DIRECTORS' REPORT Dear Members Your Board of Directors take pleasure in presenting the 29th Annual Report for the financial year ended on 31st March 2015. The financial performance is presented below (stand-alone basis). Performance Review 2014-15 While the regulatory and procedural reforms undertaken by the new Government since taking office in June last year did help improve the business climate prevailing in the country, weak demand continued to constrain the private sector activity. Economic activity witnessed a steady, albeit slow recovery through the year. Even amidst this scenario, your Company demonstrated resilience to economic cycles. Sales during the year showed a marginal improvement. Greater emphasis was laid on cost control measures and operational efficiencies. This yielded a profit of Rs.4035.45 lacs during the year, compared to a loss of Rs.443.53 lacs in the previous year. After providing for Rs.1503.82 lacs towards exceptional items (compared to Rs.5653.98 lacs income in the previous year), and a suitable provision for depreciation as per rates in Schedule II of the Companies Act 2013 and amortization of expenses, Profit Before Tax (PBT) was Rs.2531.62 lacs as compared to Rs.5210.45 lacs in the previous year. Net Profit after Tax (PAT) tax and adjustments for the year was Rs.1462.07 lacs as compared to Rs.4501.05 lacs in the previous year. During the year severe damage was caused by Hudhud cycione to stocks, assets and operations in the Company's Lead Acid Plant at Vizianagaram and Nickel and PE Plants at SEZ. Visakhapatnam. The impact of the cyclose was so serve, it resulted in a loss of production for about 30 days and another 30 days partially during restoration. The Company had lodged a claim with the Insurers towards recovery of the losses and also for loss of profit. A suitable provision was made for loss incurred due to damages to Inventory and repairs and restoration expenses including interim settlement in the accounts of the year. Final settlement of the claim is pending with the Insurers. Current year's performance: On the whole overall markets have not shown significant growth. Telecom market demand (which constitutes your Company's prime business segment) continues to be stagnant with a modest growth. Delays in Railway and Defence business segments also have an affect on Company's operations. Your Directors have taken necessary corrective steps and barring unforeseen circumstances, performance of the Company in the coming years is expected to be encouraging. The Management Discussion and Analysis section of the Annual Report presents a detailed business review of the Company. Dividends: Your Directors are pleased to recommend 20% dividend (ie Re.0.20/- per equity share of Re.1 fully paid up share ) (Previous Year 20%) for the Financial Year 2014-15, subject to the approval of the members at the ensuing Annual General Meeting. The proposed dividend including Corporate Dividend Tax will absorb Rs. 609.01 lacs. Transfer to reserves The Company proposes to transfer Rs. 500 lacs to the General reserve out of the amount available for appropriation from current year profits. Subsidiary Companies: The Consolidated Financial Statements of the Company and its subsidiaries, prepared in accordance with the Companies Act, 2013 and applicable Accounting Standards form part of this Annual Report. The Consolidated Financial Statements presented by the Company include the financial results of its subsidiary companies, associates and joint ventures. The Company has four subsidiaries as on March 31, 2015, namely, 1. SCIL Infracon Private Limited 2. HBL Suntech LLP 3. HBL America Inc. 4. HBL Germany GmBH, Germany There is one associate Company namely Naval Systems & Technologies Pvt Ltd (NSTL) within the meaning of Section 2(6) of the Companies Act, 2013 ("Act"). The Company having one Joint Venture Company namely Gulf Batteries Co. Ltd (JV in the Kingdom of Saudi Arabia -KSA). There has been no material change in the nature of the business of the subsidiaries. Pursuant to provisions of Section 129(3) of the Act, a statement containing salient features of the financial statements of the Company's subsidiaries in Form AOC-1 is attached to the financial statements of the Company. Pursuant to the provisions of section 136 of the Act, the financial statements of the Company, consolidated financial statements along with relevant documents and separate audited accounts in respect of subsidiaries, are available on the website of the Company. During the year, operations of following subsidiaries were reviewed: SCIL Infracon Private Limited (SIPL): Considering various alternative options, a proposal was in principle approved for merger of SIPL with its holding company (HBL) to harness business synergy and operational growth, subject to usual procedures and approvals Necessary clearances were obtained from BSE and NSE respectively by way of observation letter for a draft scheme of amalgamation in the nature of merger. Approval of the Hon'ble High Court of Judicature at Hyderabad for AP and Telangana is yet to be obtained. HBL Suntech LLP Due to unviable business outlook, the designated partners of HBL Suntech LLP proposed to discontinue further operations of HBL Suntech LLP from April 2014 onwards. Matters related to existing business are being looked at in order to conclude various pending issues. MATERIAL