BOARD'S REPORT Dear Members, Your Directors have pleasure in presenting this 56th Annual Report together with the Audited Statements of Accounts for the year ended on March 31, 2016. You being our valued partners in the Company, we share our vision of growth with you. Our guiding principles are a blend of realism and optimism which has been and will be the guiding force of all our future endeavors. PERFORMANCE OF THE COMPANY Standalone Financial Performance For the year ended on March 31, 2016, the Company has achieved a Turnover of Rs.51,884.39 Lacs as against Rs.50,319.24 Lacs in the previous year, representing a marginal increase in Turnover by 3.11%. For the year ended on March 31, 2016, the Company has achieved Earnings Before Interest (Finance Cost), Depreciation & Amortization and Tax (EBIDTA) of Rs.10,467.42 Lacs as against the EBIDTA of Rs.10,650.35 Lacs during the previous year. The Net Profit of the Company for the year 2015-16 was Rs.4315.20 Lacs compared to Rs.3318.58 Lacs during the previous year, representing an increase of 30.03% over last year. The Company holds total unexecuted orders about Rs.72,202.87 Lacs as on March 31, 2016. This will help us to continue to have sustainable growth in coming years. Consolidated Operations The Audited Consolidated Financial Statements of your Company as on March 31, 2016, which forms part of the annual report, have been prepared pursuant to the provisions of SEBI (LODR) Regulations, 2015 and also as per the applicable Accounting Standards on Consolidated Financial Statements (AS 21, AS 23 & AS 27) issued by the Institute of Chartered Accountants of India. Your Company's total consolidated turnover for the year ended on March 31, 2016 was Rs.1,28,534.56 Lacs as against Rs.1,32,889.05 Lacs in the previous year. For the year ended on March 31, 2016, the Company has achieved Earnings Before Interest (Finance Cost), Depreciation & Amortization and Tax (EBIDTA) of Rs.15,000.91 Lacs as against the EBIDTA of Rs.16,976.04 Lacs during the previous year. The Consolidated Net Profit of the Company for the year 2015-16 after minority interest and share of profit/ loss of associates was Rs.3821.67 compared to Rs.1634.43 Lacs during the previous year, representing an increase of 133.82%. During the year under review, your Company's consolidated net worth is Rs.56,190.87 Lacs as against Rs.53,556.81 Lacs for previous year. Dividend Your Directors have recommended dividend of 55% i.e Rs.1.10/- per share on 10,89,35,843 equity shares of Rs.2/- each for the year ended on March 31, 2016 (previous year Rs.1.10/- per share on 10,89,35,843 equity shares of Rs.2/- each). The said dividend, if approved by the shareholders, would involve a cash outflow of Rs.1,442.23 Lacs, including dividend distribution tax of Rs.243.94 Lacs against Rs.1,449.03 Lacs including dividend distribution tax of Rs.250.74 Lacs in the previous year. During the year, the unclaimed dividend pertaining to the financial year 2007-08 had been transferred to the Investor Education & Protection Fund. Transfer to Reserves The Company proposes to transfer Rs.1,500 Lacs to the General Reserve out of the amount available for appropriation. Amalgamation of Elecon EPC Projects Limited with Elecon Engineering Company Limited The Board at its meeting held on April 27, 2016 unanimously approved the scheme of Amalgamation ("Scheme") of Elecon EPC Projects Limited with the Company in accordance with the provisions of Section 391-394 of the Companies Act, 1956 and/or any corresponding provisions of Companies Act, 2013 subject to necessary statutory approvals. Accordingly, upon Scheme becoming effective, the Company will issue to the shareholders of Elecon EPC Projects Limited 37 (Thirty Seven) equity shares of face value of Rs.2/- each fully paid-up of the Company for every 2 (Two) equity shares of face value of Rs.10/- each fully paid-up held by them in Elecon EPC Projects Limited. The appointed date of the Scheme is March 30, 2015. Share Capital The paid up Equity Share Capital of the Company as on March 31, 2016 was Rs.2,178.72 Lacs. During the year under review, the Company has not issued any shares with differential voting rights nor granted stock options nor sweat equity. Directors' shareholding in the Company, as on March 31, 2016, is given in Extract of Annual Return. Finance Cash and Cash Equivalent as at March 31, 2016 was Rs.1056.36 Lacs. The Company continues to focus on judicious management of its working capital. Receivables, inventories and other working capital