AFFLUENCE

BOARDS REPORT

To

The Members

Varroc Engineering Pvt. Ltd.

Your Directors have pleasure in presenting their 28th Annual Report together with the Audited Financial Statements of the Company on standalone and consolidated basis for the year ended 31st March, 2016.

1.       FINANCIAL RESULTS & APPROPRIATIONS

(a)    Financial Results

The Financial results of the Company for the financial year ended on 31st March, 2016, are summarized below:

                                                                                                          (Rs. in Crore)

(b)   Financial Performance - Standalone

During the year under review, Net Sales and Other Income of your Company have increased by 5.08% to Rs.1,580.10 Crore as compared to Rs.1,500.12 Crore in the previous year. Your Company has recorded a 9.74% increase in Export revenue to Rs.140.78 Crore as compared to Rs.128.28 Crore in the previous year. The EBIDTA has decreased by 10.43% to Rs.148.06 Crore in comparison to the last years figure of Rs.163.5 Crore mainly on account of lower than budgeted sales and increase in fixed cost. There was also decline in Net Profit after Tax by 51.1% to Rs.17.63 Crore as against Rs.34.50 Crore in the previous year. The Finance cost has decreased by 3.35% to Rs.43.63 Crore as against Rs.45.14 Crore in the previous year.

(c)    Dividend & Transfer to Reserves

The Board of Directors at their meeting held on March 29, 2016 declared and paid Interim Dividend @ 0.001% (Rs.0.01 per share) on Series A Compulsory Convertible Preference Shares and @ 35% (Rs.3.50 per share) on equity shares (including and Participative Preference Shares). The total cash flow on account of interim dividend was Rs.4.03 Crore. The Board recommends interim dividend declared and paid on Preference Shares and Equity Share as final dividend for the Financial Year 2015-16. The Board of Directors has considered it appropriate not to transfer any amount to the General Reserve before declaration of Dividend.

2.       INDUSTRY OUTLOOK AND BUSINESS OVERVIEW

(i)     Automobile Industry landscape

Global Scenario

At global level in 2015, record sales in the U.S. gave the sector a much-needed boost, but the slowdown in the China market led to a flat year overall, dampening prospects for global automakers and suppliers.  However, Companies in advanced markets continued to invest, in future technologies such as electric cars, driver less cars and vision based lighting systems.

In North America U.S. markets are peaking at historic levels, setting a sales record of just under 17.5 million vehicles in 2015, up 5.7 percent from the year before and topping the high-water mark of 17,402,486 in 2000. On the other hand, Mexican auto sales continue to be bullish at more than 1.3 million units, and expected to surpass 1.5 million by 2021. Automakers and suppliers thus continue to invest and expand capacities in Mexico as it is seen to be a favorable export hub. In European Union, new car registrations risen 9.3 percent year-on-year, to 12.6 million units, though well below the record 2007 sales of 18 million vehicles. Automakers in some of the E.U. nations struggling to grow their economies notably France, Greece, Spain, Italy, and Portugal face losses or low profits, due to fragmented markets, and the inefficiencies of model proliferation. Uncertainties due to exit of Britain from EU will continue.

Emerging markets continued to underperform. While Indias sales remained roughly flat in 2015, Chinas year-over-year growth slowed to 7.3 % from a 10 % gain in 2014. New vehicle ownership restrictions in Chinas largest cities will further curtail sales in the coming years. Russia had its second straight year of precipitous decline in 2015; sales were almost 50 percent below the 2012 peak. And Brazils sales fell by nearly 1.3 million units, or 30 %, from its record high in 2012. Over the next five years, the Middle East and Africa, is likely see strong and consistent automobile sales growth, the biggest improvements are expected in Iran, Egypt, South Africa, and Nigeria.

Global growth rates are expected to be around 3%, however lighting industry is expected to grow at a slightly higher rate of 5-6% due to content addition. Varroc has the requisite technologies to take advantage of such content addition by its customers. It is also adequately de-risked geographically to face the challenges from regional market variations. Besides, it is also investing in smart lighting technologies in the global market to support its customers and maintain market share. Focus continues to be on acquiring footprint in Brazil and making an entry into Japanese OEMs.

Domestic Scenario& Future Outlook

The automobile industry is showing signs of revival with growth across key segments over the past year as FY 2015-16 has shown evident improvement with an overall growth of 3.78%. In two wheeler segment, scooter sales continued to remain strong registering 11.79% growth, however motorcycles and mopeds saw marginal decline with 0.24% and 3.32% drop in sales, respectively, resulting in total growth of 3.01% in the two-wheeler business segment.  A poor monsoon in the past year did not help improve the already depressed rural demand for two wheelers which impacted motorcycle sales. In FY 2015-16, passenger car and utility vehicle sales were up 7.87 % and 6.25 % respectively, pushing overall passenger vehicle sales up by 7.24 %. In FY 2015-16, M&HCVs have grown 29.91 % due to revival of construction and road building activities as well as mining activities. With recovery of LCV segment as well which posted a marginal growth of 0.30% growth, the overall CV sales registered a net increase of 11.51%. In three wheeler category passenger carrier witnessed a steady increase of 2.11%, however decline in goods carrier segment by 3.62% has diluted the overall three wheeler segment growth to a marginal 1.03%.

