Esab India Ltd Directors Report.

to Shareholders

Your Directors take pleasure in presenting the Thirty Third Annual Report together with the audited accounts of the Company for the financial year ended 31 March, 2020.

1. FINANCIAL SUMMARY / HIGHLIGHTS

(Rs. in Lakhs)
Particulars 2019-20 2018-19
Income 71,147 68,835
Profit before Interest expense and Depreciation 11,032 9,552
Provision for Depreciation (1,258) (1,070)
Finance cost (50) -
Profit before exceptional and prior period items and tax 9,724 8,482
Exceptional items - (68)
Profit before Tax from continuing operations 9,724 8,414
Provision for Tax (2,583) (2,655)
Net Profit After Tax 7,141 5,759

The financials of the Company for the year under review as also the financial statements of the previous year are prepared under IND AS.

2. EVENTS SUBSEQUENT TO THE DATE OF FINANCIAL STATEMENTS

There were no reportable events subsequent to the date of the financial statements.

3. CHANGE IN THE NATURE OF BUSINESS, IF ANY

There has been no material change in the nature of business during the period under review.

4. DIVIDEND

The Board of Directors had approved an interim dividend of Rs. 70/- per equity share of Rs. 10/- each (700%) at its meeting held on the 28 May , 2020 resulting in a cash outflow of about Rs. 107.75 Crores. This was disbursed on the 23 June, 2020.

The Company had adopted a policy of dividend distribution at the Board meeting held on 6 February, 2020. The dividend being considered and paid by the company is always based on a consideration of current and anticipated future resource requirements of the business.

The Directors do not recommend any final dividend for the financial year ended 31 March, 2020.

5. IND AS STANDARDS

Your Company had adopted IND AS with effect from 1 April, 2017 pursuant to the notification dated February 15, 2015 under Section 133 of the Companies Act, 2013 issued by the Ministry of Corporate Affairs, notifying the Companies (Indian Accounting Standard) Rules, 2015. Your Company had published IND AS Financials for the year ended 31 March, 2020 along with comparable financials for the year ended 31 March, 2019.

The quarterly results published by the Company from the financial year 2017-18 are also based on IND AS. These have been published in newspapers and also made available in the Companys website www.esabindia.com and the website of the stock exchanges where the shares of the Company are listed.

6. TRANSFERS TO THE INVESTOR EDUCATION AND PROTECTION FUND (IEPF)

Pursuant to the applicable provisions of the Companies Act, 2013 ("the Act") read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 ("The Rules"), all unpaid or unclaimed dividends are required to be transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government, after completion of seven years. Further, according to the Rules, the shares in respect of which dividend has not been paid or claimed by the Members for seven consecutive years or more shall also be transferred to the dematerialized account created by the IEPF authority.

The Company had sent individual notices and also advertised in the newspapers seeking action from the Members who have not claimed their dividends for seven consecutive years or more. Accordingly, the Company would be transferring such unpaid or unclaimed dividends and corresponding shares up to Dividend 2012. The Company is in the process of transferring the Dividend pertaining to the year 2012 to the IEPF shortly.

Members / claimants whose shares, unclaimed dividend, have been transferred to the IEPF Demat Account of the Fund, as the case may be, may claim the shares or apply for refund by making an application to the IEPF Authority in Form IEPF-5 (available on http:www.iepf.gov.in) along with requisite fee as decided by IEPF Authority from time to time. The Member / Claimant can file only one consolidated claim in a Financial year as per the IEPF Rules.

Due dates for transfer of Unclaimed Dividend to IEPF are provided elsewhere in the notice calling the Annual General Meeting.

Details of shares / shareholders in respect of which dividend has not been claimed, are provided on our website at www.esabindia.com. The shareholders are encouraged to verify their records and claim their dividends of all the preceding seven years, if not claimed.

7. BOARD MEETINGS

The Board of Directors met 5 times during the financial year 2019-20. The Meetings were held on 9 May, 13 August, 7 November of 2019, 6 February and 20 March of 2020.

8. DIRECTORS & KEY MANAGERIAL PERSONNEL

The Board of Directors of the Company has six members.