CHANGES AND COMMITMENTS: No material changes and commitments have occurred after the closure of the Financial Year 2014-15 till the date of this Report which would affect the financial position of your Company. Directors' Responsibility Statement: Pursuant to Section 134(5) of the Companies Act, 2013, the board of directors, to the best of their knowledge and ability, confirm that: i. in the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures; ii. they 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; iii. they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv. they have prepared the annual accounts on a going concern basis; v. they have laid down internal financial controls to be followed by the Company and such internal financial controls are adequate and operating effectively; vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, statutory and secretarial auditors and external consultants and the reviews performed by management and the relevant board committees, including the audit committee, the board is of the opinion that the Company's internal financial controls were adequate and effective during the financial year 2014-15. Directors and key managerial personnel Dr. A J Prasad has been continuing as Chairman and Managing Director of the Company. He is attaining the age of 70 in the next few months and his term of appointment would expire on 30th September, 2015. The Board, in view of his significant contribution in the development of the Company from inception, recommends for his re-appointment as Chairman and Managing Director of the Company after Complying with the necessary provisions of the Companies Act 2013 and rules made there under. During the year Mrs. Kavita Prasad resigned from the Board and IDBI Bank Limited replaced its nominee Mr. VVS Ravindra with Mr. J Vidya Shankar w.e.f. 14th November, 2014. Subsequent to the date of Balance Sheet, IDBI Bank Limited, at the request of the Company has withdrawn its nomination of Mr. J Vidyashankar also w.e.f. 5th June 2015. Your Board conveys sincere appreciation for their service during their tenure as Directors. During the year, the non-executive directors of the Company had no pecuniary relationship or transactions with the Company. Number of meetings of the board Four meetings of the board were held during the year. For details of the meetings of the board, please refer to the corporate governance report, which forms part of this report. Board evaluation The performance of the Board was evaluated by the Board after seeking inputs from all the directors on the basis of the criteria such as the Board composition and structure, effectiveness of board processes, information and functioning, etc. The performance of the committees was evaluated by the Board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, effectiveness of committee meetings, etc. The Board and the Nomination and Remuneration Committee ("NRC") reviewed the performance of the individual directors on the basis of the criteria such as the contribution of the individual director to the Board and committee meetings like preparedness on the issues to be discussed, meaningful and constructive contribution and inputs in meetings, etc. In addition, the Chairman was also evaluated on the key aspects of his role. In a separate meeting of independent Directors, performance of non-independent directors, performance of the board as a whole and performance of the Chairman was evaluated taking into account the views of executive directors and non-executive directors. The same was discussed in the board meeting that followed the meeting of the independent Directors, at which the performance of the Board, its committees and individual directors was also discussed. Policy on Directors' appointment and remuneration and other details The Company's policy on directors' appointment and remuneration and other matters provided in Section 178(3) of the Act has been disclosed in the Corporate Governance Report, which forms part of the directors' report. Audit committee The details pertaining to composition of Audit Committee are included in the Corporate Governance Report, which forms part of this report. The Board of Directors has accepted all the recommendations of the Audit Committee. Statutory Auditors At the 28th AGM held on 27 December 2014 shareholders have appointed, M/s Satyanarayana & Co and M/s. Rao & Kumar Chartered Accountants, as 'Joint Statutory Auditors' (JSA) to hold office until conclusion of next AGM to be held in 2015. One of the Joint Statutory Auditors, M/s. Satyanarayana & Co, Chartered Accountants (FRN 03680S), after a distinguished service for over 29 years, expressed their unwillingness to seek reappointment at the next Annual General Meeting. Due to certain unavoidable reasons, M/s Satyanarayana & Co expressed their inability to carry out the audit and subsequent certification of the Consolidated Financial Statements and Financial Results for First Quarter ending June 2015. The standalone financial statements of the Company for the year ended on 31 March 2015 were duly approved at the Board meeting held on 29 May 2015 and were then jointly certified by both the auditors. In this situation, the Management requested M/s. Rao & Kumar, Chartered Accountants to take up the function that would otherwise have to be carried out jointly by both Joint Statutory Auditors, which they