Source: SIAM/TechSci Research

In the domestic market, your company depends on the two wheeler industry which has clocked a 3-fold increase in the past 10 years (Refer to adjacent chart). However, the future outlook is less optimistic as the lack of infrastructure, low productivities and increasing manpower costs threaten domestic players margins.

Going ahead, the entire two wheeler industry is expected to clock a growth of 3-5% in FY17, with select players such as Honda and Royal Enfield expected to buck the trend with their winning products. However, with the government serious on clamping safety and emission norms in the coming years, the domestic players who have access to advanced technologies such as ABS and Electronic Fuel Injection stand a chance of improving market shares as OEMS look to find low cost suppliers as second and third sources to prepare for meeting these new regulations.

The Company is expecting modest growth this year as the priority remains to become more efficient in operations while establishing a compliant and robust management. Your company has partnered with a leading technology provider company to develop and deliver security systems for the two wheeler market, anticipating customer demands in advance. The company is preparing to invest in electronics and software capabilities to develop next generation Electronic clusters and security systems, both of which are requested by a leading OEM. The Company is on lookout for good acquisition opportunities for the purpose of preparing for the electrification and fuel injection requirements driven by the legislations in 2020.

(ii)   Business Overview

The Company along with its subsidiaries and associate entities (Group) is a global manufacturer and supplier of automotive components headquartered in Aurangabad, India. With a Group turnover of Rs.8,348 Crores in 2015-16, Varroc has established itself as one of the leading component suppliers in India and a preferred exterior lighting systems supplier in the world today. Today Varroc Group employs close to 13,500 people and operates 35 manufacturing facilities, 11 engineering centres in 10 countries across the world. Varroc caters to all segments of the automotive and allied markets such as two and three wheelers, passenger cars, commercial vehicles and off road segments.

Varroc Lighting Systems, (VLS), headquartered out of Detroit, U.S.A. is a leading global supplier of exterior lighting for passenger cars and has manufacturing plants in located in Mexico, Czech Republic, China and India, supported by 7 engineering centres. VLS supplies advanced lighting technologies such as LED projector headlamps, Matrix headlamps, Adaptive front lighting systems, day time running lamps and innovative signature and LED rear lamps to them. Varroc also owns Triom, the leading exterior lighting supplier to two wheeled vehicles in Europe.

The domestic business in India consists of four divisions operated out of 23 plants and 4 engineering centres, spanning all three automotive hubs and caters to largely the two wheeler segment.  The Group has diversified product portfolio consisting of assemblies in the areas of electrical, electronics, polymer, metallic and lighting systems.

Varroc Group is bullish on growth in both domestic and international markets and believes in differentiating itself by its intense customer relationships, product development capabilities and manufacturing excellence. It is investing heavily in R&D to grow its domestic business while relying on its fiscal prudence and management capabilities to penetrate its advanced passenger car lighting systems in the international business.

(iii) Research & Development (R&D)

As you are aware that the Company has already setup State of Art Research & Development (R&D) Centers that are certified by DSIR. These In-house facilities are situated at (i) MIDC Chakan, Punefor Electrical Division (ii) MIDC, Waluj, Aurangabadfor Forging Division, and (iii)Tal.Maval, Dist.Punefor Lighting.The focus of R&D activities at these Centers is to promote innovation in products, process and technologies, Cost reduction and value engineering.

Recurring expenses on R&D increased to Rs.18.58 Crore in the year under report as against Rs.16.01 Crore in the previous year. Capex on R&D increased to Rs.3.30 Crore as against Rs.2.77 Crore in the last year. The total expenses on R&D increased to 1.38% of total turnover as against 1.25% of turnover in the last year.

Reflecting the true desire of the Company to become technology driven entity, a new R&D Centre is being set-up by combining current R&D operations under one roof to create world class R&D facility which will house more than 300 engineers.This will offer synergies to meet end to end customer needs with better co-ordination and reduction in overall response time and most importantly offering value addition to customers by proactively offering customized solutions to their requirements.

(iv)  ISO & OHSAS Certifications

Your Company is committed to the improvement of environment, safety, health and security and the same has been incorporated in the Companys Mission Statement and Quality Policy.

Also all Plants of the Company have been certified with ISO/TS16949 Certification.

All Plants have been certified with ISO-14001 and OHSAS-18001 Certifications except VEPL-VII (Forging) for which certification process is in progress.

(v)    Awards & Accolades

In recognition of contribution made to the Industry and nation, yourCompany feels proud to inform about awards and accolades received from prestigious industry bodies, institutions and government authorities by the Company and its Indian subsidiaries as under.

3.       FINANCIAL INFORMATION AND DISCOLSURES

(a)    FINANCE

The Company has adequate working capital and term loan facilities available from its Bankers for smooth operations. The Company has been regularly repaying the interest and principal amounts due against term loans availed from the Companys bankers.