parameters were kept under strict check through continuous monitoring. Fixed Deposits The Company has not accepted any fixed deposits from the public falling within the ambit of Section 73 of the Companies Act, 2013 and The Companies (Acceptance of Deposits) Rules, 2014. There are no unclaimed deposits as on March 31, 2016. Particulars of Loans, Guarantees or Investments The Details of Loans given, Guarantees and Securities provided and Investments made by the Company in compliance with the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements. Directors & Key Managerial Personnel (KMPs) Appointment & Resignation of Directors Shri Rakesh Makhija, who was appointed as an Additional Director of the Company w.e.f. August 14, 2015 in the category of Non-Executive Independent Director, resigned from the Directorship of the Company w.e.f. November 27, 2015 on account of his preoccupations. The Board of Directors has placed on record its appreciation for the valuable services provided by him during his short association with the Company. Director Retire by rotation In accordance with the provisions of the Companies Act, 2013 and the Articles of Association of the Company, Shri Pradip M. Patel, Director retires by rotation at the forthcoming Annual General Meeting of the Company and being eligible, offers himself for re-appointment. The Board recommends his appointment for your approval. Board Evaluation Pursuant to the provisions of the Companies Act, 2013 and Regulation 17 of SEBI (LODR) Regulations, 2015, the Board has carried out an annual performance evaluation of its own performance, the directors individually as well as the evaluation of the working of its Committees. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report. Meetings During the year four Board Meetings, four Audit Committee Meetings, one Corporate Social Responsibility Committee Meeting, two Nomination and Remuneration Committee Meetings, one Stakeholders Relationship Committee Meeting and one Separate Meeting of Independent Directors were held. The details of which are given in the Corporate Governance Report. The intervening gaps between the Board meetings were within the period prescribed under the Companies Act, 2013. Composition of Various Committees Details of various committees constituted by the Board as per the provisions of erstwhile Clause 49 of the Listing Agreement and SEBI (LODR) Regulations, 2015 and Companies Act, 2013 are given in the Corporate Governance Report which forms part of this report. Independent Directors The Independent Directors met on May 1, 2015 without the attendance of Non-Independent Directors and members of the management. The Independent Directors reviewed the performance of Non-Independent Directors and Board as a whole and assessed the quality, quantity and timeliness of flow of information between the Company Management and the Board that is necessary for the Board to effectively and reasonably perform their duties. The Company has received necessary declarations from each Independent Director under Section 149(7) of the Companies Act, 2013, that he/she meets the criteria of independence laid down in Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of SEBI (LODR) Regulations, 2015. Familiarization Programme for Independent Directors Further it is informed that the familiarization programme for Independent Directors of the Company was held on October 28, 2015. The detail of such programme is also updated on the Company's website <http://elecon>. com/index.php/investor-relations. Remuneration Policy The policy for remuneration of Directors, Key Managerial Personnel and Senior Management Personnel is set out in "Annexure A" which forms part of the Board Report. Disclosures by Directors None of the Directors of your Company is disqualified as per provisions of Section 164(2) of the Companies Act, 2013. Your Directors have made necessary disclosures, as required under Companies Act, 2013. Change in KMP During the year under review, Shri Paresh Shukla resigned as Company Secretary and Compliance Officer of the Company w.e.f. August 31, 2015. Shri Parthiv Parikh has been appointed as Company Secretary and Compliance Officer of the Company w.e.f January 29, 2016. Directors' Responsibility Statement Pursuant to Section 134(5) of the Companies Act, 2013, with respect to the Directors' Responsibility Statement, the Board of Directors, hereby confirm that: (a) in the preparation of the annual accounts, 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 