asian bearing ltd share price Directors report

ASIAN BEARING LIMITED ANNUAL REPORT 2001-2002 DIRECTORS REPORT To The Shareholders Your Directors have pleasure in presenting the Twenty Seventh Annual Report together with the Audited Accounts of the Company for the year ended 30th June 2002. PERFORMANCE During the year under review the production was 12.70 lakh Nos. of Ball Bearings, 0.54 lakh Nos. of Taper & Cylindrical Roller Bearings and 7.08 lakh Nos. of Auto Components. The Sales and other income was Rs.2487.89 lakhs for the 12 months ended 30th June 2002. as against Rs.3072.30 lakhs for 15 months ended 30th June 2001. The performance of the Engineering Industry witnessed considerable decline especially after September 11, 2001 incident. As stated in the previous report, your company concentrated more on, auto components. The performance of the auto component division is satisfactory. MANAGEMENT DISCUSSION AND ANALYSIS Industrial Structure and Development The bearing Industry can be divided primarily into two sectors, the Organised and the Unorganised Sector. While the Organised Sector consists of 12 players with almost all the major manufacturers in the world present either through their own subsidiaries or by way of Collaborations, the Unorganised sector mainly consists of the Small Scale manufacturers and the manufacturers of spurious bearings. The Organised Sector caters to almost 60% of the Countries requirements. These are basically Ball and Roller Bearings. Besides these bearings, Heavy duty applications like those for the Steel Plants, Cement Plants, Heavy Machinery, Agricultural Machinery, Machine Tools and other Bearings for special applications are met by imports. The Bearing Industrys growth is directly related to the growth of the user Industries like Automobiles, Motors and Pump sets, Agriculture, Material Handling Industry, Fans etc. The two major markets for Bearings are the OEM (Original Equipment Manufacturers) market and the Replacement market on roughly a 50- 50 ratio. Opportunities and Threats The phased reduction in Customs Duties has had considerable impact on the domestic industry. The major threat to the Industry in general is that from the spurious and cheap imports from Countries like China, Czchekoslovakia affecting especially the replacement market which constitutes around 50% of the Bearing Market. The growth of the Bearing Industry has also been affected by the acute recession which has plauged the Engineering Industry for the past few years. This has led to over production and thereby a price War leading to dwindling margins. However your Company is now taking steps to move away from the highly competitive segments like small Bearings into high contribution products, and also moving into its core strength - closed die forgings. The other major effort the Company has taken is to diversify into more profitable auto components. With the growing new generation auto makers in the Country, your Company expects a healthy growth in this sector. Besides the Company is now tapping the International Market. Its exports have been steadily growing in the last two years. The Company is expecting to increase its export performance substantially in the next few years. This would pave the way for the Company to reduce the dependence on the price sensitive domestic market for bearings and will be poised to become a foreign exchange earner in the near future. The core strength of the Company is Closed Die Forgings. The Company is tapping the spare capacity of this facility to sell various components fastners, textile rings including bearing rings to customers. Segment-wise Performance As per the prevailing product mix the Company has only one primary segment i.e. Ball and Taper Roller Bearings. However the Company through its diversification into auto components expects to tap this segment in the coming years as the automobile industry is poised for a healthy growth. In addition the Company expects a substantial growth from the export market for its auto components. Besides, the Company is; also giving thrust to its core strength closed die forgings. As of now the major contribution is from that of Ball and Roller Bearings. Future Outlook As per the current indications, the growth in the Automobile Industry is expected to have an impact on the Bearing Industry. The Company expects to make a major headway in the auto components sector in the coming years. The export performance of the Company has been steadily increasing. The Company is making all out efforts to aggressively improve its export performance in this segment. The Company expects to consolidate its market in Contract manufacturing i.e. sale of hot die forgings. The Company is also concentrating on cost rationalisation in an attempt at shoring up its bottom lines. The Company expects to make a major headway in areas like Interest cost, labour cost etc., which will