During the year under review, the Company has been assigned rating as CRISIL A1 (pronounced CRISIL A one) by CRISIL Ltd. for raising funds by issuance of Commercial Paper. Pursuant to the assignment of said rating by CRISIL Ltd., the Company has replaced high cost working capital facility/loans with Commercial paper in order to smooth cash/fund management. First time in the history, the Company has issued Commercial Paper for Rs.50 Crore to Religare Invesco Trustee Company Pvt. Ltd. A/c ReligareInveso Credit Opportunities Fund for 64 days to save finance cost. The Commercial paper was successfully redeemed on maturity date. 

After the close of the Financial Year, the Company has got upgradation in assigned rating by ICRA Limited from existing A one to A1+ for short term and A+ to AA (Minus) for long term credit facilities.

(b)   REPORT ON PERFORMANCE OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURE COMPANIES

Your Company has 17 subsidiaries and 3 joint ventures companies as on 31 March, 2016. During the year, the Board of Directors (the Board) reviewed the affairs of material subsidiaries. We have, in accordance with Section 129(3) of the Companies Act, 2013 prepared consolidated financial statements of the Company and all its subsidiaries, which forms part of the Annual Report. Further, the report on the performance and financial position of each of the subsidiary and joint venture and salient features of the financial statements are provided in the prescribed Form AOC-1 and it forms part of the Financial Statements of the Company.

In accordance with Section 136 of the Companies Act, 2013, the audited financial statements, including the consolidated financial statements and related information of the Company and audited financial statements of each of the subsidiary will be available on website www.varrocgroup.com. These documents will also be available for inspection during business hours at the registered office of the Company.

During the year under review, Joint Venture Company Varroc TYC Auto Lamp Co. Ltd., China has formed a wholly owned subsidiary Company in the name of Chongqing Varroc TYC Auto Lamp Co. Ltd., China.

(c)    SCHEME OF AMALGAMATION

The Board of Directors of the Company at their meeting held on October 27, 2015 approved the Scheme of Amalgamation of Varroc Exhaust Systems Private Limited (a wholly owned subsidiary Company) with the Company and their respective shareholders and creditors (the Scheme) under sections 391 to 394 and other applicable provisions, if any, of Companies Act, 1956 and other relevant provisions of Companies Act, 2013. The Appointed date of the Scheme is April 1, 2015.

The Honble High Court of judicature at Bombay has vide its Order dated September 29, 2016 approved the scheme of amalgamation approving amalgamation of VESPL with VEPL from the appointed date 1st April, 2015. The certified true copy of the said order was received on October 17, 2016 and the same was filed with the Registrar of Companies, Mumbai on October 18, 2016.

(d)   DEPOSITS

During the year, the Company has not accepted any public deposits under the Companies Act, 2013.

(e)   DISCLOSURES UNDER SECTION 134(3)(l) OF THE COMPANIES ACT, 2013

Except as disclosed in this report, no material changes and commitments which could affect the Companys financial position have occurred between the end of the financial year of the Company and date of this report.

(f)     DISCLOSURE REGARDING INTERNAL FINANCIAL CONTROLS

Adequate internal control systems commensurate with the nature of the Companys business and size and complexity of its operations have been developed with the help of independent expert agency and the same are operating satisfactorily. Internal control systems consisting of policies and procedures are designed to ensure reliability of financial reporting, timely feedback on achievement of operational and strategic goals, compliance with policies, procedure, applicable laws and regulations and that all assets and resources are acquired economically, used efficiently and adequately protected. During the year under review, no material or serious observation reported for inefficiency or inadequacy of such controls.

(g)    DISCLOSURE REGARDING SIGNIFICANT AND MATERIAL ORDERS PASSED BY REGULATORS OR COURTS OR TRIBUNAL

During the year under review, there were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Companys operations in future. 

(h)   MATERIAL CHANGES AND COMMITMENT

No material changes and commitments affecting the financial position of the Company occurred between the end of the financial year to which this financial statements relate on the date of this report.

(i)     PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES

All related party transactions that were entered into during the financial year were on arms length basis and were in the ordinary course of the business. There are no materially significant related party transactions made by the company with Promoters, Key Managerial Personnel or other designated persons which may have potential conflict with interest of the company at large.

(j)     PARTICULARS OF LOANS, GUARANTEES, INVESTMENTS AND SECURITIES

Particulars of loans, guarantees, investments and securities provided during the financial year under review along with the purposes for which such loans, guarantees and securities were given has been furnished in Annexure III which forms part of this report.

(k)    DISCLOSURE UNDER SECTION 43(a)(ii) OF THE COMPANIES ACT, 2013

The Company has not issued any shares with differential rights and hence no information as per provisions of Section 43(a)(ii) of the Act read with Rule 4(4) of the Companies (Share Capital and Debenture) Rules, 2014 is required to be furnished.

