pricol ltdmerged Directors report

DIRECTORS REPORT & MANAGEMENT ANALYSIS

Your Directors have pleasure in presenting the Forty Third Annual Report and audited accounts for the financial year ended 31st March, 2015.

FINANCIAL RESULTS

The summarised financial results are :

Rs. Million

	2014-15	2013-14
Net Sales & Services
- Domestic	7,842.345	6,899.647
- Export	1,162.545	1,402.783
Total	9,004.890	8,302.430
Profit from Operations before
Finance Cost, Depreciation and Amortisation Expense & Exceptional Items	252.896	694.353
Less : Finance Costs	78.900	65.196
: Depreciation & Amortisation Expense	352.545	306.646
Profit / (Loss) from Operations before Exceptional Items and Tax	(178.549)	322.511
(2013-14 profit includes Profit of Rs. 114.206 Million from sale of land held as Stock-in-Trade)
Add : Exceptional Items	(46.768)	516.334
Profit / (Loss) Before Tax	(225.317)	838.845
Less : Tax Expense
Current Tax	12.903	173.882
Deferred Tax	(48.378)	41.000
MAT Credit	(12.903)	(62.678)
For earlier years	3.033	16.648
Profit / (Loss) for the Year	(179.972)	669.993
Add : Surplus - Opening	699.911	185.366
Less : Loss on Amalgamation from 1st Jan’ 14 to 31st Mar’ 14	11.393
Adjustment relating to Fixed Assets (Net of Deferred Tax)	36.164
Amount available for appropriation	472.382	855.359

DIVIDEND

To conserve the outflow of funds and use it for improving the operations of the Company, no dividend was recommended for the year 2014-15.

APPROPRIATION

Rs. Million

	2014-15	2013-14
Dividend - Nil		75.600
(Previous year- Rs. 0.80 per share of Rs. 1.00 face value)
Tax on Dividend		12.848
General Reserve		67.000
Surplus to be carried over	472.382	699.911
Total	472.382	855.359

AUTO INDUSTRY

During the year, the Auto Industry domestic market grew by 7.22% and exports by 14.89%. The overall growth was 8.32% as against 4.04% in the previous financial year. The performance as per Society of Indian Automobile Manufacturers (SIAM) is :

	Vehicles Sold		Growth
Category	2014-15	2013-14	2014-15
	In numbers		%
Passenger Car / Utility Vehicle	3,048,822	2,907,316	4.87
Vans	174,759	192,335	(9.14)
Medium & Heavy
Commercial Vehicle	263,407	224,431	17.37
Light Commercial Vehicle	437,336	485,470	(9.91)
Motor cycles / Scooters / Mopeds	18,462,178	16,890,778	9.30
Three Wheelers	939,884	833,477	12.77
Total	23,326,386	21,533,807	8.32

OPERATIONS

For the financial year 2014-15, our Companys domestic sales increased to Rs. 7,842.345 Million from Rs. 6,899.647 Million, a growth of 13.66%, despite a growth of only 8.32% by the auto industry.

Our export sales decreased by 17.13% to Rs. 1,162.545 Million from Rs. 1,402.783 Million. There was a steep production drop in two wheelers of our Overseas OEM Customers, Kawasaki Thailand / Indonesia and Piaggio Italy. In addition, there was a drop in the export sales to Europe since the economy there is yet to fully recover.

The overall sales of the Company increased by 8.46% to Rs. 9,004.890 Million from Rs. 8,302.430 Million, which is in line with the auto industry.

Reduction of sales in exports, after market and asset management systems, led to steep decline in profits. High increase in employee cost more than the normal levels was due to higher outflow in first year of long term wage settlement with Operators. These resulted in operational loss of Rs. 178.549 Million against the profit of Rs. 208.305 Million (excluding profit of Rs. 114.206 Million from sale of land held as Stock-in-Trade) in 2013-14.

For the ensuing year 2015-16, the Companys business is expected to grow higher than the market, mainly due to new businesses generated. The Company has embarked upon further improving operational efficiency, efforts to control cost and generate profits for the year 2015-16.

SUBSIDIARY COMPANIES

PT Pricol Surya, Indonesia

The Companys customers are 2 Wheeler manufacturers to whom Instrument Clusters are supplied.