have an impact on the Companys future performance. Risks and Concerns The Management perceives the threat from illegal imports as also cheap imports from Countries like China and other Communist Countries to affect the domestic Bearing Industry. The phased reduction in Customs Duties which is expected to continue will certainly affect the Bearing Industrys performance. The high interest and labour cost will have a telling impact on the Companys performance in future unless it is addressed at the earliest. The Bearing Industry has been severely hit in the past years by the unprecedented recession. The downturn in the economy will affect the Industry unless reversed. Just as in the last couple of years, the continuing pressure on sales on the Bearing Companies on account of the demand recession is bound to affect the pricing of the product in order to maintain or gain market share. This will have an adverse impact on the bottom lines of Companies. Internal Control Systems The adequacy of the Companys internal control system is being periodically monitored through a qualified Chartered Accountant commensurate with the size and operations of the Company. The Audit Committee of the Board of Directors periodically reviews the internal audit reports of the Internal Auditors for the adequacy of internal controls. Financial Performance with respect to Operations During the year under review sales reduced Rs.2487.89 lakhs as against Rs.3072.30 lakhs in the previous period. The fierce competition in the after market has had a tremendous impact in reducing the demand thereby leading to drop in production in order to prevent stock piling. The fierce competition both in the OE market as well as the Replacement Market has affected the Companys Operations. The Company greater dependence on the after market has almost crippled the Companys operations due to illegal and cheap imports. Added to this was the monsoon failure and the unexpected unseasonal rains in various parts of the Country which affected sales for the major portion of the year. This led to stock piling and a corresponding cutback in production. The Company is now making all out efforts to peg this trend by switching over to the more profitable auto components with the thrust on the export market. The Company has now received substantial enquiries from Europe, USA and other Asian Countries and is trying to convert all these enquiries into orders. Human Resources and Industrial Relations The Company has had a cordial relationship with its employees who have extended their co-operation during this trying period. Proposal for Revival The modified scheme of BIFR vide its order dated 11-06-1997 could not be implemented by the company. Consequent to this BIFR in the order dated 15th April, 2002 has stated that incase both : Financial institutions and promoters agree, the promoters may submit a revised comprehensive revival proposal based on One Time Settlement (OTS) of Financial Institutions dues with means of finance fully tied up. In this context, the company has sought time from the operating agency viz., IDBI for the payment of OTS dues. The Company is in the process of submitting the revised revival proposal based on the present scenario. Based on this assumption the accounts are prepared on the "Going Concern" basis. DIRECTORS Tamil Nadu Industrial Development Corporation Ltd (TIDCO) withdrew Mr.Hemant Kumar Sinha IAS from the Board on 30th January 2002. Mr. Mutia Kalaivanan IAS was nominated by TIDCO as the Chairman of the Company on 26th April 2002 and later was withdrawn on 30th July 2002. Dr. R.Vijaykumar Ph.D. IAS was nominated by TIDCO as the Chairman of the Company on 30th July 2002 in the causal vacancy caused by withdrawl of Mr.Mutia Kalaivanan IAS. Mr.Ramanathan Palaniappan resigned from the Board on 26th April 2002. The Board wishes to place on record its sincere appreciation for the valuable contribution made by Mr.Hemant Kumar Sinha, IAS, Mr.Mutia Kalaivanan IAS and Mr.Ramanathan Palaniappan during their tenure as Directors of the Company. In terms of Section 256 of the Companies Act, 1956, Mr.N. Bagavathy retire by rotation and being eligible offer himself for re-appointment. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to the requirement under section 217(2AA) of the Companies Act, 1956 with respect to Director Responsibility Statement, the Directors confirm that: 1) In preparation of the accounts for the year, the applicable Accounting Standards have been followed along with proper explanation relating to material departures. 2) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the at the end of the year and of the loss of the company for that year. 3) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. 