DIRECTORS' REPORT TO THE MEMBERS Your Directors have pleasure in presenting this Report with Audited Annual Accounts of the Company for the year ended 31st March, 2016. FINANCIAL PERFORMANCE Your company achieved a total revenue of Rs. 5,299.78 million for the financial year 2015-16, against last year's Rs. 4,601.42 million - an increase of 15%. Your company also earned a net profit of Rs. 363.79 million for the financial year 2015-16, against last year's Rs. 225.75 million - an increase of 61%.This is a result of improved sales, improved inventory turns, reduction in debtors and overall improvement in operating efficiency. The Government has been taking various steps to promote the manufacturing sector like 'Make in India' programme etc. and though these measures have created a favourable market sentiment, it is our opinion that it would take some more time for changes to be visible at ground level. In the capital goods industry, we largely depend upon the revival of core sectors like Oil & Gas, Cement, Steel and Power etc. but there has been no significant investment yet in these sectors. Considering this scenario, the Company is putting in more efforts in its international initiatives while focusing on improving the domestic market share. DIVIDEND The Board of Directors had declared an interim dividend of Rs. 7/- (70%) per Equity Share of Rs. 10/- each for F.Y. 2015-16 at its meeting held on 14th March, 2016 and the same has been paid to eligible members and/or beneficial owners. In lieu of this, Board does not recommend any further dividend by considering the interim dividend paid as final dividend. FIXED DEPOSIT The Company had discontinued accepting fixed deposits since 2001-02. As such as of 31st March, 2016 there are no fixed deposits outstanding. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS No Loans, Guarantees or Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given / provided / made during the reporting year. 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 of the Company to which the financial statements relate and the date of this report. COMMENTS ON AUDITORS' REPORT There are no qualifications, reservations or adverse remarks or disclaimers made by M/s P G Bhagwat & Co., Statutory Auditors in their Audit Report except a modified opinion in respect of application for approval to the Central Government for waiver of recovery of payment of excess remuneration paid to Executive Chairman, details of which are given below. During the year, Company had made an application to Central Government (The Ministry of Corporate Affairs) seeking approval for the remuneration payable to the Executive Chairman due to inadequacy of profits for the financial year 2014-15. The Ministry of Corporate Affairs vide its letter dated 15th January, 2016 rejected the application on the ground that Company had paid remuneration exceeding 5% of net profits to the Executive Chairman during the financial years 2012-13 & 2013-14 without obtaining prior approval of the Central Government and further directed recovery of excess remuneration paid amounting to Rs. 20.04 million (Rs.13.10 million net of tax). Company was advised to make an application to the Central Government for seeking waiver of recovery of this amount and accordingly Company has made the requisite application to the Central Government. The said application is pending for approval and therefore Company has not recovered any amount nor accounted it as recoverable in the books of accounts as on 31st March, 2016. Your Company is also seeking approval of Members by way of postal ballot for the same. There are also no qualifications, reservations or adverse remarks in the Secretarial Audit Report of M/s SVD & Associates, Partnership firm of Company Secretaries. ENERGY CONSERVATION Every year your Company adopts the best available technology and enhances energy efficiency of its operations to reduce energy consumption. Your Company is continually improving its operations to become more energy efficient. It also works on minimizing waste generated and adopting 5R (Reduce, Reuse, Recycle, Refuse & Recover) practices to reduce the impact on environment. Your Company celebrates Energy Conservation Week and Environment Day every year. Your Company also organises various programmes on global warming, green house gas emissions (GHG emission), compressed air leakage, water conservation, e-waste recycling to create awareness amongst employees and society. AWARDS During the year under review, your Company has been appreciated for ENCON efforts by : • 1st prize at 9th State Level EC Award to Hadapsar plant for financial year 2014-15 from MEDA (Maharashtra Energy Development Agency); • National award by CII for Energy Efficient unit to Hadapsar plant; and • Certificate of Merit to Saswad plant in National Energy Conservation Award 2015 competition by Government of India. During the year under review, your Company has received: • Gold Award Trophy in Quality Improvement Success Stories in Competition organized by Quality Circle Forum India. • Awards in the 29th National Convention on Quality Concepts - NCQC2015 organised by QCFI. - 2 Nos. "Par Excellence Award Trophy". - 2 Nos. "Excellence Award Trophy". • "Certificate of Merit" in recognition of its significant progress in Total Quality Management in Ravi Kirloskar Quality Prize for Business Excellence - 2014-15. • "Supplier of EHS Excellence Award" received from GE Oil & Gas for the excellent and consistent performance in EHS practices for the last 4 years. DIRECTORS Dr Aditi Pant was appointed as an Independent Director on the Board in the last Annual General Meeting held on 29th July, 2015. The Board of Directors have co-opted Dr