have accepted. In view of this, your Board, while conveying its sincere appreciation for the services rendered by M/s. Satyanarayana & Co. Chartered Accountants on recommendation of the Audit Committee and pursuant to the provisions of section 139 of the Companies Act, 2013 and the Rules made there under, proposes to appoint M/s Rao & Kumar, Chartered Accountants (FRN 03089S) Visakhapatnam who are Joint Statutory Auditors of the Company to be re-appointed as Independent Statutory Auditors from the conclusion of the Annual General Meeting (AGM) till the conclusion of the thirty-first AGM to be held in the year 2017, subject to ratification of their appointment at every AGM. INTERNAL FINANCIAL CONTROLS Pursuant to Section 134 of the Companies Act 2013, the Directors state that the Board, through the operating management has laid down Internal Financial Controls to be followed by the Company. To the best of their knowledge and ability and inputs provided by various assurance providers confirm that such financial controls are adequate and were operating effectively. Particulars of loans, guarantees and investments The particulars of loans, guarantees and investments have been disclosed in the financial statements. Transactions with related parties None of the transactions with related parties falls under the scope of Section 188(1) of the Act. Information on transactions with related parties pursuant to Section 134(3)(h) of the Act read with rule 8(2) of the Companies (Accounts) Rules, 2014 are given in Annexure I in Form AOC-2 and the same forms part of this report. Related party transactions are in the ordinary course of business and on arm's length basis. Corporate social responsibility The Company has a Board-level committee that supervises its Corporate Social Responsibility (CSR) activities. The brief outline of the CSR Policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure II of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. Extract of annual return As provided under Section 92(3) of the Act, the extract of annual return is given in Annexure III in the prescribed Form MGT-9, which forms part of this report. a. The ratio of the remuneration of each Non-Executive director to the median remuneration of the employees of the Company for the financial year: Not Applicable as none of the Non-Executive was paid any remuneration. b. The percentage increase in remuneration of each Director, Chief Executive Officer, Chief Financial Officer, Company Secretary in the financial year: Please refer para (h) below c. The percentage increase in the median remuneration of employees in the financial year: 16 % d. The number of permanent employees on the rolls of Company: 2458 (as at 31 March 2015) e. The explanation on the relationship between average increase in remuneration and Company performance: On an average, employees received an annual increase of 16%. The individual increments varied from 4% to 25%, based on individual performance. As per the remuneration policy of your Company, employees are compensated broadly in comparison with the median of the comparator basket, on the basis of performance, potential and criticality for achieving competitive advantage in the business. Salary increases during the year were in line with your Company's performance as well as per inflation and motivational factors. Disclosure requirements As per Clause 49 of the listing agreements entered into with the stock exchanges, corporate governance report with auditors' certificate thereon and management discussion and analysis are attached, which form part of this report. The Company has formulated and published a Whistle Blower Policy to provide Vigil Mechanism for employees including directors of the Company to report genuine concerns. The provisions of this policy are in line with the provisions of the Section 177(9) of the Act and the revised Clause 49 of the Listing Agreements with stock exchanges. Deposits from public The Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo: Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 134(3)(m) read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is given in the Annexure hereto. Corporate Governance: Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section titled "Report on Corporate Governance" is attached to the Annual Report. Cost Auditors: Your Board has appointed M/s K. Narashima Murthy & Co., Hyderabad, Cost Accountants as Cost Auditors of the Company for conducting the audit of cost records of the Company for the financial year 2014-15. Your Board proposes to re-appoint them as Cost Auditors for 2015-16 subject to the approval from Central Government. Secretarial Auditors: Your Board has appointed Mr. Naresh Kumar Chanda (MS No.6094 and CP No.8153)) Practicing Company Secretary as a Secretarial Auditors for the financial year 2014-15. Acknowledgements: Your Directors take this opportunity to thank all the Company's Bankers and Financial Institutions, the concerned Central and State Government Departments, Agencies for their support and co-operation to the Company. The Board has special appreciation for the employees for their dedicated services. The Board of Directors also thanks all its Shareholders for the confidence reposed in the Management. For and on behalf of the Board Dr. A J Prasad Chairman and Managing Director Date : 14th August, 2015 Place : Hyderabad |