Mr Scott Allen Grisham is the nominee of ESAB Holdings Limited and a non-retiring Director in terms of the provisions of the Articles of Association. In terms of Articles of Association, the promoter Esab Holdings Limited has nominated Mr Scott Allen Grisham as the Chairman of the Board with effect from 9 of May 2019.

Mr Rohit Gambhir is the Managing Director of the Company. He was appointed for a period of five years with effect from 1 November, 2013. He was subsequently re-appointed for a term of 5 years with effect from 1 November, 2018 vide a postal ballot resolution of the shareholders dated 25 September, 2018.

There are four Non-executive and Independent Directors on the Board of the Company.

In accordance with the provisions of Article 129 of the Companys Articles of Association, Mr Rohit Gambhir retires by rotation at the forthcoming Annual General Meeting and being eligible, has offered himself for re-appointment. The details as required under Regulation 36 (3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 regarding Mr Rohit Gambhir are published as part of the Notice calling the Annual General Meeting.

Key Managerial Personnel

As stipulated under Section 203 of the Companies Act, Mr Rohit Gambhir, Managing Director, Mr B Mohan, Vice-President Finance & Chief Financial Officer and Mr S Venkatakrishnan, Company Secretary have been designated as the Key Managerial Personnel of the Company.

Mr B Mohan, Chief Financial Officer joined the Company on 1 February, 2005 and Mr S Venkatakrishnan, Company Secretary joined the Company on 10 March, 2006.

9. DECLARATION FROM INDEPENDENT DIRECTORS ON ANNUAL BASIS

As required under Section 149 (7) of the Companies Act, 2013 all the Independent Directors on the Board of the Company have individually issued the stipulated annual declaration confirming that they meet all the criteria of independence as stipulated under the Act. Further, the Independent Directors have completed their KYC confirmation on the MCA website and have also uploaded their profile in the Institute of Company Affairs before the stipulated date. Three of the Directors have been exempted from undergoing the mandatory online tests based on their quantum and areas of experience and the fourth Director is required to complete this process by the end of the year.

10. COMMITTEES OF THE COMPANY

A. AUDIT COMMITTEE

The Companys Audit Committee consists of three Independent Directors and one Non-executive Director. Mr K Vaidyanathan, is the Chairman of the said Committee. Mr Vikram Tandon, Mr Sudhir Chand and Mr Scott A Grisham are the other members of the said Committee. The said Committee met 4 times during the financial year 2019-2020, on the 9 May, 13 August, 7 November 2019 and 6 February 2020. The constitution and the terms of reference of the Committee are in line with the requirements of Section 177 of the Companies Act.

There were no occasions during the year where the Board of Directors did not accept the recommendations of the Audit Committee.

B. NOMINATION AND REMUNERATION COMMITTEE

The Companys Nomination and Remuneration Committee consists of three Independent Directors and one NonExecutive Director. Mr K Vaidyanathan, is the Chairman of the said Committee while Mr Sudhir Chand & Ms. Sabitha Rao, Independent Directors and Mr. Scott A Grisham,

Chairman of the Board are the other Members of the Committee.

This Committee met four times during the financial year 2019-2020 on the 9 May, 13 August, of 2019, 6 February, and 20 March, 2020.

This Committee lays down the policy on remuneration stating therein the attributes required for the Managing Director, Independent Directors and Key Managerial Personnel. The said policy also states the modus operandi for determining the remuneration for the above referred personnel. The remuneration policy of the Company can be viewed on the Companys website www.esabindia.com.

The above are in compliance with Section 178 (4) of the Companies Act, 2013 and Regulation 19 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

C. STAKEHOLDERS RELATIONSHIP COMMITTEE

The Companys Stakeholders Relationship Committee consists of two Independent Directors, one Non-executive Director and the Managing Director. Mr Vikram Tandon is the Chairman of the Committee, Mr Sudhir Chand, Independent Director, Mr Scott A Grisham, Chairman of the Board and Mr Rohit Gambhir, Managing Director are the other Members of the Committee.

The Committee met four times during the year on 9 May, 13 August, 7 November, of 2019 and on the 6 February 2020.