at the end of the financial year and of the profit of the Company for the period; (c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this 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 on a going concern basis; and (e) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; (f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Related Party Transactions All contracts or arrangements with related parties, entered during the financial year were at arm's length basis and in the ordinary course of the Company's business. All such contracts or arrangements were entered into only with prior approval of the Audit Committee. No material contract or arrangement with related parties were entered into during the year under review. Therefore, there is no requirement to report any transaction in Form No. AOC-2 in terms of Section 134 of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014. The policy on Related Party Transactions as approved by the Board is uploaded on the Company's website at <http://elecon.com/wp-content/uploads/2016/06/> Policy-on-RPT.pdf. None of the Directors nor the Key Managerial Personnel has any pecuniary relationships or transactions vis-a-vis the Company. Auditors Statutory Auditors M/s. Thacker Butala Desai, Chartered Accountants, Statutory Auditors of the Company had been appointed as Statutory Auditors of the Company for two (2) years at the 55th Annual General Meeting of the Company till the conclusion of 57th Annual General Meeting in the year 2017. As per the provisions of Section 139 of the Companies Act, 2013 the Company has placed the matter relating to their appointment for ratification by members at the Annual General Meeting. Pursuant to Section 139 of the Companies Act, 2013 and other applicable provisions, if any, the Board, on the recommendation of the Audit Committee and subject to the approval of members, appointed M/s. B S R & Co. LLP, Chartered Accountants as Joint Statutory Auditors of the Company for a period of five (5) years i.e. from the conclusion of ensuing Annual General Meeting of the Company for the financial year 2015-16 until the conclusion of Annual General Meeting for the financial year 2020-21. Accordingly, a Resolution seeking approval for appointment M/s. B S R & Co. LLP, Chartered Accountants as Joint Statutory Auditors of the Company is included in the Notice convening the Annual General Meeting. M/s. Thacker Butala Desai, Chartered Accountants & M/s. B S R & Co. LLP, Chartered Accountants have confirmed their eligibility under Section 141 of the Companies Act, 2013 and the Rules framed there under for appointment as Statutory Auditors/Joint Statutory Auditors of the Company. As required under SEBI (LODR) Regulations, 2015, the Auditors have also confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India. Cost Auditors Pursuant to Section 148 of the Companies Act, 2013 read with The Companies (Cost Records and Audit) Rules, 2014, the Cost Audit records maintained by the Company in respect of its manufacturing activity are required to be audited. Your Directors had, on the recommendation of the Audit Committee, appointed M/s. Y. S. Thakar & Co., Cost Auditor to audit the cost accounts of the Company for the year ended on March 31, 2017 on a remuneration of Rs.52,500/-p.a. 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 Member's ratification for the remuneration payable to M/s. Y. S. Thakar & Co., Cost Auditors is included in the Notice convening the Annual General Meeting. Secretarial Auditors 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 CS Ashwin Shah, a Company Secretary in Practice to undertake the Secretarial Audit of the Company. The Report on the Secretarial Audit carried out by him during the year 2015-16 is annexed herewith as "Annexure B". Subsidiary, Joint Venture & Associate Companies As on March 31, 2016, the Company has 15 Direct & Indirect Subsidiary Companies. During the year under review, no new Company has been incorporated / acquired as Subsidiary, Joint Ventures or Associate Companies and no Subsidiary Company ceased to be a Subsidiary Company of the Company. During the year, Elecon Peripherals Limited ceased to be an Associate of the Company w.e.f. October 28, 2015. Pursuant to the provisions of Sections 129,134 and 136 of the Companies Act, 2013 read with rules framed there under and SEBI (LODR) Regulations, 2015, your Company had prepared Consolidated Financial Statements of the Company and its Subsidiaries and a separate statement containing salient features