DIRECTORS' REPORT AND MANAGEMENT DISCUSSION AND ANALYSIS To, The Members, Your Directors are pleased to present the 31st Annual Report, together with the Audited Financial Statements of the Company for the financial year ended March 31, 2016. DIVIDEND : Your Directors are pleased to recommend a final dividend of Rs.4/- per equity share, amounting to Rs.134.80 lacs (including dividend distribution tax) for the financial year 2015-16 for approval of the members in the ensuing 31st Annual General Meeting of the Company. OPERATIONS : Revenue & Profits - Standalone : During the year under review, the Company has achieved net revenue of Rs. 8,738.66 lacs as compared to Rs. 8,754.21 lacs in the previous year. The export sales were Rs. 6,064.30 lacs as compared to Rs. 6,311.34 lacs in the previous year. The profit before tax grew by 45 per cent to Rs. 1,553.33 lacs as compared to Rs. 1,070.76 lacs in the previous year. The operating expenses decreased by 3 per cent to Rs. 6,851.25 lacs as compared to Rs. 7,069.97 lacs in last year. Revenue & Profits - Consolidated : During the year under review, the Company has achieved net turnover of Rs. 10,840.52 lacs as compared to Rs. 10,875.20 lacs. The gross profit before tax grew by 65 per cent to Rs. 1,836.62 lacs as compared to Rs. 1,111.46 lacs. The operating expenses decreased by 5% to Rs. 8,598.26 lacs as compared to Rs. 9,077.66 lacs in last year. FUTURE OUTLOOK : In 2015-16, the Indian economy grew at 7.3 per cent and is projected to continue to grow at a robust pace, in spite of strong headwinds from other Asian's countries rebalancing and global manufacturing weakness. According to United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), India's economy is expected to grow by 7.6 per cent in 2016-17, largely on the back of urban household spending, amid steady employment growth, low inflation and also will be supported by continuous progress on infrastructure improvements and government drives on implementing 'Make in India', 'Invest India' and other incentive schemes to boost exports and encourage foreign investments in India. However, the industrial and manufacturing sector appears to be growing at about half the rate of the overall Indian GDP i.e. (3-4%). On the global side, US economy growth braked sharply to its slowest pace in two years as consumer spending softened and a strong dollar continued to undercut exports, but a pick-up in activity (2-3% GDP growth) is anticipated given a buoyant labour market. The GDP growth in South-Asia remains constant between 6 to 7 per cent boosted by low commodity prices, moderate inflation and a slight uptick in exports. However, the major drag on the global economy continues to come from China, where a decelerated GDP growth rate of 4-5% is resulting in significant over-capacity and therefore causing ripples through global commodity, steel, cement and other markets. Chinese manufacturers are aggressively looking to address markets overseas, resulting in increased competition in our target markets. As a result, your company will continue to see trading headwinds in most of the global markets with the exception of India, the USA and some of the South East Asian countries in the coming year. The Non-ferrous metal melting of aluminium, copper alloy & zinc oxide remained leading customers of your Company's products & services. The following drivers for years 2016-20, indicate double digit market growth in the segments and hence good growth prospects for our products, although the competitive nature of the markets will continue to exert significant pricing pressure in the coming year. • The Indian passenger car segment estimates rapid growth till 2020 to 4 M units from 1.97 M currently. It is primarily because of reduced interest rates, increasing rural market demand and increased per capita average income of middle & upper middle class. This will - - Boost aluminium casting production, which is our primary focus - Trigger Zinc Oxide demand in the tyre industry - Demand of value added technology & services • Increasing awareness & adoption of crucibles in non-ferrous induction melting will accelerate demand of our cylindrical crucibles. Few initiatives taken by company in the recent past, as below, will show significant revenue growth in over 3~5 years : - Collaboration with leading induction furnace manufacturers - Development of new crucible models - Value delivery & application support • Growth in construction is expected at CAGR of 11.2 per cent. The enablers are : - Many private equity fund investing in commercial properties - Smart city project for 100 cities across India - Government scheme of Housing for All scheme by 2022 - Individual state initiatives for boosting housing & commercial city projects The real estate growth will result in increasing demand of zinc oxide (used in tiles & other ceramics) and copper alloy parts (used in sanitary, electrical & electronic equipment). Your Company has started focusing on the ferrous industry in 2012 and have seen attributive growth in four years, at good profitability. The following growth drivers signal larger opportunities in the ferrous segment. • Heavy vehicles & Earthmoving equipment - Replacement demand. Old vehicles being disbanded whether it is 10 years old or 15 years old - Before FY18 BS IV will become applicable nationwide. - Mining and infrastructure projects are largely focused by current government. • Quality casting demand - With almost all global automotive players investing on their R&D, manufacturing and assembly units in India, demand for higher