Ajay Kumar Dua as an Additional Director on the Board with effect from 14th March, 2016. He ceases to be a Director at the ensuing Annual General Meeting and being eligible offers himself for appointment as an Independent Director for a period of 5 years. Details of the proposal for appointment of Dr Ajay Kumar Dua are mentioned in the Explanatory Statement under Section 102 of the Companies Act, 2013 of the Notice of the 41st Annual General Meeting. The Company has received notice in writing proposing his candidature for the office of Director. The necessary resolution for his appointment is being placed before you. Your Company has received necessary declarations from all its Independent Directors stating that they meet the criteria of independence as provided in Sub-section (6) of Section 149 of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Mr Rahul C Kirloskar, Executive Director retires by rotation at the ensuing Annual General Meeting and being eligible offers himself for re-appointment. Mr Rahul C Kirloskar, Executive Chairman has been appointed as Whole Time Director designated as Executive Chairman upto 22nd January, 2017. He is further appointed as Whole Time Director designated as Executive Chairman for a period of 5 years with effect from 23rd January, 2017 subject to approval of Members in the ensuing Annual General Meeting. Details of the proposal for appointment of Mr Rahul C Kirloskar are mentioned in the Explanatory Statement under Section 102 of the Companies Act, 2013 of the Notice of the 41st Annual General Meeting. Mr Aditya Kowshik, Managing Director has been appointed as Managing Director upto 23rd October, 2016. He is further appointed as Managing Director for a period of 3 years with effect from 24th October, 2016 subject to approval of Members in the ensuing Annual General Meeting. Details of the proposal for appointment of Mr Aditya Kowshik are mentioned in the Explanatory Statement under Section 102 of the Companies Act, 2013 of the Notice of the 41st Annual General Meeting. Board Evaluation The annual evaluation framework for assessing the performance of Directors comprises of the following key areas: a) Attendance for the meetings, participation and independence during the meetings. b) Interaction with Management. c) Role and accountability of the Board. d) Knowledge and proficiency. e) Strategic perspectives or inputs. The evaluation involves assessment by the Nomination and Remuneration Committee and Board of Directors. A member of the Nomination and Remuneration Committee and Board does not participate in the discussion of his / her evaluation. Directors Appointment and Remuneration Policy The Board has on the recommendation of the Nomination and Remuneration Committee framed a 'Remuneration Policy' for selection and appointment of Directors and for their remuneration. The Remuneration Policy is annexed as Annexure "1". Number of Meetings of the Board A calendar of meetings is prepared and circulated in advance to the Directors. During the year, five Board Meetings were convened and held, the details of which are given in the Corporate Governance Report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Directors' Responsibility Statement To the best of their knowledge and belief and according to the information and explanation obtained by them, the Directors in terms of clause (c) of Sub-section (3) of Section 134 state that: (a) In the preparation of the annual accounts, the applicable accounting standards have been followed and there have been no material departures. (b) Accounting policies as mentioned in notes to the financial statements have been selected and applied 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, 2016 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 Companies Act, 2013 for safeguarding the assets of the Company and for prevention and detection of fraud and other irregularities. (d) The annual accounts have been prepared on a going concern basis. (e) Proper internal financial controls have been laid down for the Company and that such internal financial controls are adequate and are operating effectively. (f) Proper systems to ensure compliance with the provisions of all applicable laws are in place and that such systems are adequate and operating effectively. AUDITORS a. Statutory Auditors The Auditors of the Company, M/s P G Bhagwat, Firm Registration No. 101118W, Chartered Accountants, Pune, retire at the conclusion of the ensuing Annual General Meeting. As per Section 139 and other applicable provisions of the Companies Act, 2013 and rules made thereunder, M/s P G Bhagwat, Firm Registration No. 101118W, Chartered Accountants, Pune are eligible for re-appointment for a term of five years from the conclusion of 41st Annual General Meeting till the conclusion of 46th Annual General Meeting subject to ratification at every Annual General Meeting. The requisite certificate pursuant to Section 139(1) of the Companies Act, 2013 has been received by the Company from M/s P G Bhagwat, Chartered Accountants. Resolution seeking Members approval for re-appointment of M/s P G Bhagwat, Chartered Accountants, Pune, is included at Item No. 4 of the Notice convening the 41st Annual General Meeting. b. Cost Auditors The Board of Directors had, on the recommendation of the Audit Committee, appointed M/s Sudhir Govind Jog, a proprietary firm of Cost Accountant to audit the cost accounts of the Company for the financial year 2016-17 on a remuneration of Rs 5 Lacs. As required under the Companies Act, 2013, 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 M/s Sudhir Govind Jog, a proprietary firm of Cost Accountant for the year ended on 31st March, 2017 is included at