In the financial year 2014-15 the Company has achieved a sales of Indonesian Rupiah 190,739 Million an increase of 12% over the previous financial year sales of Indonesian Rupiah 170,307 Million (In Indian Rupee the sales increased by 3.88% only to Indian Rupee 964.183 Million from Indian Rupee 928.174 Million due to depreciation of Indonesian Rupiah).

Due to steep increase in material cost, consequent to the Indonesian Rupiah depreciation against US Dollar and much higher than the normal increase in wages due to Government Policy, the Company has incurred a loss of Indian Rupee 118.862 Million. Increase could not be passed on to the Customers.

Efforts are being put to turn the Company profitable for the ensuing financial year. Towards this, the customers have already been approached to add more new products in the product range made by the parent Company, Pricol Limited in India. The techno-commercial discussions are in progress and the Company hopes to convert the same into business during the financial year 2015-16. As a beginning, the Company has received Purchase Order for the supply of Oil pumps to M/s. Suzuki, Indonesia.

Pricol Asia Pte Limited, Singapore

This purchasing arm of our Company mainly assists in global procurement of raw materials and components to supply our Company and associate companies.

In the financial year 2014-15, the Company achieved sales of Rs. 1,043.079 Million when compared with the previous year sales of Rs. 98.028 Million due to limited operations in the previous year. The Company was able to achieve a profit of Rs. 10.257 Million.

Pricol Espana Sociedad Limitada, Spain

During the year, Pricol Limited incorporated a Wholly Owned Subsidiary Company, Pricol Espana Sociedad Limitada, in Spain. It is an investment arm of Pricol to acquire companies in foreign countries. Pricol has infused capital of EURO 1.804 Million in the Company.

Pricol do Brasil Componentes Automotivos LtdA,

Brazil

On 23rd January, 2015, through its Wholly Owned Subsidiary Company, Pricol Espana Sociedad Limitada, Spain, Pricol acquired 99.99% stake in Melling do Brasil Componentes Auomotivos LtdA, Brazil, an auto component manufacturing Company. The acquisition cost is One Brazilian Real (R$1). The name of the Company has been changed to Pricol do Brasil Componentes Automotivos LtdA.

The Company serves wide range of Domestic and International customers such as Volkswagen, FIAT, General Motors, Harley Davidson, Mack Trucks etc. The Company has a strong backward integrated facility with diverse manufacturing capabilities (Die Casting, Machining and Assembly) and extensive Testing and Validation facilities to provide end to end solution and add value to the Customer.

Pricol do Brasil is of strategic value to Pricol Limited as it gives Pricol access to a quality manufacturing footprint in Brazil and a good brand with strong technology and market leadership in the domestic market of Brazil. This acquisition will also give Pricol a reference to the customer programs which are launched elsewhere in the world and thereby could create a first mover advantage for Pricol.

During the period from 23rd January 2015 to 31st March 2015, the Company had a turnover of Rs. 284.416 Million and incurred a loss of Rs. 65.307 Million. To turnaround the Company adequate steps are taken to increase the turnover and control cost.

Pricol Castings Limited

During the year 2014-15, the Company made a sales turnover of Rs. 228.562 Million against Rs. 387.428 Million during the previous year. The Company incurred a loss of Rs. 184.552 Million.

During the year, the Company was not able to achieve the expected turnover and customers were not willing to pay any price increases to offset the increase in costs. This resulted in cash loss for the Company and Pricol has been infusing funds to keep the Company afloat. The management and board of Pricol after detailed deliberations decided to suspend the operations of the Company, since it was felt that further infusion of funds will not result in any improvement in operations of the Company. Taking into consideration the commitments to customers, operations were reduced slowly from July 2014 until the Customers developed alternate sources. The operations were suspended from December 2014. The settlement with Labour is yet to be completed.

Integral Investments Limited

A Wholly Owned Subsidiary made a profit of Rs. 2.893 Million during the financial year 2014-15.

Shanmuga Steel Industries Limited

A Wholly Owned Subsidiary of Integral Investments Limited filed for Striking Off its name from Ministry of Corporate Affairs (MCA) on 10th March 2014, under Exit Scheme. It has been Struck Off from the register of MCA on 13th June, 2014.