(l)     DISCLOSURE UNDER SECTION 54(1)(d) OF THE COMPANIES ACT, 2013

The Company has not issued any sweat equity shares during the year under review and hence no information as per provisions of Section 54(1)(d) of the Act read with Rule8(13) of the Companies (Share Capital and Debenture)Rules, 2014 is required to be furnished.

(m) DISCLOSURE UNDER SECTION 62(1)(b) OF THE COMPANIES ACT, 2013

The Company has not issued any equity shares under Employees Stock Option Scheme during the year under review and hence no information as per provisions of Section 62(1)(b) of the Act read with Rule 12(9) of the Companies (Share Capital and Debenture) Rules, 2014 is required to be furnished.

(n)          DISCLOSURE UNDER SECTION 67(3) OF THE COMPANIES ACT, 2013

During the year under review, there were no instances of non exercising of voting rights in respect of shares purchased directly by employees under a scheme pursuant to Section 67(3) of the Act read with Rule 16(4) of Companies (Share Capital and Debentures) Rules, 2014.

4.       DISCLOSURES RELATED TO BOARD, COMMITTEES, REMUNERATION AND POLICIES

(a)          NUMBER OF BOARD MEETINGS CONDUCTED DURING THE YEAR UNDER REVIEW

During the year under review, the Board of Directors met Six (6) times respectively on June 17, 2015, July 15, 2015, September 28, 2015, October 27, 2015, January 21, 2016 and March 29, 2016.

Details of the Board and Committee meetings attended by each Director of the Company is attached as Annexure IV.

(b)         DIRECTORS

During the year, Mr. Ravinder Kumar (DIN 06940755), Whole-time Director (Head-Electrical Business) resigned from the services effective from July 15, 2015. Your Directors place on record its appreciation for the services rendered by him. Mr. Arjun Jain (DIN 07228175) Business Head-Electrical Business was appointed as Director in place of Mr. Ravinder Kumar. By virtue of his whole-time employment he was appointed as Whole-Time Director w.e.f. July 15, 2015.

At the Annual General Meeting held on August 08, 2015 Mr. Arjun Jain was also appointed as director not liable to retire by rotation and Mr. L. S. Miniyar (DIN 06939175) was re-appointed as non-executive director to hold office up-to the date of next Annual General Meeting of the Company. Mr. L. S. Miniyar, Director of the Company being eligible, offer himself for re-appointment. The Board recommends his re-appointment as the Director of the Company.

Mr. Harsh Kohli (DIN 06941231), Whole-time Director and Business Head- Forging resigned from the services effective from March 21, 2016. Your Directors place on record its appreciation for the services rendered by him. Mr. Ashwani Maheshwari (DIN 07341295) new Business Head-Forging was appointed in place of Mr. Harsh Kohli as an Additional Director w.e.f. March 29, 2016 to hold office up-to the date of next Annual General Meeting of the Company. By virtue of his whole-time employment as President-Forgings, Mr. Ashwani Maheshwari was appointed as Whole-Time Director. Being eligible, he has offered himself for appointment as a Director of the Company. The Board recommends his appointment as the Director of the Company for a period of three years from March 29, 2016 to March 28, 2019.

(c)          PAYMENT OF COMMISSION TO MANAGERIAL PERSONNEL

The Company has not paid any Commission to Managerial Personnel during the financial period under review.

(d)         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 -

(a)    in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b)   the directors had 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 had 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 had prepared the annual accounts on a going concern basis; and

(e)   the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

(e)         COMMITTEES AND POLICY RELATED DISCLOSURES

The provisions relating to formation of Audit Committee and Nomination and Remuneration Committee are not applicable to the Company and hence the Company has not devised any policy relating to appointment of Directors, payment of Managerial remuneration, Directors qualifications, positive attributes, independence of Directors and other related matters as provided under Section 178(3) of the Companies Act, 2013.

(f)           WHISTLE BLOWER POLICY

The Company has an established mechanism for employees to report concerns about unethical behavior, actual or suspected fraud, or violation of the code of conduct or ethics policy. It also provides for adequate safeguards against victimization of employees who avail the mechanism. The Protected Disclosures, if any reported under this Policy are appropriately and expeditiously investigated by the committee.

The policy neither releases employees from their duty of confidentiality in the course of their work nor it is a route for taking up a grievance about a personal situation.

(g)          CORPORATE SOCIAL RESPONSIBILITY & CSR POLICY

The Company has constituted the CSR Committee in accordance with Section 135(1) of the Companies Act, 2013, comprising of 3 Directors, Mr. Tarang Jain (Managing Director), Mr. Gautam Khandelwal (Non-executive Director) and Mr. Padmanabh Sinha (PE Nominee Director). The CSR Committee met twice on June 17,2015and March 29, 2016 to approve CSR budget, to take overview of activities to be undertaken and review activities carried out during the period. The Board of Directors of the Company has approved CSR Policy based on the recommendation of the CSR Committee. The CSR Policy of the Company is available on the Companys website (www.varrocgroup.com).

