AFFLUENCE

Directors’ Report

To,

The Members,

The Directors take great pleasure in placing before you the Thirtieth Annual Report of the Company together with the audited financial statements for the Year ended 31st March, 2016.

1.           Financial Results (Standalone):      

                Rs. in Crores

2.           Dividend

The Board of Directors recommend a dividend of Rs.10/- per share for the year ended March 31, 2016 (previous year Rs.10 per share). This dividend is subject to approval of the shareholders at the forthcoming Annual General Meeting. The total outlay including the dividend tax is Rs.0.69 crores which is the same as the outlay for the financial year 2014-15.

3.           Reserves:

The company proposes to transfer an amount of Rs.3.21 Crores to the General Reserve account, on voluntary basis.

4.           Management Discussion and Analysis:

In order to avoid repetition between the Directors’ Report and Management Discussion and Analysis, we have combined the same and a composite is being given below

4.1        Global and  Indian Economy

The world economic growth was muted weighed down by Euro zone crisis, depreciation of Chinese currency RMB, meltdown of commodity prices and rise in terrorism. The, increasing divergence between economies and tightening of domestic policies were the key developments.

Against the backdrop of gloomy global economic environment Indian economy’s performance can be considered satisfactory. During the year under review the Index and Industrial Production (IIP) grew at a moderate 2.3% compared to 2014-15. The manufacturing sector growth which constitutes 76% of the IIP picked up in the second half but went into negative in the last two months. The poor monsoon in 2015 impacted the agricultural production and reduced the rural disposable income and thereby the consumer demand and consumption. Our currency continued to depreciate against US Dollar thus rendering imports and inputs dearer. 

Thus in the year under review the business environment was challenging characterized by sluggish demand, intense competition, rising input costs and pressure on the operating margins.

4.2     Automotive Industry Structure and Developments

The automobile industry buoyed by the improving economic fundamentals, falling fuel prices grew by 2% in 2015-16 compared to the previous year. The utility vehicle sub segment of passenger vehicle segment grew by a healthy 14% in 2015-16 which enabled the passenger vehicle segment to achieve a growth of 6% in 2015-16. The Commercial Vehicle sector posted a growth of 12% over 2014-15 production. The farm equipment segment posted a negative 12% growth in 2015 -16, due to poor monsoon. The two wheeler segment weighed down by the slack demand posted a mute sub 2% growth.  However the scooter segment for which the Company  commenced catering to  thro supplies to TVS Motors has shown a growth of 12% in 2015-16.

4.3    Industry performance

During the year under review, the growth in automotive industry is as given below

                                                         Volume growth in % over previous year  

*     Scooter segment posted 11.79% growth in 2015-16

Source: Society of Indian Automobile Manufacturers    

4.4.    Company Performance

The overall performance of the Company was quite satisfactory. During the year under review the company established itself as a reliable supplier of aluminum die cast components to two wheeler manufacturers and achieved significant traction in its sales volumes of components to two wheeler segment. The sale of engine block and cylinder heads to truck manufacturers increased in the current year. The Company has commenced supplies of aluminum castings to leading power switchgear manufacturers. The Company’s made further progress in growing its own product business with focused marketing.

Due to the above measures taken despite the challenging environment the company was able to grow its domestic market turnover by 18% from Rs.594 crores to Rs.699 crores.

Our exports sales dipped due to difficult global business conditions. Efforts are on to deepen our product range and find new customers. We have tied up with a leading packaging equipment manufacturer for supply of sub-assemblies to them and we expect to complete this project and commence supplies in 2016-17.

4.5     Financial Performance:

Sales

During 2015-16 the company achieved a turnover of Rs.871.8 Crores a growth of 12.5% over the previous fiscal. The domestic sales grew by 44%  from Rs.237.90 crores in 2014-15 to Rs.343.6 crores in 2015-16.This was rendered possible as  we commenced sale of components to two wheeler manufacturers and the ramp up of  volumes of truck engine blocks and heads assemblies. The machining income was almost flat in 2015 -16 as compared to the previous financial year. Due to the prevailing challenging business environment exports in 2015-16 contracted by 5% to Rs.172.7 from Rs.181 crores in 2014-15.

Material and other costs:

During the year under review there was an  increase in raw material costs due to change in the product mix with the increasing share of sales to customers with high material content. During the year we also incurred costs in development of new products

EBITDA:

Despite the increase in costs mentioned above and the fall in global steel prices that resulted in reduction in swarf sale revenue, the EBITDA during the year under review increased by 13% increase from Rs.196 crores to Rs.221 crores.