of financial statement of Subsidiaries/Associates/Joint Ventures forms part of the Annual Report. The Annual Financial Statements and related information of the Subsidiary Companies shall be made available for inspection by the shareholders of the holding and Subsidiary Companies on all working days during business hours for a period of 21 days before the date of the Annual General Meeting and the same will also be placed on the website of your Company. Any member who is interested in obtaining the Audited Financial Statements of the Subsidiary Companies may obtain the same by writing to the Company Secretary of the Company. Financial Performance - Subsidiary Companies Elecon Transmission International Ltd. (Mauritius - consolidation) During the year under review, turnover of Benzlers Radicon Group has dropped by 6% from GBP 32.5 million (2014-15) to 30.6 million (2015-16). However there is increase in EBITDA from 1.55% (2014-15) to 7.20% (2015-16). Finance Cost and SG&A Cost has reduced by 44% and 29% respectively which supported to convert loss of GBP 2.59 million (2014-15) to Profit Before Tax of GBP 0.11 million (2015-16). Benzlers group (Nordic and Europe) Economic growth in Sweden is strong, while growth in the other Nordic countries is much weaker and their uncertain economic prospects coupled with currency fluctuations are hampering business investment. Sales in SEK are almost the same as last year. However, due to an 8% currency depreciation against GBP, sales have dropped from GBP 14.1 million to GBP 12.9 million. The currency rate GBP/SEK moved from SEK 11.79 in 2015 to SEK 12.76 in 2016. EBITDA on the other hand grew from GBP -0.25 million (-1.8%) to GBP 0.89 million (+6.9%) due to cost savings and more efficient processes. Benzler Groups sales performance during the financial year - despite very strong competition - is in line with business strategy of changing from a product orientated company to a sales and service company. We have put in place resources in order to meet market demands and expectations in product availability, digital communications and marketing activities. The marketing of Elecon products into the European Union has been well received and a German company has placed a large order. We are also working closely with another German company on a large project work. Benzler group recently received our largest single order for gears for wind energy from a Nordic customer and the customer has informed us, that some of these products will be exported to the Far East and Mediterranean area. Radicon Transmission UK Ltd. The forthcoming referendum on Thursday, June 23, 2016 on the UK's membership of the EU has contributed to an uncertain outlook, and we expect business investment growth to be slow during the first half of this year. The referendum has affected economic confidence in UK as we have seen firms rein in investment intentions, even though their financial position remains strong. We expect the growth momentum to pick up in the second half of this year, after the EU referendum. The contraction of heavy industries continues in the UK. Coal production has all but stopped and other industries such as steel have come under increasing pressures from China. The crowded market place in UK, in conjunction with few large project opportunities poses challenges. The competition in market place is very fierce but in spite of this we are committed to grow our business. In Africa there is potential to grow Radicon business in several African countries and all effort is being made to achieve our goal in spite of currency devaluations, low mining activities. In UK, sales dropped by 7.2% from GBP 15.1 million in FY 15, to GBP 14.0 million in FY 16. In FY 15 we had received two substantial project orders worth in excess of GBP 2 million and our sales in FY 16 recorded the second highest revenue figure since the Elecon acquisition. We are focused to grow our sales revenue and are recruiting new key account managers and have increased our sales and marketing budget to achieve our objective. The highlight in FY 16 was that we managed to increase EBITDA by 30% from GBP 1 million in FY 15 to GBP 1.3 million in FY 16 despite the drop in sales revenue. We are continuing to integrate the Benzler Radicon group into the Elecon group, whilst taking Elecon resources, contacts, and products to increase our market exposure and product offerings to customers. The Benzler Radicon management team is committed to increase customer service and support as this