Your company is committed to contribute to the sustainable development and inclusive growth for reducing socio-economic inequalities among the underprivileged sections of the society. In this endeavor, the company has contributed funds for the CSR activities/project related to promoting rural and nationally recognized sports, promotion of education and employment enhancing vocational skills, promoting art and culture and environment sustainability. The Annual Report on CSR activities as required to be given under Section 135 of the Companies Act, 2013 and Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 has been provided in an Annexure V which forms part of the Board Report.

(h)         ENTERPRISE RISK MANAGEMENT POLICY

The Board of Directors has approved and adopted comprehensive Enterprise Risk Management Policy (ERM) for the Company. The Enterprise Risk Management Policy is designed to manage risk within the risk threshold established by the Board and provide reasonable assurance over the achievement of strategic and operational objectives. The policy document covers the enterprise wide risk management aspects of all Business Units / Plants of the Company. The Policy will help in risk identification, risk measurement, define risk appetite and threshold limits and suggesting risk mitigation measures. The Company has engaged professional help for better implementation of ERM Policy. The process is on-going and require detailed exercise across all locations and functions of the Company. As a part of risk mitigation measure, the Company has implemented Compliance Management Tool across all business units and functions to monitor compliance of all applicable laws in India. Going forward key business risks and their mitigation will be considered in the annual/strategic business plans and in periodic management reviews. The Chief Internal Auditor has been appointed as Chief Risk Officer to monitor on-going basis risk and to suggest mitigation measures.

5.       AUDITORS

(a)    STATUTORY AUDITORS

At the Annual General Meeting held on August 07, 2015 Price Waterhouse & Co., Chartered Accountants LLP, were appointed as statutory auditors of the Company to hold office till the conclusion of the ensuing Annual General Meeting and being eligible have offered themselves for re-appointment. It is now proposed to appoint them as statutory Auditors for remaining period of statutory maximum allowed period of 10 years i.e. till the conclusion of the Annual General Meeting for the financial year 2017-18.

The Auditors report for the financial year 2015-16 does not contain any qualification, reservation or adverse remark. The Auditors Report is enclosed with the financial statements in this report.

(b)   COST AUDITORS

The Board has appointed S. R. Bhargave & Co., Cost Accountants as the Cost Auditors of the Company for the financial year 2016-17 for all applicable Product Groups. The Cost Audit Report for the financial year 2015-16 will be filed within the stipulated period of 30 days after it is submitted by the Cost Auditors.

6.       OTHER DISCLOSURES

Other disclosures as per provisions of Section 134 of the Act read with Companies (Accounts) Rules, 2014 are furnished as under:

(a)          EXTRACT OF ANNUAL RETURN

As required pursuant to section 92(3) oftheCompaniesAct,2013 and rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of annual return in Form MGT - 9 is enclosed as Annexure-I as a part of this Annual Report.

(b)   CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The information pertaining to conservation of energy, technology absorption, Foreign exchange Earnings and outgo as required under Section 134 (3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is furnished in Annexure- II and is annexed to this report.

(c)    DISCLOSURE AS REQUIRED UNDER SECTION 22 OF SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

Your Company is committed towards providing a healthy environment and thus does not tolerate any discrimination and/or harassment in any form. The Company has in place an Internal Complaints Committee to inter-alia: Prevent sexual harassment at the workplace; and Redress the complaints in this regard.

During the year under review, the Company has not received any complaint.

7.       ACKNOWLEDGEMENTS

Your Directors place on record its acknowledgement for the co-operation received from the Customers, Vendors, Bankers, Associates, Collaborators and the Employees of the Company without which it would not have been possible for the Company to achieve such performance and growth.

Annexure - I

Form No. MGT-9

EXTRACT OF ANNUAL RETURN

As on the financial year ended on 31-03-2016

[Pursuant to section 92(3) of the Companies Act, 2013 and rule 12(1) of the Companies (Management and Administration) Rules, 2014]

I. REGISTRATION AND OTHER DETAILS:

II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY

All the business activities contributing 10 % or more of the total turnover of the company shall be stated:-

III. PARTICULARS OF HOLDING, SUBSIDIARY AND ASSOCIATE COMPANIES AS ON MARCH 31, 2016:

* 1 share held by local shareholder in The Netherlands which was cancelled during June 2016.

** Amalgamated with the Company vide Order of Honble High Court of Judicature at Bombay dated September 29, 2016.

***   Balance 10% is held by Mr. Tarang Jain

$      1 share is held by Mr. Tarang Jain

IV. SHARE HOLDING PATTERN (Equity Share Capital Breakup as percentage of Total Equity)

i)              Category-wise Share Holding

(ii) Shareholding of Promoters

(iii) Change in Promoters Shareholding (please specify, if there is no change)

(iv) Shareholding Pattern of top ten Shareholders (other than Directors, Promoters and Holders of GDRs and ADRs): NOT APPLICABLE

v) Shareholding of Directors and Key Managerial Personnel:

V. INDEBTEDNESS

Indebtedness of the company including interest outstanding / accrued but not due for payment

