Directors' Report 1. The Directors of your Company present the 40th Annual Report, with the statement of the audited accounts for the financial year ended 31st March, 2015. 2. Dividend Your Directors do not recommend payment of dividend for the year under review on equity shares in view of the loss incurred. 3. Fund Raising - Equity - Rights Issue During the year under review, your Company successfully placed 99,87,127 equity shares of Rs.2 each at a price of Rs.59 aggregating to Rs.5892 lacs to existing shareholders on rights basis in the Ratio of 12:25. The proceeds received through Rights issue were utilised for the purpose for which it was raised. Consequent to the above, the paid up value of the equity share capital of the Company stands increased from Rs.4.16 crores to 6.15 crores. 4. Management Discussions and Analysis: a. Industry structure and developments. The industry is structured in major two segments - mainly power generation and Transmission and Distribution. The delay in execution of power and T&D projects in India leads to huge congestion in T&D division. Few states in India are investing in the T&D infrastructure. The industry is awaiting implementation of reforms as most of the Companies continue to struggle due to highly leveraged Companies Balance sheets. Due to the slow economic growth in the past years and also increase in the NPA's in the banking industry forcing the bankers to restrict their exposure in the T&D sector. At present the power sector did not grow due to improper liberalisation as expected. Sales and cash flows of our Company were impacted due to the above said factors. 10 Easun Reyrolle Limited b. Opportunities and Threats. India is the world's second fast growing major economy. In the next two decades, current size of economy of USD five trillion is expected to grow four to five times as per various studies and estimates. Also India is the second most populous country in the world, with over 1.26 billion people. All the factors indicate potential for high growth of power demand consequently high market demand for T&D products & solutions. Developers of Power Plants have been facing numerous constraints like coal/gas allocation, environmental clearance, land acquisition, financing and funds tie-ups etc, for the last 4 years. This has resulted in only very few new projects coming up and the demand for T&D products considerably comes down. The declined growth of the core industries has remained a drag on industrial production. Eight core industries consisting 38% in Index of Industrial production have decelerated further after registering only 3.59%, the lowest in the last five years, due to a decline in crude oil, natural gas production and steel. Many Indian Corporate are highly leveraged there financial capacities due to new investment. Both Central and state Government should support the infrastructural investment and growth. c. Segment-wise or product-wise performance. Continuous product development is the cornerstone of ERL for meeting the challenges in today's environment. ERL places strong emphasis on innovation and development. The R&D efforts of the company are not only aimed at improving the performance and efficiency of the existing products, but also developing new products using state-of-the-art technologies. At present, ERL is concentrating in protection and automation business, which is the core strength. d. Outlook The Government focus on power and T&D sector is very high. The New NDA Government at centre is putting efforts to drive economic growth at 9% rate. The outcome of new price policy for gas allocation and cancellation of old coal mines with new auction system is expected in the coming years. The Government is also focusing on private participation in the transmission sector, tariff based competitive bidding projects, which helps the industry in coming years. The coming year is expected moderate growth in depends upon the implementation of reform process. ERL has significant presence in the field of Power Protection & Automation in India and abroad with a wide range of products and solutions. The business outlook is very positive To maintain and enhance its presence in the T&D segment, ERL has taken initiatives for improving the performance parameters of existing products. e. Risks and concerns. ERL has in place a Board approved Risk Management Policy, which provides over all frame work for Risk Management in the company. Some of the key risks the company faces: - Increasing competition - Delayed delivery of products leading to LDs, penalties and customer dis-satisfaction - Rising debtors may lead to working capital pressure Company has competitive manufacturing facilities. We are always upgrading our technologies and product mix in accordance with market requirements, which will help us to reduce our burdens at large extent. f. Internal control systems and their adequacy. The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The scope and authority of the Internal Audit (IA) function is defined in the Internal Audit Charter. To maintain its objectivity and independence, the Internal Audit function reports to the Audit Committee. The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company and its subsidiaries. