DIRECTORS' REPORT & MANAGEMENT DISCUSSION AND ANALYSIS Your Directors are pleased to present the Fifty First Annual Report together with the Audited Financial Statements for the year ended 31st March, 2015. 2. DIVIDEND Your Directors have recommended a dividend of Rs. 1 per share, being 10% of the paid-up equity capital of the Company for the year ended 31st March, 2015. The Corporate Dividend Tax of Rs. 0.10 crore will be payable on the total dividend amount of Rs. 0.49 crore. The Dividend, if approved will be paid to those members whose names appears on the Register of Members / list of Beneficiaries as on 18th September, 2015. 3. RESERVES During the year under review, Rs. 25 crore was transferred to the General Reserve. 4. OVERVIEW OF ECONOMY & PERFORMANCE OPERATIONS After witnessing a low GDP growth in 2013-14, the year 2014-15 saw a moderate improvement in the economic climate. A new majority government at the Centre was formed after the historic general elections in May, 2014. There were high expectations that a strong Government, not constrained, by coalition politics, will usher in significant reforms that can accelerate the growth in the medium terms. However, despite positive sentiments, the year 2014-15 saw lackluster momentum in the investment cycle. The economy continued to battle with severe challenges from subdued demand and contraction of industrial production. Against the above back-drop growth in demand for our products in Automotive, Railway and Industrial segment remained sluggish throughout the year. Despite these constraints and a challenging environment, the Company posted improved results with higher sales and increased investment income. The turnover of the company increased by 4% to Rs. 110.25 crores from Rs. 106.26 crores in the previous year. It was achieved with a focused approach on its Export & Domestic aftermarket business. Investment income during the year was substantially higher at Rs. 40.01 crores, as against Rs. 31.49 crores for the previous year. This was achieved with judicious deployment of funds in high yielding assets. The gross profit of the Company increased by 27% from Rs. 28.25 crores to Rs. 35.93 crores. After considering interest of Rs. 0.16 crores, depreciation of Rs. 6.46 crores and Other Income of Rs. 0.27 crores, the Profit Before Tax was Rs. 29.58 crores and net Profit after providing Tax of Rs. 3.78 crores was Rs. 25.80 crores. Looking ahead, an effective implementation of the economic agenda will hold the key to the nation's progress. The Government's new initiative of 'Make in India' should bring back the investment cycle and the year 2015-16 may prove to be a year in transition before the economy accelerates on a fast track growth. Our Company is capable of meeting the growing customer demands with capacity expansion and the introduction of new products. In the Investment segment, there will be some pressure mainly because of declining interest rates and NPA challenges. The Company will continue to deploy its funds judiciously in high yielding assets but capital protection will be high on our agenda. The Company participated at the Automechanika Fair at Frankfurt, Germany in September, 2014, thus improving its exposure to new products and global markets. The Company entered into a Long Term Settlement with the workmen at its Bhandara plant for a period of 3 years, effective from August, 2014. The Company's Joint Venture "Compo ADVICS India Pvt. Ltd." has commenced commercial production of disc brake pads for Passenger Vehicles effective from 22nd September, 2014 at Bhalgaon, Aurangabad. There were a few teething problems related to manufacturing, which are being appropriately handled. There were no changes in the nature of business of the Company during the year also there were 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, up to the date of this report. 5. SHARE CAPITAL OF THE COMPANY The paid-up equity share capital of your Company is Rs. 4,92,30,000/- (Rupees Four crore Ninety Two Lakhs Thirty Thousand only) divided into 49,23,000 Equity Shares having face value of Rs. 10 (Rupee Ten) each. 6. PRODUCTION RANGE Your Company is engaged in the manufacture & marketing of fiber based Friction Materials, consisting of Brake Liners, Roll Linings, Clutch Facings, Disc Brake Pads used in Heavy and Light Trucks, Passenger Cars, 2 / 3 wheelers, off-road-vehicles and construction & Mining equipment. Composition Brake Blocks for the Railways are also an important part of the Company's product portfolio. 