JOINT VENTURES

Johnson Controls Pricol Private Limited

The Joint Venture supplies Instrument Clusters to Personal Passenger Car and Utility Vehicles manufactured by Renault Nissan, Tata Motors, Mahindra & Mahindra, General Motors India, FIAT India and 2 Wheelers by Bajaj Auto in the Western Region.

The sales decreased from Rs. 1,029.610 Million to Rs. 979.960 Million due to the reduction in passenger vehicle sales of Tata Motors and Mahindra & Mahindra. Increase in input costs could not be passed on to the customers and product mix change-over resulted in a loss of Rs. 66.900 Million before amortisation of goodwill.

The Joint Venture partner, Johnson Controls Inc., USA exited their automotive electronics business worldwide. Consequently, as per the Termination Agreement dated 15th April, 2015, Johnson Controls Enterprises Limited, UK (JCEL) sold its 50% of shareholding in the JV to Pricol Limited on May 6, 2015 for a consideration of Rs. 200.237 Million. Subsequent to the acquisition, the JV, became the Wholly Owned Subsidiary Company of Pricol Limited.

Denso Pricol India Private Limited

The Joint Venture performance did not improve as envisaged and continued to incur losses. The projections for the future years were also not encouraging. Therefore it was decided to exit from the JV.

On 17th March, 2015 Pricol Limited sold its 49% of shareholding in Denso Pricol India Private Limited to Denso Corporation, Japan for a consideration of Rs. 200 Million. Subsequent to the sale the Company became the Wholly Owned Subsidiary Company of Denso Corporation, Japan.

AMALGAMATION

The Honble High Court, Madras has sanctioned the Scheme of Amalgamation of Xenos Automotive Limited with Pricol Limited on 1st December, 2014 and a copy of the Order of the Honble High Court in this regard was received by the Company on 16th December, 2014.

Consequent to the merger, 296,721 equity shares of Rs. 1/- each of the Company was allotted to shareholders of Xenos, in ratio of 1 equity share of Rs. 1/- each of Pricol for every 122 equity shares of Rs. 10/- each of Xenos. Paid-up equity share capital of our Company increased to Rs. 94.797 Million from Rs. 94.500 Million.

OUTLOOK, OPPORTUNITIES, CHALLENGES,

RISKS & CONCERNS

The automotive industry continued to show a sluggish trend during 2014-15 and this is expected to continue till the first half of 2015-16. Commercial vehicle is expected to revive from second half of 2015-16. The major concern is drop in sales in two wheeler and tractors from the last quarter of 2014-15 primarily due to slow down in demand in the rural segment. Overall the industry is expected to grow by 5% to 6% during 2015-16.

Pricol is expected to grow more than the auto industry due to opportunities in its new range of products.

There is a growing demand for Telematics, a high end electronics product, in the Construction equipment segment. Pricol has now a matured product to cater to this growing demand.

With International Purchasing Office opening up aggressively in India by global players, there is a good opportunity for Pricol to sell its range of products to the same customer in multiple geographies. Pricol has won a global contract for Oil and Water Pumps with Renault for their new A Entry vehicle which is common in India, Europe and Brazil.

RISK MANAGEMENT

The Company has constituted a Risk Management Committee and adopted a Risk Management Policy, for identifying and managing risk, at the strategic, operational and tactical level. The Risk Management policy has been placed on the website of the Company and the weblink there to is http://www.pricol.com/Risk-Management-Policy.pdf. Our risk management practices are designed to be responsive to the ever changing Industry dynamics.

At present the Company has not identified any element of risk which may threaten the existence of the Company.

INTERNAL CONTROL SYSTEMS AND THEIR

ADEQUACY

The Companys internal control systems have been strengthened taking into account the nature of business and size of operations to provide for:

• Reliability and integrity of financial and operational information;

• Effectiveness and efficiency of operations and assets;

• Compliance with applicable statutes, policies, listing requirements and management policies and procedures.