Finance Costs:

The finance costs in 2015-16 grew by 20% from Rs.61.57 crores to Rs.74.14 crores due to higher borrowings.

Depreciation and Amortisation:

On account of higher asset base the depreciation charge for the year is Rs.91.73 crores which is 10% higher compared to 2014-15.

Profit:

Due to higher finance costs and depreciation the Profit before tax grew by  6% in 2015-16 to Rs.54.76 crores from Rs.51.46 crores in 2014-15.  The Profit after Tax declined due to increased deferred tax charge and therefore came down from Rs.52.52 crores of 2014-15 to Rs.32.07 crores in 2015-16.

4.6     Capacities and capital expenditure:

During the year, the Company incurred Rs.112 crores (excluding re-statement) towards capital expenditure on existing and new projects. The company has incurred capex on creating capacity for manufacture of cam shaft, railway products and other new products.

          4.7     New projects & New Developments

4.7.1 Aluminum Sand Foundry and Pressure die casting production:

The operations of the Aluminum Sand Foundry which went into commercial production in June-2015 is in the process of stabilization. 

During the year 2015-16 the production of pressure die cast components from the high pressure and low pressure dies casting units were increased and it contributed significantly to the growth of the domestic sales volume. 

4.7.2 Unit-III, Coimbatore:

The Company has set up a line for manufacture of cam shafts for a truck manufacturer and the product is undergoing trials. The Company has successfully developed cylinder liners meant for diesel locomotives of the Indian Railways. The company is also setting up dedicated machining and assembly facility for an overseas packaging equipment manufacturer.

4.7.3 Other Units:

During the current year 2016-17, the Company has taken up a project for further expanding the capacity of its various units like Sriperumpudur, Pune, Jamshedpur, Pithampur etc.

4.7.4 Bangalore Unit – Technology Division:

During the year 2015-16, the technology division established at Bangalore to manufacture special purpose machine commenced operations and made its first external sales. Efforts are on to increase its sales volume.

5.           Credit rating:

The Company has been assigned a credit rating of BBB+ by CARE Ltd. for its short term and long term credit facilities.

6.           New Products:

The Company’s programme to diversify its product range got a boost with the successful development of cylinder liner for diesel locomotives for Indian Railways. These liners were being imported hither to. Your Company is the first Indian manufacturer to successfully develop this product. After extensive and stringent trials our product has been approved and delivery would start during FY 2016-17. Buoyed by this success your Company is in the process of developing other new products for railway locomotives and other applications.

The Company has successfully developed cam shaft for trucks. The same has been tested and approved by our customer. We would commence regular supplies of cam shaft in June 2016

7.           Deposits:

The Company has not accepted any deposits during the year under review.

8.           Awards and Recognition:

The Company has been taking all out efforts to retain and build upon its reputation as a quality and reliable supplier. In recognition of its efforts the company continued to shower by awards in FY 2015-16 and the principal ones are as follows:

9.           Corporate Social Responsibility(CSR) :

With the enactment of CSR provisions in the Companies Act, 2013 your company has put in place a Corporate Social Responsibility policy. During 2015-16 the Company spent Rs.28.97 Lakhs towards CSR and the details of which are provided in the Annexure – A. The projects/ activities were identified with a view to make an impact in the local community in which the company’s plants are located. 

10.     Subsidiaries, Associates and Joint Venture:

10.1   Details of Foreign wholly owned subsidiaries:

a.            Craftsman Marine B.V. the Netherlands, which is a wholly owned subsidiary company notched a turnover of Rs.24.00 crores in 2015-16 against Rs.21.66 Crores in 2014-15. The Company in 2015-16 posted a profit of Rs.1.42 crores against a net loss of Rs.6.91 Crores for 2014-15.

b.            Craftsman Automation Singapore Pte. Ltd Singapore a wholly owned subsidiary company consequent to a sharp increase in it’s service income from  Rs.0.63 Crores in 2014-15 to Rs.1.33 crores in 2015-16 was able to post a maiden  profit Rs.0.21 crores against a loss Rs.0.65 crores incurred in 2014-15.