The Committee and the conduct of its business are in compliance with Section 178(5) of the Companies Act, 2013 and Regulation 20 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

D. CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

The Companys Corporate Social Responsibility Committee consists of one Independent Director, one Non-executive Director and the Managing Director. Ms Sabitha Rao is the Chairperson of the said Committee. Mr Scott A Grisham, Chairman of the Board and Mr Rohit Gambhir, Managing Director are the other Members of the said Committee. The Committee met twice during the financial year 2019-2020 on 9 May, 2019 and 6 February, 2020.

The Committee lays down the Policy on Corporate Social Responsibility stating therein the strategy, objectives, funding & allocation for the CSR projects, implementation, strategy and steps involved in achieving the CSR objectives. The Policy on Corporate Social Responsibility of the Company can be viewed on the Companys website www.esabindia.com.

The formation of the Committee and its terms of reference are in line with the requirements of Section 135 (1) of the Companies Act, 2013.

E. RISK MANAGEMENT COMMITTEE

The Company has a Risk Management Committee as stipulated by the Companies Act, 2013 and Regulation 21 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Companys Risk Management Committee consists of Mr Scott A Grisham, Chairman of the Board, Mr Rohit Gambhir, Managing Director and Mr B Mohan, Vice President Finance & Chief Financial Officer of the Company. With the Company now amongst the Top 500 company listed in the stock exchanges in terms of market capitalization, the need for having a Risk Management Committee has now become mandatory.

The said Committee met on 6 February, 2020 during the said financial year.

The said Committee lays down the Policy on Risk Management. The main objective of this policy is to ensure sustainable business growth with stability and to promote a pro-active approach in reporting, evaluating and mitigating those risks which are material in nature and are associated with the business. In order to achieve the key objective, the policy establishes a structured and disciplined approach to Risk Management.

The Risk Management Policy of the Company can be viewed on the Companys website www.esabindia.com.

11 .VIGIL MECHANISM

The Company has set up a whistleblower policy which can be viewed on the Companys website www.esabindia.com. In terms of the said policy the Directors and employees are given direct access to the Chairman of the Audit Committee to report on alleged wrongdoings. The said policy has been made available at the Offices / Plants of the Company at conspicuous places to enable the employees to report concerns, if any, directly to the Chairman of the Board and to the Chairman of the Audit Committee. Employees who join the Company newly are apprised of the availability of the said policy as a part of their induction schedule.

The above is in compliance of Section 177 (9) & (10) of the Companies Act, 2013 and in terms of Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

12. DIRECTORS RESPONSIBILITY STATEMENT

To the best of their knowledge and belief, and according to the information and explanations obtained by them, your

Directors make the following statement as per the requirements of Section 134 (5) of the Companies Act, 2013.

1. In the preparation of the annual accounts for the financial year ended 31 March, 2020 the applicable accounting standards have been followed;

2. The Directors have selected such accounting policies listed in Note 2.2 to the Notes to the Financial Statements and applied consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of the affairs of the Company at the end of the financial year on 31 March, 2020 and of the Profit 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 this Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4. The Directors have prepared the annual accounts for the year ended 31 March, 2020 on a going concern basis;

5. The Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

6. The Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

13. MANAGEMENT DISCUSSION AND ANALYSIS

A. ECONOMIC & BUSINESS ENVIRONMENT

The financial year under review witnessed the Company achieve good growth and profitability in what continued to be a volatile and challenging economic environment together with an abrupt close to the year due to COVID 19 related lockdown at a critical juncture in the last quarter.

Continuing firm trends in raw materials costs, sharp volatilities in currency along with slackness in demand posed strong challenges. There was some softening in Steel prices towards the second half of the financial year. Indirect impact arising from macro-economic issues and overall weakness in banking and financing segments also affected the overall business environment in which the Company operates. The Companys continuing focus on product development along with the execution of some relatively larger value orders during the year helped achieve growth in Sales. Plant efficiencies and product mix together with other initiatives on cost reductions helped achieve growth in profits and profitability during the year.

While the economy reportedly grew at around 5% during the financial year, relevant indicators for the company on manufacturing data and Index of Industrial Production (IIP) on segments relevant to fabrication technologies continued to indicate flat to negative growth for most part of the financial year. Difficulties in banking and NBFC sectors continued to affect demand especially in the capital goods segments.

The Company continues to maintain its established market position as one of the leading players in the domestic welding industry pan-India presence, strong financial risk profile characterized by relatively stable cash accruals, zero debt & comfortable liquidity position apart from synergy benefits derived from being part of a group which has wide presence across the globe.