4) The Directors have prepared the accounts for the year on a going concern basis. CORPORATE GOVERNANCE Your directors are happy to report that your company is fully compliant as on June 30, 2002 with the SEBI Guidelines on Corporate Governance as incorporated in Clause 49 of the Listing Agreement with the Stock Exchanges. A detailed report on this subject forms part of this report. The Statutory Auditors of the Company have examined the companys compliance and have certified the same as required under the SEBI guidelines. Such certificate is reproduced and forms part of this report. AUDITORS M/s. Itta Parthasarathy & Co. Chartered Accountants, Chennai retire at the conclusion of the ensuing Annual General Meeting and are eligible for re- appointment. With reference to the remarks of the Auditors regarding Capitalisation of interest, and non-provision of depreciation, the Directors wish to state that this was done as a measure of Tax Planning and non-provision of depreciation for earlier years is due to inadequacy of profits. Also your Directors invite reference to schedule 15 (b) & (c) which are self- explanatory. The Company was not able to remit PF, ESI and TDS in time, due to acute financial condition. Subsequently the company has remitted a portion of the PF, ESI & TDS overdues. Steps are being taken to remit the balance at the earliest. The Company is taking efforts to raise funds for setting the dues to the institutions. PARTICULARS OF EMPLOYEES None of the employees are covered under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules 1975. CONSEREVATION OF ENERGY, TECHNOLOGY ABSORPTION, AND FOREIGN EXCHANGE EARNINGS AND OUTGO. As required under Section 217(1)(e) of the Companies Act, 1956, read with Companies (Disclosure of particulars in the report of Board of Directors) Rules, 1988, a statement containing the required particulars are given in Annexure A which is attached hereto and forms part of the Directors Report. ACKNOWLEDGEMENT The Board of Directors thank the Institutions viz., Industrial Development Bank of India, The Industrial Finance Corporation of India Ltd, Industrial Investment Bank of India, State Industries Promotion Corporation of Tamil Nadu Ltd and consortium of banks viz., Indian Bank, State Bank of India, Canara Bank, ICICI Bank and our Joint Venture partner M/s.Tamilnadu Industrial Development Corporation Ltd for the valuable Guidance and support extended to the Company, and last but not the least the employees of the company for their co-operation and efforts during this critical period. On behalf of the Board of Directors Dr.R.VIJAYKUMAR Ph.D. IAS Chairman Place: Chennai Date : 22.11.2002 ANNEXURE (A) TO DIRECTORS REPORT CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Section 217(1)(e) of the Companies Act, 1956 (A) CONSERVATION OF ENERGY The Company has taken the following steps. 1. Regular monitoring of Power Consumption. 2. "Switching Off: the machines during the rest period 3. Tight control on lighting and illumination. 4. Additional capacitor banks installed to improve power factor 5. Connection of motors that were not fully loaded to its capacity were changed from delta to star on selected motors and that resulted in good benefits. 6. Treated sewage water is used for factory gardens to reduce the use of fresh Water. FORM A DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY Power and fuel consumption: Current Year Previous Year 2001-2002 2000-2001 (12 months) (15 months) 1. Electricity a) Purchased Units 40,14,670 55,90,710 Total Amount Rs.2,38,21,044 Rs.2,94,03,110 Rate per Unit Rs.5.93 Rs.5.26 b) Own Generation Through diesel generator Units 1,18,764 7,29,446 Units per Ltr. Of diesel oil 2.59 3.18 Cost per Unit Rs.8.70 Rs. 5.91 2. Coal (Specify quality and where used) Not Applicable Not Applicable 3. Furnace Oil Not Applicable Not Applicable 4. Others/Internal generation Not Applicable Not Applicable Consumption per unit of Production Product details Ball Bearing (in lakh Nos.) 12.70 26.73 Tapered & Cylindrical Roller Bearing (in lakh Nos) 0.54 1.01 Auto Components 7.08 5.01 Electricity Unit Consumption per No. 2.03 1.93 FORM - B (A) TECHNOLOGY ABSORPTION, ADAPTATION, INNOVATION AND RESEARCH & DEVELOPMENT a) We have developed wheel nuts for leading fastners manufactures. b) We are also in the process of developing other auto components other than C.V. Cages where market potential is very encouraging for domestic as well as export. c) We are in the process of developing some special bearings for import substitution. d) In addition to absorbing the technology from erstwhile German collaborator, the Company has developed in house know-how for manufacture of auto components. 1. FOREIGN EXCHANGE INFLOW AND OUT GO (Rs. in lakhs) 2001-2002 2000-01 (12 months) (15 months) (i) CIF VALUE OF IMPORTS Capital goods --- 21.22 Components & Spare Parts 3.63 11.21 Travelling expenditure 4.36 0.89 (ii) FOREIGN EXCHANGE EARNINGS Export Sales (FOB) Value 83.31 18.44 On behalf of the Board of Directors Dr. R. VIJAYKUMAR Ph.D. IAS., Chairman Place: Chennai Date: 22.11.2002