Rs. in Crore

VI. REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL

A. Remuneration to Managing Director, Whole-time Directors and/or Manager:

[Rs. In Lakh]

*for part of the year as under:

B. Remuneration to other directors:

Rs. in Lakh

* NC Naresh Chandra, GK Gautam Khandelwal, PS Padmanabh Sinha

** Non Executive Director

*** Investor Nominee Director

C.    Remuneration to key managerial personnel                               : Not Applicable

Other than MD/ MANAGER/ WTD                  

VII. PENALTIES/PUNISHMENT/ COMPOUNDING OF OFFENCES : NIL

ANNEXURE II

INFORMATION AS PER SECTION 134 (3)(m) OF THE COMPANIES ACT, 2013 READ WITH RULE 8(3) OF THE COMPANIES (ACCOUNTS) RULES, 2014 AND FORMING PART OF THE DIRECTORS REPORT FOR THE YEAR ENDED 31ST MARCH, 2016

A)  CONSERVATION OF ENERGY

The Company ensures that the manufacturing operations are conducted in the manner whereby optimum utilisation and maximum possible savings of energy is achieved.

i)  THE STEPS TAKEN OR IMPACT ON CONSERVATION OF ENERGY:

         Capacitors provided to maintain power factor to unity

         APFC and Fix Capacitor panels provided to optimize power factor Provided interlock to hydraulic motors Hydraulic interlock provided for idle running of machines Provided centralized chiller unit for HMC machines Direct compressed air line connected from main header and provided to CMM for eliminating reciprocating compressor Optimum Utilization of Compressor by Staggered pressure setting as per application demand In normalizing furnace, glass insulation replaces to reduce heating loss from furnace body In normalizing furnace, muffle repaired to reduce heating loss from furnace body Interlock adds for Grinding machines for magnetic separator motor ON only when coolant ON For flash conveyor, programming modification done for idle running Using 100CFM Compressor in place of 160 CFM compressor during fewer loads at night. Using 200 CFM Compressor in place of 500 CFM compressor during fewer loads at night. To reduce compressed air utilisation, all shops air compressor synchronized. New capacitor panel of 750 KVA installed to improve power factor & to reduce losses. 108W CFL lights replaced with 39W LED Light 85W CFL eliminated to provide day light unit system in hot forging, special process and heat treatment Sodium vapor lamps replaced with LED 80W AHU installed instead of AC for New K10 HL section power Servo drives installed for Molding machine Auto temperature controller fitted for cooling towers to maintain constant temperature ON & OFF control system provided near IBH operator to avoid idle running of Cooling tower pump Use of LED Indication lamps on Machine & Control Panels Switch unit provided for street light for auto ON & OFF as per programmed sunset & sun rise timing Optilux energy saving controller installed to optimize consumption of lighting load Solar cell installed for Starter Motor drive & Dash Board lighting load

         LED fittings installed for Starter Motor drive & Dash Board area Modified Air Line main header installed to reduce load on compressors 40 watts LED for Street light installed by replacing 144 watt CFL light 40 watts fluorescent tube light replaced with 20 watts LED tube light  Timer installed for production lines lighting load & canteen water cooler

         VFDs installed for compressors and component cleaning machine pump

         Phosphate process has been replaced with PULS coating process to save energy

         Robot power pack timer provided for idle running of pump for forging shop Panel AC operation is controlled by timer provided on grinding machine Interlocked cooling tower fan with return line temperature to stop idle running of fan Continuous monitoring of power usage throughout the year

The adoption of the above energy conservation measures has helped to curtail the power requirement. This has made it possible to maintain cost of production at optimum level. The impact of measures taken above for conservation and optimum utilisation of energy are not quantitative, its impact on cost is not ascertained accurately.

ii) THE STEPS TAKEN BY THE COMPANY FOR UTILIZING ALTERNATE SOURCE OF ENERGY The Company is consuming captive power generated by its Wind Millssituated at Satara, Supaand Sakriin Maharashtra State and Solar Power Plants situated at Shivaji Nagar, Dist. Dhule, Maharashtra State The Company has initiated the roof top solar mechanism

(iii)   THE CAPITAL INVESTMENT ON ENERGY CONSERVATION EQUIPMENTS

The proposed capital investment on energy conservation equipment would be Rs.5Crore approximately.

B)   TECHNOLOGY ABSORPTION

(i)                  Efforts made towards technology absorption:

The Company's products are manufactured by using in-house know how and no outside technology is being used for manufacturing activities. Therefore, no technology absorption is required.

(ii)           The benefits derived like product development, cost reduction or import substitution 

The products manufactured by the Company have been well received and accepted by customers.       

