secals ltd Directors report

SECALS LIMITED 1999-2000 REPORT OF THE BOARD OF DIRECTORS The Board of Directors of your Company presents this report on the activities and operations of your Company for the fifteen months period ended on 31st March 2000. CURRENT YEARS OPERATIONS: The Board of Directors have taken a decision earlier that it would be desirable and appropriate that the financial year of the Company be extended so as to be in consonance with the financial year of the country, namely, April to March. Keeping this in mind the current period has been extended to be a fifteen month period. Members would recall that in the last years report fears were expressed about the outlook for the valve industry during the year 1999. It was, inter-alia, indicated in the report that poor demand potential has triggered intense competition amongst the suppliers of steel castings across borders. The depression forecast in the last years report proved to be true. The year 1999 continued to be a difficult year for the valve industry all over the world and its impact on the valve industry in our country was tremendous. There was no significant growth in the valve market during 1999, though there have been lot of enquiries. The poor demand for castings in the international markets triggered intense competition amongst the leading manufacturers all over the world. This has resulted in further drying up of the export market for the valve industry from India and its direct impact was a shrinkage of exports of valves and castings to foreign countries. Your Company is the number one rated company in the valve market in India and therefore had to suffer the ignominy of having the lowest exports than in any other past years. The depressed market conditions equally affected the domestic market too. Despite the companys capacity to produce, there were unfavourable trends in the domestic markets as well. This was essentially because of the emergence of large number of small entrepreneurs, with small investments and very low overheads, coming into the market and offering the products at much lower rates. This has taken away a good chunk of the domestic market, which would have otherwise come to your Company. Your Company has, however, succeeded in entering this fierceful competitive market and preserving its level of production as in the earlier years for domestic market, despite the difficulties mentioned above. In the last years report an indication was given about the resolution of all pending issues and the possible facile entry into the North American market once again. This re-entry into the North American market has taken a longer time than anticipated because of extreme sensibilities of the market and the need for careful wooing of the potential customer. The signs of a good re-entry is visible and happening now. It was indicated in the last years report that the Company is having an ambitious programme of enlargement of the product range in the form of new and special alloys, heavier weight range castings, fully machined castings and other types of valve not being manufactured hitherto. In view of the tremendous financial strain and the high cost involved, the company could make only a modest beginning in this direction. As a result of the above features, the utilisation of the plant capacity of your Company continued to be quite low during the period under review. In fact there was a slight shrinkage in the production level by about 15% on an average as a direct result of the depression in the valve market abroad and the difficult domestic market. The total sales for the fifteen month period was only about 3825 tons as against 3603 tons during the year 1998. Exports had fallen down considerably from about Rs. 685 lakhs in 1998 to about Rs. 385 lakhs during the period under review. ACHIEVEMENTS : Despute depressed international market and the shrinkage in the domestic market, your Company was able to more or less sustain its operation, even though at low productivity level. This was possible only because of the several steps taken by the company and the large number of cost saving measures adopted during the period under review. Expenditures have not only been contained and controlled, but also reduced. Inventories were being reasonable controlled and realisations are being effected in a more prompt way. Your Company has been able to make a break through in the export market. Your Company is in the process developing patterns and products for a large number of international potential customers. There has been expansion in the product range. Periods on developments of patterns and designs have been considerably brought down, so that the company has been able to make quick response to international enquiries. Your Companys quality control system, through ISO certification was successfully implemented and the company was accredited with the certification under ISO 9002 by TUV Certification Body. REVIEW OF OPERATIONS The Company continued to make cash losses during the period wherein both international and domestic markets have been going through a depression in the world market. During the year the companys total sales dropped from Rs. 2707.49 lakhs for the year 1998 (12M) to Rs. 2616.04 lakhs for the year ended March 2000 (15M). The exports have also dropped as mentioned earlier in the report. The continuous losses have resulted in complete erosion of networth resulting in a negative networth of Rs. 585 lakhs. The directors have taken note of this and have recommended that the company be referred to BIFR under the Sick Industrial Companies (Special Provisions ) Act,1985. The industrial relations have been cordial and the employees have extended their full support inspite of the most trying circumstances and hardships faced due to continued cash loss situations. In view of the loss, the Company is not in a position to declare any dividend during the year ended 31st March 2000 FUTURE OUTLOOK The depression that dominated the valve market in 1998-99 has started disappearing. There are significant signals from International market about the revival of the valve market. There is also a subtle shift which is significant for India Some of the export customers who were procuring castings from South East Asian markets have started shifting to India for their imports. Some of the traditional off-shore customers of your company have come back again and started placing substantial orders on the