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board. The Company has in place adequate internal financial controls with reference to financial statements and other matters. g. Discussion on financial performance with respect to operational performance. On a standalone basis, the Company achieved revenue from operations of Rs.6241.42 Lacs and EBIT of Rs (959.17) Lacs as against Rs.18217.72 Lacs and Rs (92.15) Lacs respectively in the previous year. Net loss for the year is Rs.3729.33 Lacs as compared to net loss of Rs.3210.40 Lacs in the previous year. The increase in loss during the year compared to previous year is primarily due to slow collection from the projects and the Government sector undertakings, the working capital cycle got affected due to the lack of working capital the existing orders got back log and delayed in executions. Hence the company turnover not achieved the expected break even to absorb the admin and other overheads. On consolidated basis, the Group achieved revenue from operations of Rs. 11,793.10 Lacs and EBIT of Rs. (1520.41) Lacs as against Rs. 25,647.24 Lacs and Rs. 404.79 Lacs respectively in the previous year. Net loss for the year is Rs. 4048.66 Lacs as compared to loss of Rs.3110.35 Lacs in the previous year. h. Material developments in Human Resources / Industrial Relations front, including number of people employed. There is no increase in number of people except replacement of any resignation/ retirements. During the year no strikes or lock-outs and the industrial relations are being maintained cordial. Due to cost reduction, we have reduced the manpower cost during the current year. Cautionary Statement: Statements in the management's discussion and analysis report, which seek to describe the company's expectations and predictions may be considered to be "forward looking statements" and are stated as required by applicable laws and regulations. Actual results could differ from those expressed or implied. Many factors including global and domestic demand-supply conditions, prices, raw-materials availability, technological changes, changes in government regulations and policies, tax laws and other statutes may affect the actual results, which can be different from what the Directors' envisage in terms of future outlook. 5. Human Resource Development The Company's industrial relations remained peaceful at all factories and establishments during the financial year. The Company is continuously improving employees skill sets through training and personality development programs. 6. Material changes and commitments affecting the financial position of the Company which have occurred between March 31, 2015 and 29th May, 2015 (date of the Report) There were no material changes and commitments affecting the financial position of the Company between the end of financial year (March 31, 2015) and the date of the Report (29.05.2015) 7. Internal Control Systems and their Adequacy The details in respect of internal financial control and their adequacy are included in the Management Discussion & Analysis, which forms part of this report. 8. Subsidiary Companies and Consolidated Financial Statements: The Company has 7 subsidiaries as on March 31, 2015. There are no associate companies within the meaning of Section 2(6) of the Companies Act, 2013 ("Act"). There has been no material change in the nature of the business of the subsidiaries. Pursuant to Section 129(3) of the Companies Act, 2013 read with Rule 5 of the Companies (Accounts) Rules, 2014, the statement containing salient features of the financial statements of the Company's Subsidiaries, (in Form AOC-1) is attached to the financial statements as Annexure - D. Pursuant to the provisions of section 136 of the Act, the financial statements of the Company, consolidated financial statements along with relevant documents and separate accounts in respect of subsidiaries, are available on the website of the Company. 9. Deposits from public The Company did not invite or accept any fixed deposit pursuant to provisions of Section 76 of the Companies Act, 2013. During the year no amount either on interest or principal, remained outstanding as on the date of the Balance Sheet. 10. Corporate Governance Report Your Company has been practicing the principle of good Corporate Governance over the years and ensures to comply with the provisions of Clause 49 of the Listing Agreement with Stock Exchanges. A detailed report on the Corporate Governance Code and practices of the Company along with a certificate from the statutory Auditor regarding compliance of the conditions of Corporate Governance as stipulated under the Listing Agreement is attached as Annexure - A to this Report. 