7. MANAGEMENT DISCUSSION AND ANALYSIS 7.1 OPPORTUNITIES, THREATS & BUSINESS OUTLOOK The long term prospects for the Indian economy remains bright owing to the growth in internal consumption driven by the country's demographic division, rapid urbanization, growth of manufacturing and infrastructure development. In the short term, with the revival of business confidence coupled with positive actions on reforms, infrastructure and inclusive growth by the government, the economy is likely to develop positively. The Company foresees an improvement in demand from the automotive sector, including the commercial vehicle segment. This should improve the order-book from both the OEM's and the aftermarket customers. The Company is gearing-up to meet this additional demand by upgrading its technology and improvement in manufacturing processes. The Company has also planned to install the necessary balancing equipment, in order to enhance its production capacity. A scenario of falling interest rates on investments and tough business conditions are posing a challenge to the investment income of the Company. However, the Company will continue to adopt a prudent and cautious approach for its investments. 7.2 RISKS AND AREAS OF CONCERN The Company has laid down a well-defined Risk Management Policy covering the risk mapping, trend analysis, risk exposure, potential impact and risk mitigation process. A detailed exercise is being carried out to identify, evaluate, manage and monitoring of both business and non-business risk. The Board periodically reviews the risks and suggests steps to be taken to control and mitigate the same through a properly defined framework. Although, market conditions are likely to remain competitive, future success will depend upon offering improved products through technology innovation and productivity. The Company continues to invest in these areas. The investment activity of the Company remains robust and is expected to continue to enhance the Company's profitability. 7.3 HRD/INDUSTRIAL RELATIONS The thrust of the Company's human resource development is to create a responsive and market-driven organization with emphasis on performance. Continuous appraisal of personnel competence the personnel in line with job requirements, are carried out to provide for necessary training to personnel thereby facilitating higher levels of output and productivity. The industrial relations at Paithan & Bhandara remain satisfactory. 8. SUBSIDIARY, JOINT VENTURES AND ASSOCIATE COMPANIES Your Company has a Joint Venture Company namely "Compo Advics (India) Private Limited". The company had no subsidiary or associate company during the year under review. Pursuant to the provisions of Section 129(3) of the Companies Act, 2013, a statement containing salient features of the financial statements of the Joint Venture Company in Form AOC 1 is attached to the financial statements of the Company. 9. EXTRACT OF ANNUAL RETURN An extract of Annual Return in Form MGT 9 is annexed herewith as "Annexure A". 10. DIRECTORS AND KMP a) Retirement by rotation In accordance with the provisions of Section 152 of the Companies Act, 2013 read with Companies (Management and Administration) Rules, 2014 and Articles of Association of the Company, Mr. Raghu Mody (DIN: 00053329), Executive Chairman & Whole time Director of the Company, retires by rotation at the ensuing Annual General Meeting and being eligible, has offered himself for re-appointment and your Board recommends his re-appointment. b) Appointment The Board of Directors of the Company has appointed Mrs. Sakshi Mody (DIN: 06518139) as an Additional (Non-executive) Director of the Company w.e.f. 2nd September, 2014 and holds office upto the date of ensuing Annual General Meeting and Mr. Deepak Sethi (DIN: 07165462) was appointed as an Additional Independent Director of the Company w.e.f. 23rd April, 2015 for a period of 5 years, subject to approval of shareholders at the ensuing Annual General Meeting. The Company has received notices along with requisite deposit from a member of the Company under Section 160 of Companies Act, 2013 proposing their candidature for the office of Director of the Company. Your Board recommends their appointment. c) Cessation The Board records its appreciation for the valuable contribution made by Mr. Brijmohan Rai Bahl, the Independent Director of the Company, who passed away on 24th January, 2015, after a brief illness. d) Declaration from Independent Directors The Company has received declaration from all the Independent Directors of the Company confirming that they have met the criteria of independence as prescribed both under Section 149(6) of the Companies Act, 2013 and under Clause 49 of the Listing Agreement entered into with the Stock Exchanges. e) Annual Performance and Board Evaluation Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, 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 Audit and Nomination & Remuneration Committees. The Board has devised questionnaire to evaluate the performances of each of executive and non-executive and Independent Directors. Such questions are prepared considering the business of the Company and the expectations that the Board have from each of the Directors. The evaluation framework for assessing the performance