2015, 6 Board Meetings were held on 22nd April, 2014,24th May, 2014, 28th June, 2014, 14th August, 2014, 13th November, 2014, and 12th February, 2015. The 43rd Annual General Meeting (AGM) of the Company was held on 29th September, 2014. Meetings of Independent Directors The Independent Directors of the Company meet before the Board Meetings without the presence of the Chairman & Managing Director or Executive Director or other Non-independent Directors or Chief Financial Officer or any other Management Personnel. These Meetings are conducted in an informal and flexible manner to enable the Independent Directors to discuss matters pertaining to, inter alia, review of performance of Non-independent Directors and the Board as a whole, review the performance of the Chairman of the Company (taking into account the views of the Executive and Non-Executive Directors), assess 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. Audit Committee This Committee comprises of the following Directors viz. Mr. Shirish R. Kotecha (Chairman of the Committee), Mr. Jinendra H. Munot, Mr. Ramesh J. Kabra and Mr. K. H. Sancheti. All the Members are Independent Directors. All the Members of the Committee possess strong accounting and financial management knowledge. The Company Secretary of the Company is the Secretary of the Committee. All the recommendations of the Audit Committee were accepted by the Board. Directors and Key Managerial Personnel During the year under review, Mr. Ashish Kumar Agarwal, Nominee Director stepped down from the Board. The Board wishes to place on record its deep sense of appreciation for the valuable contributions made by him to the Board and the Company during his tenure as Director. Mr. A. H. Firodia, Director, retires by rotation at the forthcoming Annual General Meeting, and being eligible offers himself for re-appointment. The Independent Directors of the Company have declared that they meet the criteria of Independence in terms of Section 149(6) of the Companies Act, 2013 and that there is no change in their status of Independence. At the Board Meeting held on May 22, 2014, Mr. Ajinkya A. Firodia, was appointed as Managing Director of the Company for a tenure of 5 years, Mr. Mukund Tasgaonkar, was appointed as Chief Financial Officer w.e.f. 24th May, 2014 and Mr. Pranvesh Tripathi, resigned from the post of Company Secretary as on 24th May, 2014, thereafter Mr. Ravindra Yadav, was appointed as Company Secretary on 24th May, 2014. Mr. Ravindra Yadav resigned from the post of Company Secretary on 5th July, 2014. Mr. Rohit Purandare, was then appointed as Company Secretary on IstAug. 2014 and was designated as "Key Managerial Personnel" of the Company pursuant to Sections 2(51) and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Extract of Annual Return Pursuant to sub-section 3(a) of section 134 and subsection (3) of section 92 of the Companies Act, 2013 read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of the Annual Return as on 31st March, 2015 in Form No. MGT 9 is attached herewith as Annexure IV and forms part of this Report. Board Evaluation Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, Independent Directors at their meeting without the participation of the Non-independent Directors and Management, considered/evaluated the Boards' performance, Performance of the Chairman and other Non-independent Directors. The Board have undergone a formal review which comprised Board effectiveness survey, 360 degree and review of materials. This was delivered by an external specialist and resulted in a full Board effectiveness report and Directors' feedback. This is further supported by the Chairman's Annual Director Performance Review. The Board subsequently evaluated its own performance, the working of its Committees (Audit, Nomination and Remuneration and Stakeholders Relationship Committee) and Independent Directors (without participation of the relevant Director). The criteria for performance evaluation have been detailed in the Corporate Governance Report which is attached asAnnexure-lll to this Report. Material changes and commitments affecting the financial position of the Company which have occurred between March 31, 2015 and May 12, 2015 (date of the Report) There were no material changes and commitments affecting the financial position of the Company between the end of financial year (March 31,2015) and the date of the Report (August 13,2015). GOVERNANCE Corporate Governance Your Company has a rich legacy of ethical governance practices many of which were implemented by the Company, even before they were mandated by law. Your Company is committed to transparency in all its dealings and places high emphasis on business ethics. A Report on Corporate Governance along with a Certificate from the Statutory Auditors of the Company regarding compliance with the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement which is attached as Annexure III to this Annual Report. Vigil Mechanism The Vigil Mechanism as envisaged in the Companies Act, 2013, the Rules prescribed thereunder and the Listing Agreement is implemented through the Company's Whistle Blower Policy to enable the Directors and employees of the Company to report genuine concerns, to provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the Chairman of the Audit Committee. Whistle Blower Policy of the Company is available on the Company's website at the web-link: www. ki netici nd ia .com/i nvestors Further details are available in the Report on Corporate Governance that forms part of this Annual Report. Contracts or Arrangements with Related Parties All Related Party Transactions entered into during the year were in the Ordinary Course of Business and on Arm's Length basis. No Material Related Party Transactions, i.e. transactions exceeding ten percent of the annual financial turnover as per last audited financial statements, were entered during the year by your Company. Accordingly, the disclosure of Related Party Transactions to be provided under section 134(3)(h) of the Companies Act, 2013, in Form AOC-2 is not applicable. The policy on Related Party Transactions as approved by the Board is uploaded on the Company's website andean be accessed at web link: www.kineticindia.com/investors Internal Control System The company has adequate internal control system commensurate with its size and nature of business for ensuring efficiency of operations, adherence to management policies and protection of company's assets. The company's Audit Committee periodically reviews the internal control systems and compliance with Company's policies, procedures and laws. Cautionary Statement The report contains estimates and expectations, which could be 'forward looking'. Actual results, however, might differ from estimates and expectations expressed or implied in this report, as the same are affected by many other uncertainties, including raw material availability & prices, changes in Government regulations, tax regimes, economic developments and other incidental facto' Directors responsibility statement Pursuant to section 134(5) of the Companies Act, 2013, your Directors, based on the representations received from the Operating Management, and after due enquiry, confirm that: (a) in the preparation of the annual accounts for the Financial Year ended 31st March, 2015, the applicable accounting standards have been followed; (b) the Directors had in consultation with Statutory Auditors, selected 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 31st March, 2015 and of the profit of the Company for the year ended on that date; (c) the Directors have taken proper and sufficient care 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 irregularities; (d) the Directors have prepared the annual accounts on a going concern basis; (e) the Directors have laid down adequate Internal Financial Controls to be followed by the Company and such Internal Financial Controls were operating effectively during the Financial Year ended 31st March, 2015; (f) 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 throughout the Financial Year ended 31 st March, 2015. Remuneration Policy of the Company The Remuneration policy of the Company comprising the appointment and remuneration of the Directors, Key Managerial Personnel and Senior Executives of the Company including criteria for determining qualifications, positive attributes, independence of a Director and other related matters has been provided in the Corporate Governance Report which is attached as Annexure-lll to this Report. Particulars of loans, guarantees or investments under Section 186 of the Companies Act, 2013 Details of loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in Note A-11 of the Notes to the financial statements. Significant and Material Orders Passed by the Regulators or Courts or Tribunals impacting the Going Concern status of the Company There are no significant and material orders passed by the Regulators or Courts or Tribunals which would impact the going concern status of the Company. Acknowledgement The directors express their sincere thanks to Central & State Governments, Financial Institutions, banks who have extended their support in form of Credit Facilities, suppliers and stakeholders for the support extended to the Company and also wish to place on record their appreciation of the dedicated services rendered by the employees of the Company. For and on behalf of the Board of Directors A. H. Firodia Chairman Place : Pune, Date : August 13, 2015 Regd. Off.: D1 Block, Plot No.18/2, MIDC, Chinchwad, Pune-411019. |