10.2   Details of Joint Venture Companies:

a.            M C Craftsman Machinery Private Limited is a jointly controlled company in which your company is holding 10% of equity shares. There has been no change in this equity stake during 2015-16. Despite MC Craftsman Machinery Private Limited showing better sales of Rs.46.17 crores in 2015-16 against Rs.Rs.32.33 Crores for the previous year, the Profit after tax declined to Rs.0.27 crores in 2015-16 against Rs.1.36 crores for 2014-15.

b.            Carl Stahl Craftsman Enterprises Private Limited is a jointly controlled company in which your company is holding 30% of equity shares. There has been no change in this equity stake during 2015-16. Carl Stahl Craftsman Enterprises Private Limited clocked a turnover in 2015 -16 of Rs.6.86 crores against the Rs.5.98 Crores of 2014-15. The Profit for the year 2015-16 was Rs.0.30 Crores as against Rs.0.09 Crores in 2014-15.

Pursuant to Section 129 (3) of the Companies Act, 2013 read with Rule (5) of the Companies (Accounts) Rules, 2014 a statement containing salient features of the financial statements of the Company’s Subsidiaries & Joint Venture Companies in Form No.AOC-1 is attached to this report as Annexure - B

11          Declarations and Affirmations

During the year under review:

a.            there has been no change in the Company’s nature of business except for addition of new business like manufacture of engine cylinder liners for railway locomotives and cam shafts etc.

b.            there are no material changes and commitments which occurred during the year under review or any material orders passed by the regulators, courts, tribunals which would have an impact on the going concern status and operation of the company in the future.

c.            pursuant to Section 134 of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014, the Company complied with the compliance requirements.

d.            no complaints were received during the year under review from any women employees under the Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal ) Act, 2013.

There has been no material change or commitments between 31st March 2016 and 25th August 2016.

12.     Directors, Changes in Directors and Key Managerial Personnel:

Dr.G.Srinivasan, Director and Mr.S.Ravi, Chairman and Managing Director are Directors for life in terms of Article 72 of Articles of Association.

In view of the provisions of Sec 196 of the Companies Act, 2013, Mr. S Ravi was re-appointed by the Board of Directors, at the meeting held on August 25th, 2016 as Chairman and Managing Director of the Company for a fresh term of five years with effect from 1st October 2016.

Mr.Namit Arora, is the nominee director Standard Chartered Private Equity (Mauritius) II Limited ( SCPE) continues to hold office.

Mr.C.M.Bhide, a non-executive director, who has extensive experience in the automobile industry and who was initially inducted into the Board as an additional director on 31st January 2011. Since then, he is being re-appointed as Director in every Annual General Meeting. He holds office up to the ensuing AGM and being eligible and recommended for re-appointment.

Mr.K.K.Balu, a non-executive director, a company law luminary who was inducted into the Board as an additional director on 12th November 2011. Since then, he is being re-appointed as Director in every Annual General Meeting. He holds office up to the ensuing AGM and being eligible and recommended for re-appointment.

Mr.R.Gauthamram, son of Mr.S.Ravi, Chairman and Managing Director has been on the Board of the Company as an Executive Director since 2014. In view of the provisions of Sec 196 of the Companies Act, 2013, Mr.R.Gauthamram was        re-appointed as Executive Director of the Company by the Board at its meeting held on August 25, 2016 for a period of 5 years with effect from 1st October 2016.

Mr.N.Chandramohan who has over forty years of experience in the field of marketing and general management and who was previously working as President – Business Development was inducted into the Board at its meeting on June 24, 2016 as an additional director and titled Executive Director –Business  Development. Necessary resolution for the appointment of Mr.N.Chandramohan, payment of remuneration and other terms forms part of the Notice of the ensuing Annual General Meeting for Shareholder’s approval. 

Mr.G.Sivakumar has been appointed as Chief Financial Officer with effect from 10th March 2016.

13.     Statutory Auditors:

M/s.PKF Sridhar and Santhanam, LLP, Coimbatore, Chartered Accountants, (Firm No 003990S) statutory auditors of the Company retire at the close of the ensuing Annual General Meeting. M/s.PKF Sridhar & Santhanam LLP, Chartered Accountants (Firm.No.003990S/S200018) being eligible, offer themselves for reappointment. It is proposed to reappoint PKF Sridhar & Santhanam LLP Chartered Accountants, in terms of Sec 139 (2) of the Companies Act, 2013 read with Rule 6(3) of The Companies (Audit and Auditors) Rules 2014 for a period of 4 years from the conclusion 30th Annual General Meeting of the Company till the conclusion of 34th Annual General Meeting of the Company subject to ratification each year. The Company has received a letter from them confirming that they are not disqualified for such reappointment under Section 139 of the Companies Act 2013. The necessary resolution is being placed before the shareholders for approval.