(iii)          In case of imported technology (imported during the last three years reckoned from the beginning of the Financial Year) : Not applicable

(a)    The details of technology imported

(b)   The year of import

(c)    Whether the technology been fully absorbed

(d)   If not fully absorbed, areas where absorption has not taken place, and the reasons thereof;

(iv)   Expenditure on R & D:

                                                                                                                             (Rs. in Crore)

C)  FOREIGN EXCHANGE EARNINGS & OUTGO

Actual Foreign Exchange used and earned:

ANNEXURE III

DETAILS OF LOANS, INVESTMENT, GURARANTEE AND SECURITY MADE/PROVIDED BY THE COMPANY

The details of loans given and guarantees provided as per the provisions of Section 186 of the Companies Act, 2013 is as under:

1.      The Company has provided Inter Corporate Loan as per the following details to its wholly owned subsidiary company Varroc Lighting Systems (India) Pvt. Ltd.

2          During the year, Corporation Bank has renewed Standby letter of Credit (SBLC) to the tune of Euro 4.5 Million on 27-04-2015 in favour of ICICI Bank UK, PLC against which credit facilitywas availed by step down subsidiary company IMES, Italy. The said SBLC was valid till 07-05-2016.

3          The Company has provided Corporate Guarantee of Rs.15 Crore in favor of Bajaj Finance Limited as collateral security for availing term loan facility by the WOS Varroc Lighting Systems (India) Pvt. Ltd.

4          The details of the investments made during the year are given in notes to the financial statements.

5.        During the year, Company has availed Standby letter of Credit (SBLC) facility to the tune of Euro 1.51 Million on 23-03-2016 for availing credit facility by WOS Varroc European Holding B.V., The Netherlands to support business operations of IMES, Italy. The said SBLC is valid till 17-02-2017.

ANNEXURE IV TO BOARDS REPORT

Details of the Board and Committee meetings attended by each Director of the Company during the financial year 2015-16

* Appointed as director w.e.f. 15-07-2015

& Appointed as director w.e.f. 29-03-2016

@ Resigned as director w.e.f. 15-07-2015

# Resigned as director w.e.f. 21-03-2016

ANNEXURE V

ANNUAL REPORT ON CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES FOR THE FINANCIAL YEAR 2015-16

1.    The Board of Directors at their meeting held on July 28, 2014 has approved policy for Corporate Social Responsibility (CSR) with a vision to actively contribute to the social and economic development of the communities in which Company operates. The said policy was later on amended based on the recommendation of the CSR Committee and amended CSR policy was adopted at the Board meeting held on July 15, 2015.

The Policy is aimed at socio-economic welfare, uplifting quality of life of the people, maintain environment, promoting youth and young talents, providing opportunities to underprivileged and bright student, imparting vocational education etc. in line with the broad framework of Schedule VII of the Companies Act, 2013. The Policy can be referred in detail on the Companys website www.varrocgroup.com.

2.    Composition of the CSR Committee: The CSR Committee comprises of three Directors - Mr. Tarang Jain, Mr. Gautam Khandelwal and Mr. Padmanabh Sinha. Mr. Tarang Jain chairs the Committee.

3.    Average net profit of the Company for last three financial years: Rs. 78.60 crores

4.    Prescribed CSR expenditure

(Two percent of the amount mentioned in item 2 above)     :     Rs.1.57 crores

5.    Details of CSR spent during the financial year:

(a) Total amount to be spent for the financial year                   :     Rs. 1.57 crores

(b) Total amount spent during the financial year                        :     Rs. 2.03 crores

(c) Amount unspent, if any                                                                  :     NIL

(d) Manner in which the amount spent during the financial year; Details given below

*      NETTUR TECHNICAL TRAINING FOUNDATION (NTTF) is a reputed nonprofit organization having an established track record of more than 3 years in undertaking similar kind of projects and programs across the country.

**   Varroc Foundation (VF) is a Trust registered under Indian Trust Act, 1982 and has an established track record of more than 3 years in undertaking similar kind of projects and programs with an overall aim to create and support a stronger and inclusive India.

***Violin Academy is a reputed nonprofit organization having an established track record of more than 3 years in undertaking similar kind of projects and programs.

6. Reason for not spending the amount of 2% as provided in clause (3) above

NOT APPLICABLE

7. Responsibility Statement

We hereby declare that implementation and monitoring of the CSR policy is in compliance with CSR objectives and policy of the Company.

During the year under review, Net Sales and Other Income of your Company have increased by 5.08% to Rs.1,580.10 Crore as compared to Rs.1,500.12 Crore in the previous year. Your Company has recorded a 9.74% increase in Export revenue to Rs.140.78 Crore as compared to Rs.128.28 Crore in the previous year. The EBIDTA has decreased by 10.43% to Rs.148.06 Crore in comparison to the last year’s figure of Rs.163.5 Crore mainly on account of lower than budgeted sales and increase in fixed cost. There was also decline in Net Profit after Tax by 51.1% to Rs.17.63 Crore as against Rs.34.50 Crore in the previous year. The Finance cost has decreased by 3.35% to Rs.43.63 Crore as against Rs.45.14 Crore in the previous year.    