Item No. 5 of the Notice convening the 41st Annual General Meeting. c. Secretarial Audit 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 M/s SVD & Associates, a partnership firm of Company Secretaries in Practice to undertake the Secretarial Audit of the Company. The Report of the Secretarial Audit is annexed herewith as "Annexure 2". CORPORATE GOVERNANCE The Company endeavors to maximize the wealth of the shareholders by managing the affairs of the Company with a pre-eminent level of accountability, transparency and integrity. A report on Corporate Governance including the relevant Auditors' Certificate regarding compliance with the conditions of Corporate Governance as stipulated in Regulation 34 (3) read with Part E of Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 alongwith Management Discussion and Analysis is annexed and forms part of the Annual Report. EXTRACT OF ANNUAL RETURN The extract of Annual Return as provided under Sub-section (3) of Section 92 of the Companies Act, 2013 is annexed as "Annexure 3". PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES All related party transactions except the transactions as mentioned in form AOC 2, which were entered into during the financial year were on an arm's length basis and in the ordinary course of business. The said form AOC 2 is annexed as "Annexure 4". There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict with the interest of the Company at large. The statement that the transactions are at arm's length and in the ordinary course of business is supported by a certificate from the Managing Director. The Company has also obtained the certificate from a Chartered Accountant on periodical basis. All Related Party Transactions have been placed before the Audit Committee for their approval and to the Board, as and when required. In certain cases prior omnibus approval of the Audit Committee is obtained on a yearly basis. The transactions entered into pursuant to the omnibus approval so granted are reviewed by the Audit Committee on a quarterly basis. The policy on Related Party Transactions as approved by the Board is uploaded on the Company's website. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Company has an Internal Control System commensurate with the size, scale and complexity of its operations. The scope of the Internal Audit is decided by the Audit Committee and the Board. To maintain its objectivity and independence, the Board has appointed an external Auditor, which reports to the Audit Committee of the Board on a periodic basis. The Internal Auditor monitors and evaluates the efficacy and adequacy of internal control systems in the Company, its compliance with operating systems, accounting procedures and policies for various functions of the Company. Based on the report of Internal Auditor, process owners undertake corrective action wherever required in their respective areas and thereby strengthen the controls further. Audit observations and actions taken thereof are presented to the Audit Committee of the Board. During the year, Internal Financial controls laid down by the Board were tested for adequacy & effectiveness and no reportable material weakness in the design or operations were observed. The Company has policies and procedures in place for ensuring proper and efficient conduct of its business, safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records and timely preparation of reliable financial information. Statutory Auditors have also certified adequacy of internal financial controls system over financial reporting. RISK MANAGEMENT The provisions related to the Risk Management Committee of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 are not applicable to the Company. However the Company has a Corporate Risk Management Committee and Segment Level Risk Committees. The Company has a Risk Management framework to identify, evaluate business risks and opportunities. This framework seeks to minimize adverse impact on the business objectives and enhance the Company's competitive advantage. The risk framework defines the risk management approach across the enterprise at various levels. To strengthen the risk management framework, Company has formed segment level risk committees to identify, analyze and mitigate the potential risks. The segment level risk committees report to the Corporate Risk Management Committee. The Corporate Risk Management Committee reports to the Audit Committee and the Board. SUBSIDIARY COMPANY As on 31st March, 2016, the Company had one wholly owned subsidiary and an associate company. Kirloskar RoadRailer Limited is a Wholly Owned Subsidiary of the Company. The Subsidiary Company is set up for providing RoadRailer Services. Your Company expects that the RoadRailer services will commence from the current financial year. Kirloskar Chillers Private Limited is an Associate Company. The Company is engaged in manufacture of a wide range of chillers i.e. Centrifugal Screw and Reciprocating and their Spares and After Sales Service. During the year under review, the net revenue of Kirloskar Chillers Private Limited is Rs 822.24 million and profit after tax is Rs 75.45 million. In accordance with Section 129(3) of the Companies Act, 2013, the Company has prepared a consolidated financial statement of the Company which includes its subsidiary and associate Company and forms part of the Annual Report. A statement containing salient features of the subsidiary and associate Company is also included in the Annual Report. In accordance with third proviso of Section 136(1) of the Companies Act, 2013, the Annual Report of the Company containing therein its standalone and consolidated financial statements has