The Company, through its own Corporate Internal Audit Department, carries out periodic audits at all locations and all functions and brings out any deviation to internal control procedures. The observations arising from audit are periodically reviewed and compliance ensured. The summary of the Internal Audit observations is submitted to the Audit committee. The Audit Committee at its meetings regularly reviews the financial, operating, internal audit & compliance reports to improve performance. The heads of various monitoring / operating cells are present for the Audit Committee meetings to answer queries from the Audit Committee.

FINANCE

During the year the Company has not accepted / renewed any fixed deposit from public. The total deposits remained unpaid or unclaimed as at 31st March, 2015 is Nil. There is no default in repayment of deposits or payment of interest thereon during the year.

The Company undertook several steps to keep a control over borrowings and cost of borrowings.

ICRA has reaffirmed the credit rating of "A-" for Long term fund based facilities and "A2+" for short term fund based & non fund based facilities.

The particulars of Loans, Guarantees and Investments made by the Company under Section 186 of the Companies Act, 2013 are given in Note No. 2.54 to the Financial Statements.

RELATED PARTY TRANSACTIONS

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. During the year there were 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 the interest of the Company at large.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS

There are no significant and material orders passed by the Regulators / Courts / Tribunals which would impact the going concern status and the Companys operations in future.

DIRECTORS

As per the provisions of Section 149 of the Companies Act, 2013, the amended Clause 49 of the Listing Agreement and the Companys Directors retirement policy at the age of 70, the Members of the Company had at the AGM held on 8th August 2014, re-appointed the independent directors as mentioned below:

Name of Independent Director	Period of Appointment
Mr. C.R.Swaminathan	Upto 28th February 2018
Mr. K.Murali Mohan	Upto 31st March 2018
Mr. Suresh Jagannathan	Upto 31st July 2019
Mr. R.Vidhya Shankar	Upto 31st July 2019
Mr. G.Soundararajan	Upto 31st July 2019

All Independent Directors have given declarations that they meet the criteria of independence as provided in Section 149(6) of the Companies Act, 2013.

None of the Directors of the Company have resigned during the year.

Mrs.Vanitha Mohan and Mr.Vikram Mohan who are Non-Independent Directors retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment.

EVALUATION BY THE BOARD

The Board has made a formal annual evaluation of its own performance, Committees of the Board, Independent Directors and Individual Directors of the Company. The Boards performance was evaluated based on the criteria like Structure, Governance, Dynamics & Functioning, Approval & Review of Operations, Financials, Internal Controls etc.

The performance of the Independent Directors as well as Individual Directors including the Chairman of the Board were evaluated based on the evaluation criteria laid down under the Nomination and Remuneration

Policy and the Code of Conduct as laid down by the Board.

The Committees of the Board were evaluated individually based on the terms of reference specified by the Board to the said Committee. The Board of Directors were satisfied with the evaluation process which ensured that the performance of the Board, its Committees, Independent Directors and Individual Directors adhered to their applicable criteria.

KEY MANAGERIAL PERSONNEL

The Key Managerial Personnel of the Company as stipulated under the Companies Act, 2013 are Mr.Vikram Mohan, Managing Director, Mr. K.U.Subbaiah, Chief Executive Officer, Mr. J.Sridhar, Chief Financial Officer & Mr.T.G.Thamizhanban, Company Secretary. Mr. K.U.Subbaiah has expressed his desire to retire as CEO of the Company effective end of May, 2015. The Board places on record its warm appreciation for the contributions rendered by Mr. K.U.Subbaiah over the past three years.

STATUTORY AUDITORS

M/s.Haribhakti & Co. (the name has been changed to M/s.Haribhakti & Co. LLP) the Statutory Auditors of the Company retire at the conclusion of the ensuing Annual General Meeting. M/s.Haribhakti & Co. LLP are eligible for re-appointment and have confirmed that their re-appointment, if approved, will be in compliance with Section 141 of the Companies Act, 2013. As per Section 139 of the Companies Act 2013, a Listed Company shall not appoint / re-appoint an Audit Firm as Statutory Auditors for more than 2 terms of 5 consecutive years. M/s.Haribhakti & Co. LLP, have already served as the Companys Statutory Auditor for a period of 5 years, from 2010-11. They are eligible for re-appointment as Statutory Auditors of the Company for a further period of 5 years.