technology and quality in castings has improved. - With stringent quality norms & awareness of operational savings, adoption of Morgan foundry accessories should increase. • DIpipe demand is expected to grow by 20% till 2018 : - Finance Minister has proposed allocation of Rs. 1,000 crore for irrigation via 'Pradhan Mantri Krishi Sinchayee Yojana' scheme. - Also for the National Rural Drinking Water Programme, Rs. 3,600 crores have been allotted to infrastructure development. • Ambitious growth projection of Indian Railways for 2020 : - New railway lines for 24,000 km - Procurement increase of new wagons by 250K and passenger coaches by 50K. - "Make in India" initiatives for giving preference to local suppliers. In view of above, your Company is looking forward take hold of the opportunities to grow and expand its product base to various industries. PRODUCT QUALITY AND RECOGNITION : Your Company always strives to provide the highest quality of product to their customer ensuring consistency in performance, safety, delivering more value and innovation by continuous focus on research and development. The Company encourages employee and customers to provide regular feedback and active participation by various means to develop quality of product and continuous improvement. Your Company continued to remain ISO 9001 certified for Quality Management System Standards. Recently, the company has also organised ISO 9001:2015 and IQA Audit training from TUV (SUD) South Asia in order to continuously demonstrate product quality and services, to meet statutory and regulatory norms and to increase customer satisfaction throughout its operations. PUBLIC DEPOSIT : During the year, the Company has not accepted any public deposits under the provisions of the Companies Act, 2013. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS : During the year under review, the Company has not provided any loans, given guarantees and made investments covered under Section 186 of the Companies Act, 2013. RELATED PARTY TRANSACTIONS : In compliance with the provisions of Section 188 of Companies Act, 2013 and Regulation 23 of Securities Exchange Board of India ('SEBI') (Listing Obligations and Disclosure Requirements), ('LODR') Regulations, 2015 and relevant provisions of Clause 49 of the Equity Listing Agreement, the Audit Committee had given omnibus approval for related party transactions which were of repetitive nature and entered with associates companies for sale, purchase of goods and services for a period of one year. In every Audit Committee meeting during the year, the schedule of related party transactions for each quarter end were placed before the Committee to ensure transactions were within limit of the approval. The related party transactions entered during the year were in ordinary course of the business and on arm's length basis. No Material Related Party Transactions, i.e. transactions exceeding ten percent of the annual consolidated turnover as per the last audited financial statements, were into entered during the year by your Company. Accordingly, the disclosure of Related Party Transactions as required under Section 134(3) (h) of the Companies Act, 2013 in Form AOC 2 is not applicable. Further, the Company has not given any loans and advances in the nature of loans to subsidiary company or to associate company or to firms/companies in which directors are interested hence disclosure as per Regulation 34(3) of SEBI LODR, Regulations, 2015 is not applicable. As per Regulation 46 of SEBI LODR Regulations, 2015, the Policy on Materiality of Related Party Transactions and dealing with Related Party Transactions is available on Company's website at <http://www.morganmms.com/sites/default/files/policy_on_materiality_of_related_party_transactions_dealings.pdf> MATERIAL CHANGES AND COMMITMENTS AFFECTING FINANCIAL POSITION BETWEEN THE END OF THE FINANCIAL YEAR AND DATE OF REPORT : During the year under review, there have been no other material changes happened and commitments given which affects the financial position of the Company between the end of the financial year and the date of the report. SUBSIDIARY COMPANY : Your Company has one subsidiary company i.e. Diamond Crucible Company Limited having its manufacturing facility at Mehsana, Gujarat. As per provisions of Section 129 (3) of the Companies Act, 2013, a statement containing salient financial highlights of the subsidiary company for the year ended March 31, 2016 is annexed as part of this Annual Report in Form AOC 1 as Annexure 1. However, the Company has published the audited consolidated financial statements for the financial year March 31, 2016 and also forms part of this Annual Report. The Annual Accounts of the subsidiary company and related detailed information shall be made available to members of the Company seeking such information and shall be kept open for inspection at the Registered Office of the Company during office hours. BOARD OF DIRECTORS : During the year under review, Mr Hitesh Saiwal resigned from the Company effective from April 30, 2015 from the post of Managing Director. Mr Aniruddha Karve was appointed as Managing Director of the Company effective from July 1, 2015 in the Board of Directors meeting held on May 25, 2015 followed by approval of members in the annual general meeting held on September 22, 2015. Mr Sadanand Shabde has resigned from the post of Independent Director and Chairman of the Board and the Committees effective at the end of the day on October 29, 2015. Mr Mukund Bhogale was appointed as an Additional Director (Independent) effective from October 30, 2015. Mr Mukund Bhogale was also nominated for Chairman of the Board and the Committees. The members in the Annual General Meeting held on September 22, 2015, have unanimously regularised appointment of Mr Ian Keith Arber as Director (Non-executive), Ms Pauline Tan as Director (Non-executive), Mr Mirco Pavoni as Director (Non-executive) and Ms Maithilee Tambolkar as an Independent Director. As per the provisions of the Companies Act, 2013, Independent Directors are required to be appointed for a term of five consecutive years, but shall be eligible for reappointment on passing of a special resolution by the Company and shall not be liable to retire by rotation. During the year under review, the independent directors has submitted certificate of independence under section 149 (6) (d) of the Companies Act, 2013. The policy on familiarisation program for Independent Directors including details of Nomination Remuneration committee and their roles and responsibility are provided in Corporate Governance Report. The evaluation of Board including independent directors was carried out having parameters of attendance in every Board and Committee meeting, participation in discussions and independent judgement. The details of such familiarization program for Independent Directors are posted on the website of the Company and can be accessed at <http://www.morganmms.com/sites/default/files/familiarisation_program_for_independent_director_-_mcil.pdf> NUMBER OF MEETINGS OF THE BOARD : The Board met five times during the financial year, the details of which are given in the Corporate Governance Report that forms part of this Annual Report. The intervening gap between any two meetings was within the period prescribed by the Companies Act, 2013. POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION : The policy of the Company on directors' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Section 178 (3) and Section 197 (12) of the Companies Act, 2013, read with Rule 5 of Companies (Appointment And Remuneration of Managerial Personnel) Rules, 2014 is annexed as Annexure 2 to the Board's report. PARTICULARS OF EMPLOYEES : During the year under review, no employee was in receipt of remuneration of Rs. 60 lacs or more, or employed for part of the year and in receipt of Rs. 5 lacs or more a month, under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE : As per the requirement of The Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013 ('Act') and Rules made thereunder, your Company has already constituted a policy on Prevention of Sexual Harassment at Workplace in December, 2012 with periodic amendments. During the year, the Company has not received any complaint with allegations of sexual harassment. RISK MANAGEMENT POLICY : The Risk Management Committee was constituted as per provisions of Companies Act, 2013 and Regulation 21 of SEBI LODR corresponding Clause 49 of the Equity Listing Agreement, having composition of executive and independent directors. Your company is also committed to identify, quantify and mitigate business risks by periodic review of potential risks, inherent impact and its mitigation plan in compliance with policy and statement of Morgan Advanced Materials Plc ('the Group') on Risk Management. During the year, the committee in its meeting held on October 29, 2015 has reviewed risk relating to competition, operations, people management and development, product quality, technological obsolescence, quality of contract, external risks and also noted the process of mitigation of such risks. CORPORATE SOCIAL RESPONSIBILITY : The Company has constituted Corporate Social Responsibility Committee (CSR) in the meeting of Board of Directors of the Company held on May 22, 2014. Your Company is committed to adhere to the principles of CSR policy and continue to strive for the development and for enhancing living standards of society. As a commitment towards improving and maintaining social sustainability, your company has donated 140 school desks at Naygaon Government School near Waluj Industrial Area worth of Rs. 4.35 lacs from first to seventh standard students. The Corporate Social Responsibility policy formulated by the Company is available on the website of the Company at -<http://www.morganmms.com/investors-1> NOMINATION AND REMUNERATION COMMITTEE : The Board of Directors in their meeting held on May 22, 2014 has constituted Nomination and Remuneration Committee with a view to determine qualification, positive attributes and independence of a director and recommend to the board and to formulate a criteria for evaluation and performance for board members. The committee comprises of independent and non-executive directors of Board which details are given in Corporate Governance Report. ENVIRONMENT, HEALTH AND SAFETY : The Morgan Group is committed for conducting all of its activities in a manner that achieves high standards of health and safety for employees and others affected by its operations. This commitment is reflected in the Group's core health and safety values set out below - > We are committed to creating a culture and environment that is 'zero harm' with no related accidents or illness due to our activities. > We encourage and expect our employees and contractors to be passionate about safety. > We are dedicated to creating a positive safety culture based on openness, transparency and responsibility. > We support a safe working culture through investment and training. > We engage with our people to continuously improve safety knowledge, reporting and performance through our commitment to our think SAFE programme. In continuation with a global behavioural safety programme i.e. 