Indian economy grew 6.8% in FY 2018-19, slowest in the last five years.
Fitch, the global rating agency, have lowered Indias growth forecast to 6.6 per cent
for the current fiscal from 6.8 per cent projected earlier, as manufacturing and
agriculture sectors showed signs of slowing down over the past year. International
Monetary Fund (IMF) too, has pared Indias growth forecast for the next two years, citing
softer recent growth and weaker global outlook, but expects the Country to retain its
place as the fastest growing major economy.
The agrarian distress seems here to stay, owing to prevalent drought like situations in
several states, near stagnant wage growth levels and signs of sluggish progress of
monsoon, a recent report has said.
In the recent union budget, presented on July 5, 2019, substantial allocations are made
in infrastructure investments, which should help the road transport sector. However, the
automotive industry would, in the near future, face challenges, due to the paucity of the
credit funds, which have been partly addressed in the said budget.
Apex industry body, like Society of Indian Automobile Manufacturers (SIAM) is of the
opinion that the sector has been going through a very difficult time and the industry was
expecting some form of a stimulus package in the Budget, in line with what had been done
by the Government during, the previous two similar slowdowns. However, the industry was
disappointed on this account.
Industry Structure and Developments
The overall Commercial Vehicles (CV) segment registered a growth of 17.5 per
cent in April- March 2019 as compared to the same period previous year. Medium & Heavy
Commercial Vehicles (M&HCVs) increased by 14.7 per cent and Light Commercial Vehicles
grew by 19.5 per cent in April-March 2019, over the same period last year.
After around seven months growth in FY 2018-19, Commercial Vehicle volumes started
dwindling since November 2018. The Government last year hiked the loading limit for CVs,
as a result of which fleet operators got more bandwidth to load goods and new purchases
are getting postponed. Urban India, reeling from a difficult job market, took a pause.
Rural India, hurting from farm distress (over 60% of farm produce has reportedly been sold
below the minimum support price), wasnt buying, either. As a result, inventory piled up,
hurting everyone, especially the dealers. Almost all the Auto Manufacturers have declared
production-cuts to reduce inventory. Tightening liquidity in the NBFC sector, leading to
hike in lending rates and lower resale value of trucks, made things more difficult.
The Indian tractor industry witnessed a double digit growth for the third consecutive
year in financial year 2018-19; however, the pace was slowest in the last three years. The
tractor sales grew by 10.2 per cent as compared to 20.5 per cent in FY 2018 and 15.7 per
cent FY 2017. The growth was marred due to weak sentiment in later part of the year as
sales slipped into negative in February and March 2019 on year-on-year (yoy). Tractor
sales that mirrors rural sentiment was struck due to erratic rainfall coupled with delayed
sowing and low production of rabi crops in the last fiscal.
Financial Performance and state of the Companys affairs
| Auto Components |
|
(Numbers) |
| Type |
F.Y. 2018-19 |
F.Y. 2017-18 |
Growth |
| Power Steering |
259,127 |
268,818 |
-3.6% |
| Mechanical Steering |
116,830 |
117,644 |
-0.7% |
Sales, in value terms, were marginally up by 3.5% for FY 201819, compared to FY
2017-18. The Company could not match the industry growth figures due to disturbed
industrial relations at its Vadu Budruk Factory.
Renewable Energy-
Solar Energy
Your Companys 5 MW Solar Power Project at Gujarat Solar Park, Charnka Village,
District Patan (Kutch), Gujarat, generated 7.6 million Units of Electricity with
sales-revenue of Rs.84.8 million in the FY 2018-19. The entire electricity is purchased by
Gujarat Urja Vikas Nigam Limited (GUVNL), a Government of Gujarat Company, in terms of the
multi-year Power Purchase Agreement.
The Companys rooftop solar project, situate at its Vadu Budruk plant, generated around
1 million units of electricity in FY 201819, which was captively consumed in the said
plant.