Company. Your Company at present has orders on hand 450 tons from the International markets. These are confirmed Order and would represent about 3 months production Another significant development is the keen interest being evinced in the products of your company by a host of new customers. Many of them have asked for patterns and development of sample castings. Your companys response have been fast and positive. This has resulted in the company getting small trial orders. It is hoped that these can be made into substantive orders through production and supply of quality products, constant dialogues and discussions and with positive and fast response to the emerging diversification needs of these customers. The confirmed export orders as at the end of July 2000 is much more than the total exports made during the fifteen month period ended 31st March 2000. Your Company has every reason to believe that this trend will continue. In the domestic market too the present trend indicates enlargement of the customer base and the quantum of sales Serious efforts are being made to boost the sales in the domestic front too. Hopefully, with the availability of finance the Company would be in a position to enlarge its product range, in the form of new and special alloys, heavier weight range castings, fully machined casting and other types of valves not being manufactured hitherto and supply to the needy market. Power, a major input to the foundry industry, is continuing to cause serious concern. The sword of Damocles in the form of increase in power cost has to be reckoned in this context. The main constraint today for your Company is non-availability of need based working capital. The reasons for this are historic and the members are well aware of this problem. In the absence of ready availability of working capital, the company has been working out strategies to meet ever increasing demand of its products by taking advance from customers. Re- negotiating credit terms and finding and using other mechanisms of make use of the available funds Your Company has entered into serious dialogues with Banks and Financial Institutions to find out a workable and permanent solutions to meet its ever increasing working capital requirements, so that the wheels of production car move at a faster phase and the sales can be considerably stepped up and the overall financial position of the company is substantially improved. The Board records its thanks to the Government of India, Government of Tamil Nadu, Financial Institutions, Bank and others, who have co-operated with the Company in allowing the wheels of the production to continue during these difficult days REFERENCE TO BIFR: The net worth of your Company, during the 18 month period ended March 31, 1997, was eroded by more than 50% and hence your Company become a potentially sick company. The company accordingly, filed the requisite report with BIFR, as approved by the Members of Company, at the EGM held on October 21, 1997. Now, the net worth of the Company stands fully eroded during the year under review due to the huge accumulate losses, and accordingly, the Company has become a Sick Industrial Company, within the meaning of Section 3(1)(O) of the Sick Industrial Companies (Special Provisions) Act, 1985. Accordingly, necessary steps are being taken under Section 15 of the said Act for making a reference to the BIFR for the revival and rehabilitation of the Company BOARD OF DIRECTORS: During the year under review, Mr. S. Seshadri resigned from the Office of the Chairman & Managing Director, with the effect from December 31, 1999 and subsequently resigned his Directorship with effect from March 31. 2000. Mr. Rajeshwar Prasad, who was employed as Vice President (Operations) was appointed as Chief Operating Officer cum-Manager with effect from January 1, 2000, to fill up the casual vacancy caused by Mr. S. Seshadris resignation from the Office of the Chairman & Managing Director. Subsequently, when Mr. S Seshadri resigned his Directorship, the Board of Directors, at its meeting held on April 2000, based on M/s. DLJMB Mauritius Investment Companys, proposal for the appointment of Mr. Rajeshwar Prasad as a whole time Director on the Board, designated as Executive Director & CEO appointed Mr. Rajeshwar Prasad, a whole time Director with retrospective effect from April 1, 2000. The Members will be requested to approve appointment and to fix the remuneration payable to him, at this Annual General Meeting. There have been several other Board level changes which are as below: ICICI Limited withdrew the appointment of Mr. K M Jaya Rao as its nominee Director on the Board of your Company and in his placed appointed Mr. T. Raghavendran, Senior Vice President, as its nominee. Mr. T. Raghavendran was opted as an Additional Director on the Board of your company with effect from April 18, 2000. M/s. DLJMB Mauritius Investment Co., withdrew the nomination of Mr. Prateek Dhawan as its designated Director the Board, and in his place nominated Mr. Gaurav Malik as its designated Director. Mr. Gaurav Malik was co-opted an Additional Director on the Board of your Company with effect from July 30, 1999. M/s. DLJMB Mauritius Investment Co., withdrew the nomination of Mr. Mathew Cyriac as its designated Director the Board, and in his place nominated Mr. Mayank Dhanuka as its designated Director. Mr. Mayank Dhanuka co-opted as an Additional Director on the Board of your Company with effect from April 18, 2000. The Board place on record its sincere thanks for the invaluable services rendered by Mr. S. Seshadri, Mr. Mathew Cyriac, Mr. Prateek Dhawan and Mr. K M Jaya Rao. Mr. R. Vedasagar, Mr. N Balasubramanian and Mr. George Varughese are due for retirement by rotation and being eligible, offer themselves for re- appointment. Mr. T. Raghavendran, nominee Director of ICICI Limited, Mr. Gaurav Malik and Mr. Dhanuka, designated Director of DLJMB Mauritius Investment Co., who were co-opted as Additional Directors will hold office till the date of ensuing Annual General Meeting, as per the provisions of Section 260 of The Companies Act, 1956. Members requested to approve their appointment as Directors at this Annual General Meeting. REQUIREMENTS UNDER SECTION 217 OF THE COMPANIES ACT, 1956. A statement showing the particulars of employees who were drawing a salary more than the limit prescribed under Section 217(2A) of The Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975 and the