of Directors comprises of the following key areas: i. Attendance of Board Meetings and Board Committee Meetings; ii. Quality of contribution to Board deliberations; iii. Strategic perspectives or inputs regarding future growth of Company and its performance; iv. Providing perspectives and feedback and going beyond information provided by the management. The details of the programmes for familiarization of Independent Directors with the Company, their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates, business model of the Company and related matters are put up on the website of the Company at the link: <http://www.hindcompo.com/investor->relations/documents/familiarisation-programes-for-independent-directors.pdf 11. MANAGERIAL REMUNERATION AND OTHER DETAILS: The necessary details / disclosures of Ratio of Remuneration to each Director to the median employee's remuneration and other details pursuant to the Section 197(12) of the Companies Act, 2013 and as per Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed herewith as "Annexure B". 12. POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION The Board has, on the recommendation of the Nomination & Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management and their remuneration. The Remuneration Policy is stated in the Corporate Governance Report. 13. AUDIT COMMITTEE AND ITS COMPOSITION As on 31st March, 2015, the Audit Committee comprised of Mr. A. B. Vaidya, Mr. Raghu Mody and Lt. Gen. (Retd.) K. S. Brar. Mr. A. B. Vaidya is the Chairman of Audit Committee of the Company. Mr. Amit Goenka, V. P. - Finance and Company Secretary of the Company, acts as Secretary of the Audit Committee. The Audit Committee of the Company reviews the reports to be submitted with the Board of Directors with respect to auditing and accounting matters. It also supervises the Company's internal control, financial reporting process and vigil machanism. 14. MEETINGS OF THE BOARD The Board met five times during the year, the details of which are given in the Corporate Governance Report. The intervening gap between the two consecutive meetings was within the period prescribed under the Companies Act, 2013. 15. DIRECTORS' RESPONSIBILITY STATEMENT Your Directors, to the best of their knowledge and belief and according to the information and explanations obtained by them and as required under Section 134 (5) of the Companies Act, 2013 state 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 that 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; (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; and (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. 16. DEPOSITS During the year under review, the Company has not accepted any deposits within the meaning of Section 73 and 76 of the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules, 2014. 17. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES REFERRED TO IN SECTION 188(1) OF THE COMPANIES ACT 2013 All contracts / arrangements / transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis. During the year, the Company had not entered into any contract / arrangement / transaction with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions. Hence the Company is not required to disclose details of the related party transactions in Form AOC-2 pursuant to clause (h) of sub-section (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014. The policy on Related Party Transactions as approved by the Board of Directors has been uploaded on the website of the Company. The web link of the same is as under: <http://www.hindcompo.com/investor-relations/documents/> related-party-transaction-policy.pdf 18. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 The details of loans, guarantee or investment under Section 186 of the Companies Act, 2013 is given under Notes to Accounts of financial statements. 19. CORPORATE SOCIAL RESPONSIBILITY INITIATIVE Pursuant to the provisions of Section 135 read with Companies (Corporate Social Responsibility) Rules, 2014, the Company has formed Corporate Social Responsibility Committee and a Policy on Corporate Social Responsibility (CSR) has also been formulated by them. As part of its initiatives under CSR, the Company has undertaken project in the area of education. This project is in accordance with Schedule VII of the Companies Act, 2013. The details as per the provisions of Rule 8 of Companies (Corporate Social Responsibility) Rules, 2014 is annexed herewith as "Annexure C". 20. WHISTLE BLOWER/ VIGIL MECHANISM POLICY The Company has a Vigil Mechanism / Whistle Blower Policy to deal with instances of fraud and mismanagement, if any. The mechanism also provides for adequate safeguards against victimization of directors and employees who avail the mechanism and also provide for direct access to the Chairman of the Audit Committee in the exceptional cases. The details of the Vigil Mechanism Policy is explained in the Corporate Governance Report and also posted on the website of the Company. We affirm that during the financial year 2014-15, no employee or director was denied access to the Audit Committee. 