Wind Energy
Seven Wind Turbine Machines, owned and operated by the Company, located in districts of
Satara and Ahmednagar, having aggregate capacity of 6.7 MW, generated a total of 8.9
million units in the FY 2018-19. All the units generated were used as captive consumption,
which accounted for approximately 57.4% of the energy-consumption of the Companys factory
at Village Vadu Budruk.
Finance cost
Some part of the Finance cost, allocable to the Pithampur project, was capitalised.
Therefore, Finance cost charged to Statement of Profit & Loss, was Rs. 19.4 million
for FY 2018-19 against Rs. 32.2 million in in FY 2017-18.
Credit Rating
ICRA, the Credit Rating Agency, has reaffirmed the A+ and A1 + rating for long term and
short term borrowings of the Company.
Profitability
Profitability was substantially affected in view of the following major factors:
(a) As explained above, under the heading - "Joint Venture (JV)/ Associate
Company Robert Bosch Automotive Steering Private Limited &Exceptional item in the
Financial Statements/ Results", the Company has made a provision of Rs. 668.5
million, shown under the Exceptional Item in the Standalone Results.
(b) Material cost, which was 59.4% of the (Net of Excise) Sales during FY 2017-18, went
up to 62.6% in FY 2018-19, due to rise in raw material prices, which could not be passed
on to the customers.
(c) Owing to Deferred-tax credit on the Exceptional-item, Total Tax Expense for FY
2018-19 was (negative) at Rs. 124.2 million against Rs. 143.1 million for FY 2017-18, and
it helped in reduction of the Loss After Tax.
The overall result, after considering the above, was Loss for the financial year at Rs.
13.1 million against Net Profit of Rs. 470.67 million for the FY 2017-18 in the Standalone
Financial Statements. Earnings Per Share (EPS), as per the Standalone results,
works out to negative (-) Rs. 1.44 for the financial year ended March 31, 2019.
Key Financial Ratios
In accordance with the relevant provisions of the Listing Regulations, the key
financial ratios are as under:
|
FY 2018-19 |
FY 2017-18 |
| Debtors Turnover Ratio (in days) |
64.6 |
78.1 |
| Inventory Turnover Ratio (in days) |
53.4 |
57.4 |
| Interest Coverage Ratio |
28.4 |
20.1 |
| Current Ratio |
1.4 |
1.3 |
| Debt Equity Ratio |
0.1 |
0.1 |
| Operating Profit Margin |
12% |
14% |
| Net Profit Margin |
-0.3% |
10.6% |
| Return on Net Worth (Return has been calculated excluding exceptional item and the
corresponding tax on that item) |
11.5% |
12.4% |
1. The Interest-coverage ratio is higher in view of the lesser interest charged to
Statement of Profit & Loss.
2. The Net Profit Margin is significantly affected in view of the one-time provision
made under the Exceptional Item (explained in detail earlier in this Report).
Segment wise Profitability
Loss (after-tax), for the Auto-components segment, after the Exceptional Item, is Rs.
97.1 million vis-a- vis profit of Rs. 84.1 million for the Renewable Energy segment.
Outlook, Opportunities and Threat
Key concerns relate to monsoon, and dipped consumer sentiment continues to be
challenges for the auto industry. It seems, FY 2019-20 will be a very challenging year. Q1
was subdued due to the elections and political uncertainty then. Also Q4 is expected to be
difficult because of the transition to BS- VI, the new emission norm. No BS-IV vehicle
will be registered from April 1, 2020.
Implementation of BS-VI norms, from April 2020, is expected to raise cost of trucks,
initially in the basic value, to the tune of 10-12%. Transporters are also expected to be
cautious in accepting BS-VI trucks, as they would have concerns over the vehicles fuel
efficiency and maintenance cost.
As per the news report, an integrated policy to scrap commercial vehicles that are more
than 10 years is currently under the Governments consideration aimed at to keep a check
on air pollution. However, the Union Minister for Road Transport & Highways confirmed
that there were no immediate plans of banning trucks and buses, which are over 15 years.
Industry majors are also talking about negative growth in the current year for commercial
vehicles.