been placed on the website of the Company namely www.kirloskarkpcl.com CORPORATE SOCIAL INITIATIVES As part of its initiatives under Corporate Social Responsibility (CSR), the Company has undertaken projects in the areas of Promoting Education, Health and Sanitation. These projects are largely in accordance with Schedule VII of the Companies Act, 2013. Sanitation, being a national agenda, your Company has taken initiative to create awareness about WaSH (water, sanitation and hygiene) among 8000 + school children from 17 nearby schools by deploying 110 employee volunteers and training these volunteers to implement various WaSH modules throughout the academic year. Your Company has provided preventive health care to 15000+ school children from nearby 12 schools (8 schools in the vicinity of Hadapsar Plant and 4 schools in the vicinity of Saswad Plant) by offering them eye check up. Refractive error was identified in about 750 students who were given free spectacles, thus significantly improving their vision. To create awareness about HIV AIDS in the general community (approximately reaching out to about 3000 people) by way of campaigns conducted by training 20 GET (Graduate Engineer Trainee) volunteers. HIV Positive Boot Camp was conducted to induct and train these GET volunteers and in turn HIV AIDS awareness campaigns were conducted for 1000 members of the general community and 2000 students from 5 Junior Colleges. Your Company has contributed an amount of Rs 7.50 million by way of donation to the Corpus Fund of KIAMS for education, health and sanitation. CSR Policy in brief: The focus of CSR activities will be on Education, Environment and Health. While devising projects, care should be taken to promote the education, health and sanitation, protect the environment and minimize adverse impact, if any, on the society at large. The Company is committed to uphold the interests of all the stakeholders by implementing the various guidelines like business excellence models. The Company shall spend at least 2% (two percent) of the average net profits, calculated in accordance with the provisions of the Companies Act, 2013, and Rules thereunder, made by it in three immediately preceding financial years, in every financial year. Any income or surplus arising out of CSR activities undertaken by the Company will form part of the corpus earmarked for CSR activities. Any surplus arising out of any of the CSR activities carried out by the Company will not be treated as part of the business profits of the Company. The Annual Report on CSR activities is annexed herewith as "Annexure 5". CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is annexed herewith as "Annexure 6". SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS There are no significant material orders passed by the Regulators / Courts which would impact the going concern status of the Company and its future operations. VIGIL MECHANISM / WHISTLE BLOWER POLICY The Company has established a vigil mechanism for Directors and employees to report their genuine concerns, details of which have been given in the Corporate Governance Report. PARTICULARS OF EMPLOYEES Disclosures with respect to the remuneration of Directors and Employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 have been annexed as Annexure 7 to this Report. In accordance with the provisions of Section 197(12) of the Companies Act, 2013 and Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the names and other particulars of employees are available at the Registered Office of the Company during working hours for a period of 21 days before the Annual General Meeting and shall be made available to any shareholder on request. DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013 The Company is an equal opportunity employer and consciously strives to build work culture that promotes dignity of all employees. Awareness programmes were conducted across the company to sensitize the employees to uphold the dignity of their colleagues at their workplace, mainly with respect to prevention of sexual harassment. Pursuant to Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 read with Rule 14 of the Rules issued thereunder, an Internal Committee constituted under the said Act has confirmed that no complaint / case has been filed / pending with the Company during the year. EMPLOYEES Your Company has taken several initiatives for Human Resource development and retention. Manpower planning by classifying them into Frontend, Internal and Support functions is under way. Competency mapping, identifying training needs through the 70-20-10 format, career counseling and Management Development Programs are some of the initiatives adopted by your Company. Training programmes are designed to enhance skills, knowledge and behaviour. Employees are motivated through empowerment and rewards for good performance. Adoption of 5S across the Company has led to a clean and healthy environment. Though the Employee Engagement score has reduced slightly from 71% to 68%, the Company has a benchmark score on 11 out of the 21 engagement drivers. Your Company has 817 permanent employees on its rolls as on 31st March, 2016. ACKNOWLEDGEMENT The Directors wish to convey their appreciation to all your Company's employees for their enormous personal efforts as well as their collective contribution to your Company's performance. The Directors would also like to thank the shareholders, customers, dealers, suppliers, bankers and all other stakeholders for their continued support and their confidence in its management. For and on behalf of the Board of Directors sd/- Rahul C Kirloskar Executive Chairman DIN 00007319 Place : Pune Date : 27th April, 2016 |