14.     Cost Auditors

The Board has re-appointed M/s.S.Mahadevan & Co, Cost Accountants, Coimbatore, (Registration No. 000007) as cost auditors of the company for the financial year 2016-17, for auditing the cost accounting records maintained by the Company for the applicable products for the year ending 31st March 2017.  The remuneration payable to the cost auditors for the financial year 2015-16 is being placed for the approval.

15.     Internal Audit

The company had appointed M/s MC Ranganathan & Co., Chartered Accountants, Chennai, as internal auditor for the financial year 2015-16 and they have carried out internal audit.

16.     Extract of Annual Return

An extract of Annual Return in Form MGT-9 as on 31 March 2015 is attached to this Report as Annexure-C.

Board Meetings held during the year

During the year ended 31st March, 2016, 5 (five) Board Meetings were held on 24.06.2015, 07.09.2015, 30.09.2015, 11.12.2015 and 27.02.2016. The details on the attendance by the Directors are given below.

17.     Particulars of Employees

The statement of particulars of employees who are drawing remuneration beyond the prescribed limits as per Rule 5(2) and 5(3) 2013 of Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 read with Sec 134(5) of the Companies Act, 2013 for the year 2015-16 is given below:

Employed throughout the year and was in receipt of remuneration at the rate not less than Rs.1,02,00,000/- per annum

18.     Particulars of Loan, Guarantee or Investments under section 186 of the

          Act:

The company has not given loan, guarantee or provided security during the year   2015-16 and the provisions of section 186 of the Companies Act 2013 will not apply.

19.     Particulars of contracts or arrangements with related parties:

All the transactions entered by the Company with Related Parties were in the Ordinary Course of Business and at an arm’s Length pricing basis. Disclosure of related party transactions in Form AOC-2 as per Rule 8 of the Companies (Accounts) Rules 2014 is attached as Annexure – D to this report.

20.     Conservation of energy, technology absorption and foreign exchange earnings and outgo.

The details of conservation of energy, technology absorption, foreign exchange earnings and outgo are as follows:

A)           Conservation of energy:

I.       Steps taken or impact on conservation of energy

·                     Tapping solar energy starting with arrangements for street lights

·                     Introducing level base drain valves to minimize air and energy wastage instead of time based auto drain valve in airlines

·                     Providing MCCBs instead of switch fuse units in all panels to minimize energy wastage

·                     Providing EMS software for online monitoring to save energy, is in progress.

·                     Availing EHT line (Above 110 KV) for dedicated & uninterrupted EB power (presently 33 KV HT Line)

·                     Converting all main voltage panels and DG sets to programmable auto change over system

·                     Providing Variable Frequency Drive for Compressors to Reduce Demand

·                      Providing LED Lamps instead of Conventional Florescent Lamp and Mercury Vapor Lamps.

·                     Providing UPS for Machines to eliminate Break Downs and Tool Broken during frequent Power Cut’s.

II       the steps taken by the company for utilizing alternate source of energy;

The Company has constructed new buildings about 1,50,000 sq. ft across its units during the year. The construction has factored effective usage of daylight inside the factory so that dependence of electricity for lighting has been greatly reduced during the day. The company is the process of replacing the traditional electrical lights with solar powered lights on the roads inside the factory premises.

III      the capital investment on energy conservation equipment’s: -

The company has installed UPS in major units and replacing existing MH lamps with low consumption LED lamps.

B)          Technology Absorption:

Technology absorption – The Company has effectively integrated and absorbed general technology in the manufacture of Camshaft for automotive lines; The Company has also successfully integrated and absorbed mould base manufacturing technology for die castings

the expenditure incurred on Research and Development;

The company has not incurred any expenditure on Research and Development.

C.      Foreign Exchange earnings and Outgo:

Details of earnings accrued and expenditure incurred in foreign currency are as given below.

Foreign Exchange Earnings                 - Rs.160.36 Crores

Foreign Exchange Outgo                    - Rs.159.20 Crores

(Expenditure in Foreign Currency)

21.     Risk management policy, Risks and Concerns   :

The company has diversified risk by venturing into various segments of business and new business lines like Special Purpose Machines (SPM), Two Wheeler Scooter Segment, Mould Base, manufacture of subassemblies for packaging machinery, storage solutions and Railway cylinder liners etc.  The company is concentrating to add new customers and new business to minimize the risk. The company is having sufficient exports to meet its foreign exchange requirements and having natural hedge.