Companies (Particulars of the Employees) (Amendment) Rule 1999 is given in the Annexure "A" to this Report. A statement containing the information required under Section 217(1)(e) of The Companies Act, 1956, read with Companies (Disclosure of particulars in the report of the Board of Directors) Rules 1988, is given in Annexure "B" to this Report. FIXED DEPOSIT: Amount which had matured and claimed by the depositors during the year under review were repaid on due date There were no un-matured deposits outstanding at the close of accounting year. Fixed Deposit of Rs. 0.11 lakhs which matured during the earlier years remains unclaimed as at the end of the year. AUDITORS: M/s. Bharat S. Raut & Co., Chartered Accountants, hold office till the conclusion of this Annual General Meeting. The retiring auditors are eligible for re-appointment The Members are requested to approve their appointment as statutory auditors of the Company to hold office from the conclusion of this Annual General Meeting till the conclusion of the next Annual General Meeting and to authorise the Board to fix their remuneration. DIRECTORS RESPONSE TO AUDITORS REPORT: The auditors in their report have mentioned that the ability of the company to continue as a going concern is depended upon continuing financial support from the promoters of the company, the formulation and implementation of a suitable rehabilitation package. Subsequent to the balance sheet date, the Company continues to undertake normal business operations. The signs of revival in the market, the confidence reposed on the company by valued customers and suppliers, will keep the company a going concern. The company intends to take up with Institutions and banks under the supervision of the Board for Industrial and Financial Reconstruction suitable financial restructuring package and the company will be looking for a suitable co-promoter at the appropriate time. The auditors have also expressed uncertainty about the companys ability to defend the case involving sales tax dispute The company is confident of defending the claim successfully with the sales tax Appellate Tribunal. The auditors have mentioned that the Company has not been regular during the period in depositing Provident Fund, Employees State Insurance dues with the appropriate authorities. Due to tight liquidity position there has been some delay in depositing these dues with the appropriate authorities. But these are being deposited, though late. APPRECIATION The Board records its sincere thanks to the Financial Institutions led by ICICI Limited, Companys bankers,valued customers and suppliers for their continued support. The Board also records its appreciation for the wholehearted co-operation and understanding extended by the employees of the Company. The Board is also grateful to its share holders for the tolerance and patience shown by them and their co-operation in several steps being taken by the company On behalf of the Board Rajeshwar Prasad PROF. PREMCHANDER Executive Director & CEO Director Chennai 600006 August 9, 2000 Annexures to Directors Report to Shareholders ANNEXURE "A" PARTICULARS REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO. A. Conservation of Energy: 1. Energy conservation measures taken. Motor connections were changed from delta to star in the case of under loaded motors. Provision of Auto transformers have been made in the lighting circuit to maintain uniform voltage supply. Improved the natural lighting in the foundry shop by providing translucent roofing sheets to minimise electricity consumption during day time. 2. Additional invenstments and Provision of soft start cum energy proposals, if any, being implemented saver devices in additional areas for reduction of consumption like Resin Mixers, Compressor of energy motors, etc. Improving power factor from 0.90 to 0.95. 3. Impact of the measures at (1) The above would result in reduced and (2) above for reduction energy consumption and consequently of energy consumption and reduced costs. The impact is consequent impact on the exactly quantifiable in money terms cost of production of goods. only on implementation of measures in (2) above. B. Technology Absorption.: FORM B Form for disclosure of particulars with respect to Absorption (See Rule 2) 1. Specific areas in which R&D Continuous research on strength and carried out by the Company properties of moulds using enhanced properties of reclaimed sand and reducing resin content in the back up sand. Development of improved metal melting techniques using higher composition of re-cycled scrap. Devising new product development and pouring techniques for manufacture of castings in the weight range of 1.75 tons per piece. Development of special production and processing techniques of NACE specifications castings and medium alloys of martensitic micro structures. carried out by the Company. Benefits derived as a result of The above have resulted in reduced the above. cost of production and enhanced product range. 3. Future plan of action Research and Development efforts are being continued to ensure better work and for providing quality products to customers. 4. Expenditure on R&D: (a) Capital NIL (b) Revenue NIL (c) Total NIL (d) Total R&D expenditure as a percentage of total turnover. NIL Technology Absorption, Adaption and Innovation. 1. Efforts in brief made in Technology updation on macro alloying and technology adoption, redesigned gating systems is in progress to adaption and innovation understand the metal flow and behavious in the moulds Training of personnel in the new product development areas to reduce lead-time on development and cost. 2. Benefits derived as a High degree of new product acceptance result of the above resulting in reduced development cost, time efforts. and improved process cycle. 3. Imported Technology NIL C. Foreign exchange earnings and outgo. 1. Activities relating to exports; FOB value of exports made during the Initiatives taken to increase period under review is Rs.385.47 exports; lakhs. The Company is continuing Development of new export to develop proto-types for new customers to increase the customer base and plans to achieve a higher export content in the total turnover. The Company is constantly exploring new export markets and is geared up fully on new product development activities to cater to to an expanded product range. 2. Total Foreign Exchange used Used: Rs.106.84 lakhs and earned. Earned: Rs.385.37 lakhs