ultimately makes the Benzler Radicon brand stronger in the market place and gives us an advantage to sell our products. We have put in place additional cost reduction policies, which are showing positive results. In FY 17, we intent to put in place our back-office support team in Vallabh Vidyanagar, Gujarat, India to assist the Benzler Radicon group companies to grow their business. Elecon USA Transmission Ltd., (Radicon USA) -a Radicon UK subsidiary The Trading conditions in USA remain challenging with full year sales decreasing by 6.9 % to USD 9.5 million compared with USD 10.2 million in 2014-15, however focus on margin improvement and development of a broader customer base returned an increase in margin from 18.2% to 23.7%. The customer base growth has been achieved through the expansion of our sales and marketing team combined with the penetration of Radicon in to further national distribution partners, which was completed toward the end of the fiscal period. It is anticipated that this broader reach will continue to expand with additional customer accounts being retained providing a more stable platform for future growth. EBITDA reduced to USD 0.3 million from USD 0.7 million as a consequence of the increase in selling costs however we foresee that the timing of this investment will benefit the sales and profitability in the new financial year and beyond. Elecon Singapore Pte. Ltd. Elecon Singapore Pte. Ltd., Singapore is a Wholly-Owned Subsidiary of the Company. It is a marketing arm of your Company and engages in the business of selling and supply of your Company's products in Singapore, Indonesia, Malaysia, Laos, Vietnam, Philippines, Taiwan, South Korea, North Korea, Cambodia, Russia, China, Japan, Myanmar, Thailand, Mongolia and other far East countries. Total Revenue of Elecon Singapore Pte. Ltd. has dropped by 11.30% from SGD 2.45 million (2014-15) to SGD 2.17 million (2015-16) and an EBITDA has also decreased by 88.45% from SGD 0.40 million (2014-15) to 0.05 million (2015-16). Elecon Middle East FZE, Dubai (Formerly known as Elecon Middle East FZCo) Elecon Middle East FZE, Dubai is a Wholly-Owned Subsidiary of the Company. During the year under review, the nomenclature of Elecon Middle East FZCo was changed to Elecon Middle East FZE. It is a marketing arm of your Company and engages in the business of selling and supply of your Company's products in U.A.E. (Abu Dhabi, Dubai, Sharjah, Ajman, Umma Al Quwain, Ras Al Khaimah), Saudi Arabia, Oman, Yemen, Jordan, Kuwait, Iran, Iraq, Syria, Turkey, Bahrin, Qatar, Afghanistan, Palestine, Algeria, Comoros, Djibouti, Lebanon and other Middle East Countries. Elecon Middle East FZCo, has achieved a total revenue growth of 19.18%, from AED 11.19 million (2014-15) to AED 13.33 million (2015-16) and an EBITDA growth of 14.84% from 1.93 million (2014-15) to 2.21 million (2015-16). Financial Performance - Joint Venture Eimco Elecon (India) Limited (EEIL) Eimco Elecon (India) Limited (EEIL), a listed Company, was promoted by Elecon Engineering Company Limited and Envirotech Corporation, USA in 1974. In 1989, Tamrock OY, a Finnish Corporate Giant acquired stake held by Envirotech Corporation, USA in EEIL. In 1997, Sandvik AB, a Swedish Company, has acquired major stake in Tamrock OY, thereby taken its controlling interest. At present, Sandvik Group holds 25.10% shares in EEIL. EEIL is engaged in the business of manufacturing of a very wide range of underground mining machinery viz. Air Powered Rocker Shovels, Electro Hydraulic Side Dump Loaders and Electro-hydraulic and Air powered Load Haul Dumpers used as loading machines in both the underground Coal mines and Metalliferous mines. EEIL is the market leader in the underground mining machinery business. It enjoys market share of more than 80% which is a very big achievement for any Company. During the year ended on March 31, 2016, Turnover of EEIL is reported at Rs.13,957.93 Lacs as against Rs.19,640.71 Lacs in the previous year. For the year ended on March 31, 2016, EEIL Earnings Before Interest (Finance Cost), Depreciation & Amortization and Tax (EBIDTA) including other income has also gone down to Rs.2646.33 Lacs as against the EBIDTA of Rs.3,485.65 Lacs during the previous year. Vigil Mechanism / Whistle Blower Policy The Company has a Vigil Mechanism/Whistle Blower Policy for Directors and Employees to report their concerns about unethical behavior, actual or suspected fraud or violation of the Company's Code of Conduct. The Mechanism provides for adequate safeguards