'think SAFE', launched by the Group, your company has made significant progress and has conducted think SAFE training programmes for all employees including contractual labour of the Company. During the year, the Company has made improvements in certain identified areas which summary as below - Operational, Health & Safety Improvements : - Proper machine guarding and railing provided - Arrangement made to avoid water wastage - Converted to LED lighting which helped in reduction power consumption - Improvement in inter-locking doors, high reach ladder and cranes to avoid accidents Well-being : - Regular internal training/programs for developing awareness on health, safety and environment of employees and contractual labour - Annual medical check-ups was completed and suggestions has been given for monitoring health of employees and contractual labour - 'Most Mile March' initiative for encouraging employees to walk more and 'Biggest Loser' for weight reduction competition were conducted under 'Better You Better Life' Programme. - Received participation award in 'National Safety Competition' conducted by Directorate of Industrial Safety & Health, Maharashtra State & National Safety Council, Maharashtra Chapter in Pune, Maharashtra FINANCE AND TAXATION : During the year, your Company has started the liquidation process of accumulated balance in CENVAT credit account as per provision of excise law. Until March 2016, we have utilized CENVAT credit amounted to Rs. 577.04 lacs for export sales for claiming Rebate and actually received Rs. 299.96 lacs of Excise rebate from Authority till March 2016. Your Company has applied for Export Incentive under Focus Market Scheme (FMS) and Merchandise Export Incentive Scheme (MEIS) under Foreign Trade Policy 2015-20 of combined benefit of Rs. 44.47 Lacs which Duty Benefit Scripts are awaiting from the Authority. During the financial year, the Company has applied for Advance Pricing Agreement (APA) before the CBDT & Govt. of India for International Intercompany related party transactions with Associated Enterprises (AE). The APA is an arrangement between the taxpayer and the tax authority covering future transactions, with a view to avoid the potential transfer pricing disputes in a co-operative manner. Once APA agreement is completed, we will have certainty with respect to tax outcome for international transactions, by agreeing in advance the arm's length pricing, or pricing methodology to be applied. Under APA specific rollback provisions enable to attain certainty in transfer prices of international transactions for up to 9 years (including 4 years rollback provisions) in total. Besides this the APA has a persuasive value on all open Transfer pricing litigations of past years. The Company has completed VAT assessment for the FY 2011-12 and received order from the Authority with refund of VAT of Rs. 69.74 Lacs including interest. RESPONSIBILITY BUSINESS PROGRAMME (RBP) AND LEGAL GOVERNANCE : The Responsible Business Programme (RBP) is the Group ethics and compliance programme comprise of policies, training, risk assessment, monitoring and assurance. The training content covers human rights, anti-bribery and ethics, anti-trust and contract risk management and is refreshed on an annual basis. During the year, your Company has conducted RBP training session for sales and marketing managers during the Sales Meet at Aurangabad. The senior executives have attended RBP training session covering contract risk management and anti-trust at Chennai conducted by Group Risk Manager Ms Lynsey Poulton. Further, every relevant individual who joins the Morgan group, has been given with induction training on Responsible Business Program (RBP) followed by periodic updates and training sessions on Competition laws, Ethics Policy and Contract Risk Management. Your Company has continued vigilance on Export Compliance Policy where Company sells the product to regulated countries. During the year, the Company has observed compliances under various statutes applicable to the Company such as Companies Act, Securities laws, Listing Regulations and other statutory laws. As per new Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has executed revised Listing Agreement with Bombay Stock Exchange and has also adopted new compliance under the said regulation. HUMAN RESOURCES : Your Company believes that having best talent, skillful employees and high motivation level of employees helps any organisation to achieve milestones of success. Your Company is committed to provide good organisational culture to its employees as well as provide required trainings in order to harness their potential and to explore more opportunities. During the year, the Company has organized various skill development programs for senior and middle management such as 'Synergy and Team Building', 'Concept and Value Selling' for Sales and Marketing employees and other skill enhancement training programs were conducted for staffs and workers. AUDITORS : Statutory Auditors M/s B S R & Co. LLP (Registration No. 101248W/W-100022) were appointed as Statutory Auditors in the last Annual General Meeting (AGM) of the Company held on September 22, 2015 for a period of five years subject to ratification by the members of the Company at every Annual General Meeting. The Board has proposed ratification of M/s B S R & Co. LLP (Registration No. 101248W/W-100022) as Statutory Auditor of the Company subject to