21. STATUTORY AUDITORS M/s. Lodha & Company, Chartered Accountants (Firm Registration No. 301051E), Mumbai, the Statutory Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. The Company has received a letter from them to the effect that they are willing to continue as Statutory Auditors and if re-appointed, their re-appointment would be within the limits prescribed under Section 139 of the Companies Act, 2013 and they are not disqualified from being appointed as Auditors. Your Directors recommend the re-appointment of M/s. Lodha & Company, Chartered Accountants, Mumbai, as Statutory Auditors of the Company to hold office from the conclusion of the ensuing Annual General Meeting upto the conclusion of next Annual General Meeting of the Company and to audit financial statements for the financial year 2015-16. 22. COST AUDITORS The Company has appointed M/s. M. R. Pandit & Co., Cost Accountant, Aurangabad, as Cost Auditors of the Company to conduct audit of cost records for the financial year 201516, at a remuneration of Rs. 65,000/- p.a. subject to approval of the shareholders of the Company. However, as per the provisions of Companies (Cost Records and Audit) Rules, 2014 notified on 30th June, 2014, the Company is not required to appoint Cost Auditors any more. 23. SECRETARIAL AUDIT REPORT 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. Manish Ghia & Associates, Company Secretaries to undertake Secretarial Audit of the Company. The Secretarial Audit Report is annexed herewith as "Annexure D" and forming part of this report. 24. INTERNAL AUDIT The Company has appointed M/s. Malpani & Associates, Chartered Accountants, Mumbai, as its Internal Auditor. The Internal Auditor monitors and evaluates the effectiveness and adequacy of internal control system in the Company, its compliances with operating systems, accounting procedures and policies at all locations of the Company and reports the same on quarterly basis to the Audit Committee. 25. REMARKS ON QUALIFICATION BY STATUTORY AUDITORS AND SECRETARIAL AUDITORS There was no qualification / adverse remark in both Statutory and Secretarial Audit Report. 26. CORPORATE GOVERNANCE REPORT Pursuant to Clause 49 of the Listing Agreement entered into with the stock exchange, the following have been made a part of the Annual Report and are attached to this report: • Corporate Governance Report • Auditors' Certificate regarding compliance of conditions of Corporate Governance 27. DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANY'S OPERATIONS IN FUTURE: There was no significant or material order passed by any regulator, court or tribunal, which impacts the going concern status of the Company or will have bearing on Company's operations in future. 28. INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS The Company has in place proper and adequate internal control systems commensurate with the nature of its business, size and complexity of its business operations. Internal control systems comprising of policies and procedures are designed to ensure reliability of financial reporting, compliance with policies, procedures, applicable laws and regulations and that all assets and resources are acquired economically, used efficiently and are adequately protected. 29. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO Details regarding Conservation of energy, technology absorption, foreign exchange earnings and outgo is given in "Annexure E" annexed herewith. 30. INFORMATION UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE The Company has constituted an internal complaint committee under Section 4 of The Sexual Harassment of women at workplace (Prevention, Prohibition and Redressal) Act, 2013. During the year no complaint was filed before the said committee. 31. CAUTIONARY STATEMENT The statements in the Directors' Report and Management Discussion and Analysis cannot be construed as holding out any forecasts, projections, expectations, invitations, offers, etc. within the meaning of applicable securities, laws and regulations. This Report basically seeks to furnish information, as laid down within the different headings to meet the Listing Agreement requirements. 32. APPRECIATIONS The Directors would also like to place on record their sincere appreciation for the continued co-operation, guidance, support and assistance extended during the year under report by our bankers, customers, suppliers and Government agencies. The Board of Directors wishes to express its appreciation for the valuable Contribution made by the employees at all levels during the year under report. For and on behalf of the Board of Directors Raghu Mody Chairman Place : Mumbai Date : 7th May, 2015 |