CONSERVATION OF ENERGY   The Company ensures that the manufacturing operations are conducted in the manner whereby optimum utilisation and maximum possible savings of energy is achieved.   i)  THE STEPS TAKEN OR IMPACT ON CONSERVATION OF ENERGY:                                                                                                                                Capacitors provided to maintain power factor to unity          APFC and Fix Capacitor panels provided to optimize power factor Provided interlock to hydraulic motors Hydraulic interlock provided for idle running of machines Provided centralized chiller unit for HMC machines Direct compressed air line connected from main header and provided to CMM for eliminating reciprocating compressor Optimum Utilization of Compressor by Staggered pressure setting as per application demand In normalizing furnace, glass insulation replaces to reduce heating loss from furnace body In normalizing furnace, muffle repaired to reduce heating loss from furnace body Interlock adds for Grinding machines for magnetic separator motor ON only when coolant ON For flash conveyor, programming modification done for idle running Using 100CFM Compressor in place of 160 CFM compressor during fewer loads at night. Using 200 CFM Compressor in place of 500 CFM compressor during fewer loads at night. To reduce compressed air utilisation, all shops air compressor synchronized. New capacitor panel of 750 KVA installed to improve power factor & to reduce losses. 108W CFL lights replaced with 39W LED Light 85W CFL eliminated to provide day light unit system in hot forging, special process and heat treatment Sodium vapor lamps replaced with LED 80W AHU installed instead of AC for New K10 HL section power Servo drives installed for Molding machine Auto temperature controller fitted for cooling towers to maintain constant temperature ON & OFF control system provided near IBH operator to avoid idle running of Cooling tower pump Use of LED Indication lamps on Machine & Control Panels Switch unit provided for street light for auto ON & OFF as per programmed sunset & sun rise timing Optilux energy saving controller installed to optimize consumption of lighting load Solar cell installed for Starter Motor drive & Dash Board lighting load          LED fittings installed for Starter Motor drive & Dash Board area Modified Air Line main header installed to reduce load on compressors 40 watts LED for Street light installed by replacing 144 watt CFL light 40 watts fluorescent tube light replaced with 20 watts LED tube light  Timer installed for production lines lighting load & canteen water cooler          VFDs installed for compressors and component cleaning machine pump          Phosphate process has been replaced with PULS coating process to save energy          Robot power pack timer provided for idle running of pump for forging shop Panel AC operation is controlled by timer provided on grinding machine Interlocked cooling tower fan with return line temperature to stop idle running of fan Continuous monitoring of power usage throughout the year   The adoption of the above energy conservation measures has helped to curtail the power requirement. This has made it possible to maintain cost of production at optimum level. The impact of measures taken above for conservation and optimum utilisation of energy are not quantitative, its impact on cost is not ascertained accurately.   ii) THE STEPS TAKEN BY THE COMPANY FOR UTILIZING ALTERNATE SOURCE OF ENERGY   The Company is consuming captive power generated by its Wind Millssituated at Satara, Supaand Sakriin Maharashtra State and Solar Power Plants situated at Shivaji Nagar, Dist. Dhule, Maharashtra State The Company has initiated the roof top solar mechanism   (iii)   THE CAPITAL INVESTMENT ON ENERGY CONSERVATION EQUIPMENTS   The proposed capital investment on energy conservation equipment would be Rs.5Crore approximately.        

TECHNOLOGY ABSORPTION   (i)                  Efforts made towards technology absorption: The Company's products are manufactured by using in-house know how and no outside technology is being used for manufacturing activities. Therefore, no technology absorption is required.   (ii)           The benefits derived like product development, cost reduction or import substitution  The products manufactured by the Company have been well received and accepted by customers.          (iii)          In case of imported technology (imported during the last three years reckoned from the beginning of the Financial Year) : Not applicable   (a)    The details of technology imported (b)   The year of import (c)    Whether the technology been fully absorbed (d)   If not fully absorbed, areas where absorption has not taken place, and the reasons thereof;   (iv)   Expenditure on R & D:                                                                                                                              (Rs. in Crore) Particulars 2015-16 Capital 3.30 Recurring 18.58 Total 21.88 Total R&D expenditure as aPercentage of total turnover 1.38%        

FOREIGN EXCHANGE EARNINGS & OUTGO   Actual Foreign Exchange used and earned:   Sl. No Item Amount (Rs. in Crore) A Used for:   1 Capital Goods 26.15 2 Raw Materials 76.11 3 Components, Stores & Spares 5.12 4 Foreign Travels 0.68 5 Consultancy Charges 2.41 6 Interest on Term Loans 6.38 7 Royalty 0.29 7 Others 3.18   TOTAL 120.32 B Earned:   1 Exports 127.78 2 Others 11.45   TOTAL 139.23      

Pursuant to Section 134 (5) of the Companies Act, 2013, the Board of Directors to the best of their knowledge and ability confirm that -   (a)    in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b)   the directors had 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 had 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 had prepared the annual accounts on a going concern basis; and (e)   the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.    

The Company has not issued any equity shares under Employees Stock Option Scheme during the year under review and hence no information as per provisions of Section 62(1)(b) of the Act read with Rule 12(9) of the Companies (Share Capital and Debenture) Rules, 2014 is required to be furnished.