approval of members from the conclusion of Thirty First (31st) Annual General Meeting until the conclusion of Thirty Second (32nd) Annual General Meeting of the Company on such remuneration and out-of-pocket expenses as agreed between the Board or Committee and the Statutory Auditors in the Board of Directors meeting held on May 25, 2015. The report is given by the Auditors on the financial statements of the Company forms part of this Annual Report. There has been no qualification, reservation, adverse remark or disclaimer given by the Auditors in their report. Secretarial Auditor M/s KMP & Associates, Practicing Company Secretaries, was appointed to conduct the Secretarial Audit of the Company for the financial year 2015-16, as required under Section 204 of the Companies Act, 2013 and rules thereunder. The Secretarial Audit Report for financial year 2015-16 forms part of the Annual Report as Annexure 3. The Board has continued appointment of M/s KMP & Associates, Practicing Company Secretaries, as Secretarial Auditor of the Company for the financial year 2016-17. There has been no qualification, reservation, adverse remark or disclaimer given by Secretarial Auditor in their report. The report of Statutory Auditors on the financial statements and report of Secretarial Auditors are made part of this Annual Report. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Pursuant to Section 177(4)(vii) of the Companies Act, 2013, ("Act") the Audit Committee needs to evaluate internal financial control system of the Company and make further reporting to the Board. Further, pursuant Section 143(3) (i) of the Companies Act, 2013 the Statutory Auditor of the Company is required to make representation in their Auditor Report that the Company has adequate internal financial control system in place and operating effectively. The Company has been making periodical tests for storage and issue of materials, payments for goods, services and expenses, maintenance of books and records, insurance coverages, banking transactions, financial reporting as per statutory/regulatory requirements and other operations and reviewing legal compliances pertains to various statute, rules, guidelines issued by State Government and Central Government etc. Conversely, the Committee was in opinion that the said controls ought to be reviewed on periodic basis from external agencies in order to make further improvement in the controls. In this connection, the Committee had appointed KPMG for assisting the Company in performing Process and Documentation Gap Analysis of the Company for the financial year ending March 31, 2016. KPMG has not found any significant gaps or non-compliance during their process and Gap Analysis, however as a commitment towards continuous improvement the Board is formalising the process of each function through documentation, policies and procedures. EXTRACT OF ANNUAL RETURN In accordance with Section 134(3)(a) of the Companies Act, 2013, an extract of the annual return in the prescribed format is appended as Annexure 4 to the Board's report. DIRECTORS' RESPONSIBILITY STATEMENT : Pursuant to the requirement of Section 134 (3) (c) of the Companies Act, 2013, with respect to Directors' Responsibility Statement, it is hereby confrmed that (i) In the preparation of the annual accounts for the financials year ended March 31, 2016, the applicable accounting standards have been followed along with proper explanation relating to material departures; (ii) 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 profit of the Company for the year; (iii) The Directors have taken proper and sufficient care for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (iv) The Directors have prepared the annual accounts on a 'going concern' basis; (v) The directors have laid down internal financial controls, which are adequate and are operating effectively; (vi) The directors have devised proper systems to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively. CORPORATE GOVERNANCE : As required under Securities Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations, 2015 corresponding to Clause 49 of the Listing Agreement, the auditors' certificate regarding compliance of conditions of Corporate Governance is appended as Annexure 5 to the Board's Report. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO : The particulars as prescribed under Sub-section (3)(m) of Section 134 of the Companies Act, 2013, read with the Companies (Accounts) Rules, 2014, are enclosed as Annexure 6 to the Board's report. WHISTLE BLOWER POLICY : The Company has set up a Whistle Blower Policy with a view to provide a mechanism for directors and employees of the Company to raise concerns of any violations of legal or regulatory requirements, incorrect or misrepresentation of any financial statements and reports, etc. The policy is also available on the website - <http://www.morganelectricalmaterials.com/sites/default/files/whistle> blower policy - june-15.pdf ACKNOWLEDGEMENTS : Your Directors take this opportunity to offer their sincere thanks to various Departments of the Central and State Governments, our Bankers, Shareholders, Customers & Consultants for their unstinted support and assistance. Your Directors also place their deep appreciation to employees at all levels for their hard work, solidarity, dedication and commitment, and look forward to their continued support in the future. For and on behalf of the Board, Aniruddha Karve (Managing Director) DIN : 07180005 Subhash Kolapkar (Director) DIN : 06666368 Place: Aurangabad Date: May 30, 2016 |