The first long-range forecast for the south-west monsoon by the India Meteorological
Department (IMD) signalled a positive market trends for FY 2019-20 as it predicted near to
normal monsoon for the current year. Despite this, analysts remain conservative as they
predict a mere 5 per cent growth in tractor sales for FY 2019-20.
Expansion and Capital Expenditure
Auto Components
As informed earlier, with a view to establish a second manufacturing unit for auto
components, the Company has acquired on lease basis, an industrial plot, admeasuring
26,246 sq. meters, at Pithampur, District Dhar, Madhya Pradesh. The factory building is
ready, machinery is being installed. The plant is expected to be operational by end of
September 2019. This will add to the manufacturing capacity of the Company by three lakh
numbers and also bring proximity with some of the major customers of the Company. Total
investment at the Pithampur factory is expected to be in the range of Rs. 1750 million.
Wind Energy
During FY 2018-19, the Company installed and commissioned, additional 2.1 MW Windmill
in Maharashtra state, at Anjanadi, Dist. Aurangabad, for the purpose of
captive-consumption. Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) is
yet to issue their permission to adjust the electricity generated out of this windmill
against the Companys captive consumption at its factory at Vadu Budruk. Till then, the
electricity generated is being sold to MSEDCL.
Internal Control System and its Adequacy
The Company has an effective Internal Control System commensurate with the size, scale
and complexity of its operations. The scope of the Internal Audit is decided by the Audit
Committee and the Board. There is an internal audit department which checks all the
vouchers, financial reports, registers etc. To maintain its objectivity and independence,
the Board has also appointed an external Chartered Accountant firm, which reports to the
Audit Committee of the Board.
The Internal Auditor monitors and evaluates the efficacy and adequacy of internal
control systems in the Company, its compliance with operating systems, accounting
procedures and policies for various functions in the organisation of the Company. The
Audit Committee, Statutory Auditors and the process owners are periodically apprised of
the internal audit findings. Important internal audit observations are also placed before
the Board at their Meetings. Based on the report of Internal Auditor, process owners
undertake corrective action, wherever required, in their respective areas and thereby
strengthen the controls further. Audit observations and actions taken thereof are
presented to the Audit Committee.
The Companys Audit Committee regularly reviews the financial management reports and
data, and interacts with the External and Internal Auditors for ascertaining the adequacy
of internal controls.
Human Resources/ Industrial Relations
As at end of March 31,2019, the Company had 405 employees on its roll.
At the factory at Village Vadu Budruk, Taluka Shirur, District Pune 412216,
- The Company employs Engineers, in the Supervisory category on the shop floor. Some
of these Engineers have initiated legal proceedings, claiming that they are workmen. They
have also submitted their charter of demands, which is not accepted by the Company.
- As informed earlier, in the financial year 2017-18, some 236 Engineers on the shop
floor, remained absent from duty for 46 days continuously, without informing the Company.
The Company had taken disciplinary action against these engineers, by terminating their
employment contract with the Company. These Engineers have claimed wages for the said
period of 46 days and also challenged their termination from services.
The Company is contesting the above litigations and has taken steps to seek approvals,
if any required, as a matter of caution, for the above referred terminations of contracts
of employment, without prejudice to the Companys stand about non-applicability of
relevant legislations to these 236 engineers.
Cautionary statement
The above Management Discussion and Analysis Report is a forward looking Statement
based on the Companys projections, estimates and perceptions. These statements reflect
the Companys current views with respect to the future events and are subject to risks and
uncertainties. Actual results may vary materially from those projected here.
Conservation of Energy, Research and Development, Technology Absorption and Innovation,
Foreign Exchange Earnings and Outgo:
The details as required under the Companies (Accounts) Rules, 2014 are given in
Annexure -I to this Report.
Directors and Key Managerial Personnel
During the period under review, Mr. M L Rathi, after attaining the age of 78 years,
resigned as Non-Executive Independent Director of the Board, effective from November 23,
2018, in view of his age. The Board places on record its deep appreciation for the
services rendered by Mr. Rathi, during his tenure of over ten years as Independent
Director and Chairman/ Member of various committees of the Board of Directors of the
Company.