Your Board recommends the re-appointment of M/s.Haribhakti & Co. LLP, as Statutory Auditors of the Company, to hold office from the conclusion of this AGM to the conclusion of the fifth consecutive AGM to be held in the year 2020 (subject to ratification of the appointment by the members at every AGM held after the ensuing AGM).

COST AUDITORS

The Board of Directors at its meeting held on 25th May, 2015 appointed M/s. STR & Associates, Cost Accountants, as the Cost Auditors for conducting the Cost Audit for the financial year 2015-16. A resolution seeking members ratification of the remuneration payable to the Cost Auditor is included in the AGM Notice dated 25th May 2015. The Cost Audit Report will be filed within the stipulated period.

SECRETARIAL AUDIT

The Company had appointed Mr. K.Sriram, Partner, M/s.S.Krishnamurthy & Co., Chennai, a firm of Company Secretaries in Practice to undertake the Secretarial Audit of the Company for the year 2014-15. The Secretarial Audit Report is annexed herewith as

"Annexure A".

CSR INITIATIVES

Pricols Corporate Social Responsibility (CSR) activities reflect its philosophy of enhancing value to the society and the environment around us. The contribution in this regard has been made to the registered trust which is undertaking these schemes in addition to the CSR activities directly undertaken by the Company. The Annual Report on CSR activities is annexed herewith as "Annexure B".

CONSERVATION OF ENERGY, TECHNOLOGY

ABSORPTION AND FOREIGN EXCHANGE

EARNINGS AND OUTGO

The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is annexed herewith as "Annexure C".

EXTRACT OF THE ANNUAL RETURN

The extract of the Annual Return in Form No.MGT-9 is annexed herewith as "Annexure D".

DEVELOPMENT IN HUMAN RESOURCES /

INDUSTRIAL RELATIONS

Overall Industrial relations situation remained peaceful during the year. The participation from the operators improved considerably during the year. The number of people employed during the year is 4,477.

Long Term Productivity Linked Agreement with the Labour Unions at the Plants I & III, Coimbatore and Plant II, Gurgaon was signed well before it was due in a proactive manner, which has improved the confidence of the customers pan India.

Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Company has in place an Anti Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary and trainees) are covered under this policy. The Company has not received any sexual harassment complaint during the year 2014-15.

PARTICULARS OF EMPLOYEES

The information required pursuant to Section 197 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company is annexed herewith as "Annexure E".

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with the provisions of Section 134(3)(c) of the Companies Act, 2013, the Directors would like to state that:

a) in the preparation of annual accounts for the financial year ended 31st March 2015, the applicable accounting standards have been followed;

b) they had selected such accounting policies and applied them consistently and made judgements and estimates that were 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 and loss of the Company for the year under review;

c) they had 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; d) they had prepared the annual accounts for the financial year ended 31st March 2015, on a going concern basis; e) they had laid down internal financial controls to be followed by the Company and such internal financial controls are adequate and were operating effectively and f) they had devised proper systems to ensure compliance with the provisions of all applicable laws and such systems were adequate and operating effectively.

CORPORATE GOVERNANCE

Your Company reaffirms its commitment to good corporate governance practices. Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Report on Corporate Governance which forms a part of this Report, has been annexed herewith as "Annexure F".

The Managing Director and Chief Financial Officer have certified to the Board with regard to the financial statements and other matters as required under Clause 49(IX) of the Listing Agreement. Practicing Company Secretarys Certificate regarding compliance of conditions of Corporate Governance, is made a part of this Annual Report. All the board members and senior management personnel have affirmed compliance with the code of conduct for the year 2014-15.

CAUTIONARY STATEMENT

Management Discussion and Analysis forming part of this Report is in compliance with Corporate Governance Standards incorporated in the listing agreement with Stock Exchanges and such statements may be "forward-looking" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.

ACKNOWLEDGEMENTS

The Board takes this opportunity to place on record appreciation to Customers, Distributors, Dealers, Suppliers, Shareholders, Bankers and Government authorities for their continued support and co-operation during the year under review. The Directors also wish to place on record their appreciation to the employees at all levels for their continued co-operation and commitment.

	For and on behalf of the Board
Coimbatore	Vijay Mohan
25th May, 2015	Chairman