against victimization of Director(s) and Employee(s) who avail of the mechanism. The Vigil Mechanism/Whistle Blower Policy is available on Company's website at <http://elecon.com/wp->content/uploads/2014/09/WBP-EECL.pdf. Corporate Governance As per Chapter IV of SEBI (LODR) Regulations, 2015, separate reports on Corporate Governance, Management Discussion & Analysis and a certificate from the Company's Auditors form part of this Report. Your Company is committed to maintain the highest standards of Corporate Governance, reinforcing the valuable relationship between the Company and its Stakeholders. Corporate Social Responsibility (CSR) Initiatives In accordance with the provisions of Section 135 of the Companies Act, 2013 and Rules framed thereunder your Company has adopted a policy for CSR and the Board has constituted a Committee for implementing the CSR activities. Composition of the Committee and other details are provided in Corporate Governance Report. The Company has implemented various CSR projects directly and / or through implementing agency and the projects undertaken by the Company are in accordance with Schedule VII of the Companies Act, 2013. The report on CSR activities as required under the Companies (Corporate Social Responsibility Policy) Rules, 2014 is given in "Annexure C", forming part of this report. Significant and Material Orders passed by the Regulators or Courts There are no significant material orders passed by the Regulators /Courts/ Tribunals which would impact the going concern status of the Company and its future operations. Reporting of Frauds There was no instance of fraud during the year under review, which required the Statutory Auditors to report to the Audit Committee, Board and /or Central Government under Section 143(12) of the Companies Act, 2013 and Rules framed thereunder. Risk Management Although it is not mandatory for the Company, the Board of the Company has constituted a Risk Management Committee to frame, implement and monitor the risk management plan for the Company. The Board at its meeting held on January 29, 2016 reconstituted Risk Management Committee, particulars of which are mentioned in the Corporate Governance Report. The said committee is responsible for reviewing the risk management plan and ensuring its effectiveness. The Audit Committee has additional oversight in the area of financial risks and controls. Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo 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 D". Particulars of Employees The information required pursuant to Section 197 of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, is annexed to this Report as "Annexure E", forming part of this Report. Prevention of Sexual Harassment at Workplace The Company has zero tolerance towards sexual harassment at the 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. As required under law, an Internal Complaints Committee (ICC) has been constituted for reporting and conducting inquiry into the complaints made by the victim on the harassment at the work place. During the year under review, there were no complaints pertaining to sexual harassment. The policy on Sexual Harassment at Workplace is placed on the Company's website. Extract of Annual Return The details forming part of the extract of the Annual Return in form MGT - 9 is annexed herewith as "Annexure F". Insurance The Company takes a very pragmatic approach towards insurance. Adequate cover has been taken for all movable and immovable assets for various types of risks. Industrial Relations/Personnel Your Company is committed to upholding its excellent reputation in the field of Industrial relations. Through continuous efforts, the Company invests and improvises development programmes for its employees. Acknowledgement Your Directors are highly grateful for the unstinted guidance, support and assistance received from the Government, Financial Institutions and Banks. Your Directors are thankful to all valuable Stakeholders of the Company viz. shareholders, customers, dealers, vendors, suppliers and business associates for their faith, trust and confidence reposed in the Company. Your Directors wish to place on record their sincere appreciation for the dedicated efforts and consistent contribution made by the employees at all levels, to ensure that the Company continues to grow and excel. For and on behalf of Board of Directors Prayasvin B. Patel Chairman & Managing Director DIN: 00037394 Place: Vallabh Vidyanagar Date: April 27, 2016 |