During the period, the Board, on recommendations of the Nomination and Remuneration
Committee, re-appointed Mr. Manish Motwani, with effect from April 1, 2019 and Mr. S A
Gundecha, with effect from September 15, 2019, as Independent Directors of the Company,
for a second term, of five years. The Board, on recommendations of the Nomination and
Remuneration Committee,re-designated Mr. Dinesh Munot as Whole-time Director and Chairman
of the Company, with effect from August 1, 2019 to July 27, 2021 and Mr. Utkarsh Munot as
Managing Director of the Company, with effect from August 1, 2019 to May 18, 2021, at a
revised remuneration. All the above proposals were approved by the Members at the
Extraordinary General Meeting held on July 17, 2019.
As other Independent Directors, Mr. Jitendra Pandits and Mr. Shridhar Kalmadis first
term is due to expire on March 31, 2020, the Board, on recommendations of the Nomination
and Remuneration Committee, proposed, for consideration of Members, their re-appointments
as Independent Directors of the Company, for a second term of five years, subject to
approval of the Members. These two proposals form part of the notice of 39th Annual
General Meeting (AGM). The Board recommends to the Members to consider and approve
these proposals.
Mr. Soumitra Bhattacharya retires by rotation at 39th AGM of the Company. He has
communicated to the Company that owing to his pre-occupation, he does not wish to be
re-appointed, as a Director of the Company, on this retirement. Thus, he will cease to be
a Director of the Company, on conclusion of 39th AGM.
The Company has received notices, as per the provisions of Section 160 of the Act, from
the Members, proposing candidature of following persons as Directors of the Company. These
proposals have been considered and being recommended by the Nomination & Remuneration
Committee and the Board
- Mr. Adit Rathi as a Non-Executive Independent Director of the Company
- Mr. Sandeep Nelamangala as a Non-Executive Director of the Company.
The above proposals have been included in the notice of 39th AGM, with brief profiles
of the proposed appointees.
The Company has received declarations, from all the Independent Directors of the
Company, confirming that they meet the criteria of independence, as prescribed, both under
the Act and under the Regulation 16(b) of the Listing Regulations.
During the period, there was no change in the Key Managerial Personnel of the Company,
except for the re-designations of the Whole-time Directors, as stated above.
Performance Evaluation
The Company has devised a Policy, for performance evaluation of Independent Directors,
Board as a whole, Committees of the Board and other individual Executive/ Non-Executive
Directors. The Policy includes criteria for performance evaluation. The criteria are based
upon age, experience, quality of participation in Board/ Committee proceedings, attendance
at meetings, contribution by strategic inputs and others. The criteria along with
additional requirements prescribed by Section 149 of the Act are used for selection of
Independent Directors. The Company carried out the performance evaluation during the year
under report. The Board of Directors expressed satisfaction with the evaluation process.
Directors Responsibility Statement
Your Directors state that:
i. in the preparation of the annual financial statement for the financial year ended
March 31, 2019, the applicable Accounting Standards read with requirements set out under
Schedule III to the Act, have been followed and there are no material departures from the
same.
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 March 31, 2019 and of the loss of
the Company for the financial year ended on that date.
iii. the Directors have taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of the Act, for safeguarding
the assets of the Company and for preventing and detecting fraud and other irregularities.
iv. the Directors have prepared the annual financial statement on a going concern
basis.
v. the Directors have laid down internal financial controls to be followed by the
Company and that such internal financial controls, in their opinion, are adequate and are
operating effectively and
vi. the Directors have organised/ devised proper systems to ensure compliance with the
provisions of all applicable laws and that such systems are adequate and operating
effectively.
Corporate Governance Report
Pursuant to the provisions of Regulation 34(3) read with Schedule V of the Listing
Regulations, a detailed report on Corporate Governance is given in Annexure - II along
with the Auditors Certificate on its compliance, which forms part of this report.