Following are the major risk concerns:

Competition:

The competition operates in a competitive environment and some of our customers pursue a policy maintaining more than one source for a product/ service. Our senior management team does competitor analysis and discusses the strategies adopted by the competition.

Economy:

The economy is still buffeted by challenging global economic environment and constrained by high interest rates, delay in implementation of policy reforms.

Automobile Industry:

The automobile industry is cyclical in nature and the frequent regulatory changes impacts its workings.

Risk Mitigation Measures:

As already mentioned the Company adopts the policy of diversifying its product, market and customer base to mitigate the volatilities and uncertainties.  The Company has the requisite talent pool with design and process engineering capabilities. In addition, the Company has steadily invested over the years to build up a world class manufacturing and test facilities, at Coimbatore. The state of the art machines, continuous improvement in production process, constant up gradation of employee skill levels and JIT deliveries have created a strong competitive advantage for the Company.

22.     Internal Control system and Internal Financial Controls relating to    financial statements:

The company has internal control systems to mitigate risks that are inherent in the daily functioning and covers all functions and the whole of the operations. The internal auditor evaluates the adequacy and effectiveness of these internal controls, recommends improvements and also reviews adherence to policies based on which corrective action is taken to address gaps if any.

The Company has in place adequate internal financial controls which, ensures the reliability of financial and operational information. The regulatory and statutory compliances are also ensured. The Oracle enterprise wide resource platform deployed in the Company enables the business processes and also ensures financial discipline and fosters accountability.

23.     Directors’ Responsibility Statement:

The Directors’ Responsibility Statement referred to in clause (c) of sub-section (3) of Section 134 of the Companies Act, 2013, shall state 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 Companies Act 2013 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;

(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

24.     Cautionary statement

The information in this report may contain forward looking statements. Actual results may differ materially from those either expressed or implied. Important developments that could affect the Company’s operations include any downtrend in global or domestic markets, tax laws, forex volatility, power availability and interest costs.

Acknowledgements:

The directors wish to thank the Private Equity Investors, bankers and the financial institutions for their continued support to the operations. The directors also thank customers, suppliers, and service providers for their continued support during the year. The directors place on record their appreciation of the contribution made by all employees of the company.

          For and on behalf of the Board of Directors

                                                          S.RAVI

CHAIRMAN AND MANAGING DIRECTOR

Place: Coimbatore                                 DIN 01257716    

Date:  25 -08-2016                             

ANNEXURE -  A

Annual Report on Corporate Social Responsibilities (CSR) Activities

CSR Activities – Manner in which the amount was spent.

Your company is in the process of identifying suitable projects for implementation of CSR spending and implementation is taking more time.

The CSR Committee of the Board of Directors acknowledges the responsibility for the implementation and monitoring the CSR Policy and accordingly state that the same is in compliance with CSR objectives and Policy of the company and the company has complied with all the requirements in this regard.

Your company is planning to spent around Rs.1 Crore (Rupees One Crore) during the financial year 2016-17 towards CSR activities at Jamshedpur and nearby places, where Jamshedpur unit is located. Certain areas in Jamshedpur are back ward areas and these back ward areas really need development, in reasonable size and hence the company has identified Jamshedpur location for implementation of major CSR Activities.

Date:   25.08.2016                                                                                                         

Place: Coimbatore                                          Chairman and Managing Director    

                                                                                         DIN 01257716                                 

ANNEXURE - B

Form AOC-1

(Pursuant to first proviso to sub-section (3) of section 129 read with rule 5 of Companies (Accounts) Rules, 2014)

Statement containing salient features of the financial statement of subsidiaries or associate companies or joint ventures

Part A Subsidiaries

(Information in respect of each subsidiary to be presented with amounts in Rs.)

Date: 25.08.2016                                                                                                              

Place: Coimbatore                                           Chairman and Managing Director    

                                                                                     DIN 01257716                                  

Part “B”

Associates and Joint Ventures

Statement pursuant to section 129 (3) of the Companies Act, 2013 related to Associate Companies and Joint Ventures.

Date: 25.08.2016                                                                                                               

Place: Coimbatore                                           Chairman and Managing Director    

                                                                                     DIN 01257716                                  

ANNEXURE – C TO BOARDS REPORT

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

    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 :  

Following are the Wholly Owned Subsidiary Companies Registered Outsider India:

          Following are the Joint Venture Companies in India :

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

(i)                Category-wise Share Holding