11. Auditors M/s. Brahmayya & Co., Chartered Accountants and M/s R Subramanian & Co., Chartered Accountants, Joint Statutory Auditors of the Company, retire at the forthcoming Annual General Meeting and are eligible for re-appointment. The Company has received confirmation from both the firms regarding their consent and eligibility under Sections 139 and 141 of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 for appointment as the Auditors of the Company. As required under Clause 41 of the Listing Agreement, the Auditors have also confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India. The Audit Committee and the Board of Directors recommended their re-appointment for the year 2015-16. The necessary resolution is being placed before the shareholders for approval. 12. Secretarial Audit Pursuant to provisions of Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, your Company engaged the services of Mr. S. Viswanathan, Company Secretary in Practice, Bangalore to conduct the Secretarial Audit of the Company for the financial year ended March 31, 2015. The Secretarial Audit Report (in Form MR-3) is attached as Annexure - C to this Report. 13. Management reply to the Statutory Auditor's & Secretarial Auditor's Report The explanations and comments by the Board on qualifications made by Statutory Auditors and Secretarial Auditor is attached as Annexure - G to this Report. 14. Extract of Annual Return An extract of Annual Return in Form MGT-9 as on March 31, 2015 is attached as Annexure - F to this Report. 15. Directors and Key Managerial Personnel During the year under review, Mr JDN Sharma, Non-Executive Director and Mr M Raman, Independent Director stepped down from the Board. The Board wishes to place on record its deep sense of appreciation for the valuable contributions made by them to the Board and the Company during their tenure as Directors. Pursuant to the provisions of Section 149 of the Act, which came into effect from April 1, 2014, Dr William Stanley Jones and Mr Rakesh Garg were appointed as independent directors at the annual general meeting of the Company held on 29th September, 2014. The terms and conditions of appointment of independent directors are as per Schedule IV of the Act. They have submitted a declaration that each of them meets the criteria of independence as provided in Section 149(6) of the Act and there has been no change in the circumstances which may affect their status as independent director during the year. Mr Hari Eswaran, Director retire by rotation and being eligible, have offered himself for re-appointment. A brief background of Mr Hari Eswaran, Director is given in the Corporate Governance Report. Pursuant to the provisions of Section 203 of the Act, which came into effect from April 1, 2014, the appointments of Mr P Chandrasekaran, Chief Financial Officer, as key managerial personnel of the Company were formalised and Mr Praveen Hegde appointed as Company Secretary and Compliance officer in the month of September, 2014. 16. Policy on Directors' appointment and remuneration and other details The Company's policy on Directors' appointment and remuneration and other matters provided in Section 178(3) of the Act has been disclosed in the corporate governance report, which forms part of the directors' report. A statement containing the details of the Remuneration of KMP's as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in the corporate governance report, which forms part of the directors' report. 17. Number of Meetings of the Board Five meetings of the board were held during the year. For details of the meetings of the board, please refer to the corporate governance report, which forms part of this report. 18. Board evaluation The board of directors has carried out an annual evaluation of its own performance, Board committees and individual directors pursuant to the provisions of the Act and the corporate governance requirements as prescribed by Securities and Exchange Board of India ("SEBI") under Clause 49 of the Listing Agreements ("Clause 49"). The performance of the Board was evaluated by the Board after seeking inputs from all the directors on the basis of the criteria such as the Board composition and structure, effectiveness of board processes, information and functioning, etc. The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, effectiveness of committee meetings, etc. The Board and the Nomination and Remuneration Committee ("NRC") reviewed the performance of the individual directors on the basis of the criteria such as the contribution of the individual director to the Board and committee meetings like preparedness on the issues to be discussed, meaningful and constructive contribution and inputs in meetings, etc. In addition, the Chairman was also evaluated on the key aspects of his role. In a separate meeting of independent Directors, performance of non-independent directors, performance of the board as a whole and performance of the Chairman was evaluated, taking into account the views of executive and non-executive directors. 