Particulars of Loans given, Investments made, Guarantees given and Securities provided
The Company has not given any guarantee in connection with any loan covered under the
provisions of Section 186 of the Act.
Details of Loans and Investments are disclosed in the Notes to the Financial Statements
forming part of this Annual Report.
Contracts and Arrangements with Related Parties
All contracts/ arrangements/ transactions entered into by the Company with related
parties, during the financial year, were on an arms length basis and were in the ordinary
course of business. During the year, the Company had not entered into any contract/
arrangement/ transaction with related parties, which could be considered material in
accordance with the policy of the Company on materiality of related party transactions.
Considering the provisions of Section 134 of the Act, as all transactions with related
parties referred to sub-section (1) of Section 188 of the Act and exemption is available
only from the procedural compliance for transactions, which are in ordinary course of
business and based on arms length prices, the disclosure in the prescribed Form AOC - 2,
including part 2 thereof is attached as Annexure III to this Report.
Corporate Social Responsibility (CSR)
Pursuant to the provisions of Section 135 of the Act and as per the Companies
(Corporate Social Responsibility) Rules, 2014, read with various clarifications issued by
the Ministry of Corporate Affairs, the Company has framed a CSR Policy, which is available
on the Companys website www.zfindia.com . The Company has undertaken activities as per
the CSR Policy. The Annual Report on CSR activities is annexed herewith marked as Annexure
IV.
Risk Management
The Audit Committee has been entrusted with the responsibility to assist the Board in
(a) Overseeing and approving the Companys enterprise wide risk management framework and
(b) Overseeing that all the risks that the organization faces such as strategic,
financial, credit, market, liquidity, security, property, legal, information technology,
Regulatory and other risks have been identified and assessed and there is an adequate risk
management infrastructure in place capable of addressing those risks.
The Company manages, monitors and reports on the major risks and uncertainties, those
can impact its ability to achieve its strategic objectives. The Company has introduced
several improvements in internal control management to drive a common integrated view of
risks, optimal risk mitigation, responses and efficient management of internal control and
assurance activities.
Auditors and Auditors Report Statutory Auditors
Pursuant to provisions of Section 139 of the Act read with the Companies (Audit and
Auditors) Rules, 2014, M/s MGM & Co., Chartered Accountants (Firm Registration No.
117963W) (MGM) will cease to be the Statutory Auditors of the Company on the
conclusion of forthcoming 39th AGM of the Company to be held on September 20, 2019.
In accordance with the provisions of Section 139 of the Act and Rules framed thereunder
and in view of mandatory rotation of the Statutory Auditors, based on the recommendations
of the Audit Committee, the Board of Directors has recommended the appointment of M/s
Joshi Apte & Co., Chartered Accountants (Firm Registration No. 104370W) as the
Statutory Auditors of the Company for a period of 5 years, from the conclusion of 39th AGM
until the conclusion of 44th AGM of the Company, at a remuneration agreed upon
by the Board of Directors and the Auditors subject to the approval of the Members.
A resolution seeking their appointment forms part of the Notice convening the 39th AGM
and the same is recommended for your approval.
The Auditors Report dated May 30, 2019, issued by MGM, for FY 2018-19, does not
contain any reservation, adverse remark or disclaimer.
Secretarial Auditor
The Board had appointed Mr. I. U. Thakur (PCS Registration No. 1402), Practicing
Company Secretary, to conduct Secretarial Audit for the financial year 2018-19. The
Secretarial Audit Report for the same is annexed herewith as Annexure V. The Secretarial
Audit Report does not contain any qualification, reservation or adverse remark.
Disclosures
Meetings of the Board
Five Meetings of the Board of Directors were held during the financial year. Detailed
information is given in the Report on Corporate Governance, forming part of this Annual
Report.
Committees of the Board
Audit Committee
During the year under review, in view of Mr. M L Rathis resignation as Director of the
Company, the Audit Committee (the Committee) was re-constituted by the Board. Mr.