19. Directors' Responsibility Statement As required under Section 134(5) of the Companies Act, 2013, the Directors of the Company hereby state and confirm that: (i) in the preparation of Annual Accounts for the year, applicable Accounting Standards have been followed along with proper explanations 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 as at the end of the financial year and of the profit and loss of the Company for the year under review; (iii) the Directors have taken proper and sufficient care for the 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; and (iv) the Directors have prepared the Annual Accounts on a going concern basis. (v) That proper internal financial control was followed by the Company and that such internal financial control are adequate and were operating effectively. (vi) 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. 20. Audit committee The details pertaining to composition of audit committee are included in the Corporate Governance Report, which forms part of this report. 21. Particulars of loans, guarantees and investments The particulars of loans, guarantees and investments have been disclosed in the financial statements. 22. Vigil Mechanism / Whistle Blower Policy Pursuant to Section 177(9) of the Companies Act, 2013 read with Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Clause 49 of the Listing Agreement, the Board of Directors had approved the Policy on Vigil Mechanism/ Whistle Blower and the same was hosted on the website of the Company. This Policy inter-alia provides a direct access to the Chairman of the Audit Committee. Your Company hereby affirms that no Director/ employee has been denied access to the Chairman of the Audit Committee and that no complaints were received during the year. The policies have been uploaded on the Company's website, under the web link: <http://www.easunreyrolle.com/> uploads/investorrels/2014/12/13918511951418634190_ERL%20-%20whistle-blower-policy-final.pdf 23. Related Party Transactions There have been no materially-significant related party transactions made by Company with the promoter, the Directors, the Key managerial personnel which may be in conflict with the interest of the Company at large. All related party transactions as placed before the Audit Committee has also received approval from the Board. The policy on related party transactions as approved by the Board can be accessed on the Company website : <http://www.easunreyrolle.com/uploads/investorrels/2015/8/13786278951439265073_> Final-Policy%20on%20related%20party%20transactions.pdf The details of related party transactions are set out in the notes to the financial statements, as well as form AOC-2 is attached as Annexure-E to this report. 24. Risk management The Board of the Company has formed a risk management committee to frame, implement and monitor the risk management plan for the Company. The committee is responsible for reviewing the risk management plan and ensuring its effectiveness. The audit committee has additional oversight in the area of financial risks and controls. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. The development and implementation of risk management policy has been covered in the management discussion and analysis, which forms part of this report. 25. Corporate Social Responsibility Your Company has not come under the purview of the Section 135 of the Companies Act, 2013 as Company having less Net worth or Turnover or Net profit as specified in the Section. 26. Disclosure requirements As per Clause 49 of the listing agreements entered into with the stock exchanges, corporate governance report with auditors certificate thereon and management discussion and analysis are attached, which form part of this report. As per Clause 55 of the listing agreements entered into with the stock exchanges, a business responsibility report is attached and forms part of this annual report. Policy on dealing with related party transactions is available on the website of the Company (URL: <http://www.easunreyrolle.com/uploads/investorrels/2015/8/13786278951439265073_> Final-Policy%20on%20related%20party%20transactions.pdf). The Company has formulated and published a Whistle Blower Policy to provide Vigil Mechanism for employees including directors of the Company to report genuine concerns. The provisions of this policy are in line with the provisions of the Section 177(9) of the Act and the revised Clause 49 of the Listing Agreements with stock exchanges (URL: <http://www.easunreyrolle.com/uploads/investorrels/2014/12/13918511951418634190_> ERL%20-%20whistle-blower-policy-final.pdf). 27. Particulars of Research and Development, Conservation of Energy, Technology Absorption, and Foreign Exchange Earnings/Outgo: Information required under Section 134 of the Companies Act, 2013 read with Rule 8 (3) of the Companies (Accounts) Rules, 2014, is attached as Annexure B and forms part of this Report. 28. Concluding Remarks The Directors wish to express their appreciation to all employees of the Company for their sincere and dedicated services during the year. The Directors take this opportunity to express their gratitude to all Shareholders, Bankers, Vendors and other Stakeholders who have reposed trust and extended their constant support. For and on behalf of Board of Directors Hari Eswaran Chairman (DIN No. 00196760) Place : Chennai Date : 29th May, 2015 |