Manish Motwani joined the Committee in place of Mr. Rathi. The Committee now comprises
Independent Directors namely Mr. S. A. Gundecha (Chairman), Mr. Jitendra A. Pandit and Mr.
Manish Motwani, as other members. All the recommendations made by the Audit Committee were
accepted by the Board.
The details of all committees and its terms of reference are set out in the Corporate
Governance Report.
Remuneration Policy
The Board, has on the recommendation of the Nomination &Remuneration Committee,
approved a policy for selection, appointment and remuneration of directors and senior
management. The detailed Remuneration Policy is placed on the Companys website www.zfindia.com.
Vigil Mechanism/ Whistle Blower Policy
The Vigil Mechanism of the Company also incorporates a whistle blower policy, in terms
of the Listing Regulations. Protected disclosures can be made by a whistle blower through
an e-mail/ telephone/ letter to the Chairman of the Audit Committee. The Policy on Vigil
Mechanism and Whistle Blower may be accessed on the website of the Company at
www.zfindia.com.
Extract of the Annual Return
Extract of the Annual Return of the Company in Form MGT 9 is annexed herewith as
Annexure VI to this Report and is also available on the Companys website ie.
www.zfindia.com.
Particulars of Employees and related disclosures
Considering the provisions of Section 197 of the Act, read with the relevant rules and
having referred to provisions of Section 136(1) of the Act, the Directors Report is being
sent to the Members of the Company, excluding details of particulars of employees and
related disclosures. The said information/ details are available for inspection at the
Registered Office of the Company during working hours, on any working day. Any Member
interested in obtaining this information may write to the Company Secretary and this
information would be provided on request.
Disclosure - Policy on Prevention of Sexual Harassment at Workplace
The Company has in place, a policy on Prevention of Sexual Harassment at Workplace in
line with the requirements of The Sexual Harassment of Women at Workplace (Prevention,
Prohibition & Redressal) Act, 2013 and the Rules framed thereunder. An Internal
Complaints Committee (ICC) has been set up to redress complaints received regarding sexual
harassment. All employees (permanent, temporary, trainee etc.) are covered under this
Policy. During the year, no complaint with allegation of sexual harassment was received by
the Company.
General
1. The Company held no deposits at the beginning of the year, nor accepted any deposits
during the year under report.
2. All equity shares issued by the Company rank pari- passu in respect of right to
receive dividend, voting rights or otherwise.
3. During the year under report, no shares were issued as sweat equity to any of the
employees or others.
4. The Company does not have any subsidiary, and no remuneration was received by any
Whole-time Director of the Company from a subsidiary.
5. During the year under report, no strictures or material orders were passed by any
Regulator or a Court or a Tribunal, which may impact on the going concern status of the
Company or its operations in future.
6. As the Board of Directors, subject to approval of the Members, decided on May 28,
2019, to sell and transfer the Companys entire 26% equity stake in the Joint-Venture
Company to Bosch, this is a material change/ commitment, after March 31, 2019 (the
financial year closing), as detailed in the earlier paragraph titled as Joint Venture
(JV)/ Associate Company Robert Bosch Automotive Steering Private Limited
&Exceptional item in the Financial Statements/ Results of this Report.
7. There has been no instance of fraud reported by the Auditors under Section 143(12)
of the Act and Rules framed thereunder either to the Company or to the Central Government.
8. The Central Government, under Section 148(1) of the Act, has not prescribed
maintenance of cost records in respect of the activities carried out by the Company.
Acknowledgement
The Board of Directors takes this opportunity to thank its Customers, Dealers, Members,
Suppliers, Bankers, Business Partners/ Associates and the Government Authorities for the
support and co-operation received by the Company.
The Board also acknowledges the understanding and support of all employees of the
Company.
|
For and on behalf of the Board of Directors |
|
Dinesh Munot |
| Pune |
Chairman & Managing Director |
| July 31, 2019 |
(DIN: 00049801) |
+91-9892691696