B. OUTLOOK, OPPORTUNITIES AND THREATS

A sudden and strong reversal arising from the COVID 19 pandemic and consequent lockdowns has necessitated sharp and swift corrections in the short to medium term outlook. Without any exceptions, all key segments addressed have been affected and there are serious concerns on the outlook for the financial year. The current view is that the impact will be felt over quite a few quarters. There are views around fundamental changes cutting across all segments with multiple disruptions.

The Company is grappling with multiple constraints in terms of demand, supply chain, restrictions on manpower post lockdowns and strong pressures on working capital. The outlook for the ongoing financial year is extremely challenging with a strong and significant negative bias on growth.

In addition to business risks as above, adaptability to the evolving requirements including compliances and managing productivity with offsite working options are new challenges.

Government initiatives to stimulate demand, overall softening of crude prices and expectations of benign interest rates in the medium term are factors that could help. The current environment also challenges us to shore up internal efficiencies and control costs even better. The competitive advantage and financial strengths of an established player are expected to be an advantage in this environment.

We continue to see threats arising from excess capacities in the market and competition from Tier II and global players pursuing growth in an anemic environment. Additionally, volatilities in customer segments and any economy linked headwinds pose risks as well.

14. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Management evaluates the Companys internal controls from time to time and also works with independent internal auditors to test these and identify areas for improvement. Additionally, the Company is subjected to reviews applicable for Subsidiaries of US headquartered entities. The Company continues to list and evaluate key controls and process to an extent leveraging on the work done as part of its global reporting requirements. Key findings and actions taken to implement or remediate the same are reviewed by the Audit Committee periodically at its meetings. The scope and coverage of internal audits are aligned to have coverage in terms of key controls and locations. The endeavor is to align to the requirements of Internal Control on Financial Reporting (ICFR) framework while leveraging on work done as part of global reporting requirements. Management testing through independent audit teams followed by external testing were done during the year.

The scope of work of Internal Auditors includes review of controls on accounting, financial reporting, statutory and other compliances and operational areas in addition to reviews relating to efficiency and economy in operations.

Our efforts on the above lines are expected to ensure compliance with the requirements of Internal Controls on Financial Reporting.

Members may please note that the Company now figures in the Top 500 Companies in terms of market capitalization. Amongst other implications, this also necessitates a mandatory constitution of a Risk Management Committee. The said Committee reviews significant internal control risks as part of its agenda. Members may note that this Committee has been in existence in the Company even prior to this being mandated recently based on market capitalization.

15. FINANCIAL PERFORMANCE OF THE COMPANY

A. INCOME AND EXPENDITURE

The Companys revenue from contract with customers grew by about 3.9% despite the difficult backdrop. The growth was driven by higher growth in traded items including some large value orders. Service income on support services on R&D and shared services also grew over the previous year.

New product offerings and enhancements were areas of continuing focus as the Company pursued growth and market share. The Company also had steady volumes in terms of exports to related party entities.

Other income fell by 23% driven by lower income from mutual funds and also due to absence of one off gains as in the previous year.

Finance income was at comparable levels after adjusting for repayment of loans by a related party where interest rates higher than currently prevailing rates.

Materials costs as a percentage to sales was lower with better product mix and lower steel prices in the second half of 2019-20.

Overheads including employee costs were higher by 2% over the previous year primarily due to higher payroll costs. Other overheads were lower due to control over costs.

The Company has continued to provide for Depreciation at useful lives and rates aligned to the erstwhile Schedule XIV of the Companies Act, 1956 based on a technical evaluation of useful life of assets. Depreciation charge for the year was higher due to the full years impact of capitalization in previous year.

Profit from continuing businesses before exceptional items was higher by 14.6% over the previous year with the impact of better margins and control on costs.

B. BALANCE SHEET

The turmoil in the banking and financing sector continued during the year with no significant change in fortunes from the preceding year. Lending continued to be tight with apprehensions on defaults forcing lenders to exercise extreme caution. Key industrial indicators including sectors relevant to fabrication technology continued to throw up anemic growth data. Investment cycle and infrastructure driven projects continued to be sluggish.

The Management continued to focus on a strong balance sheet and the Company remained debt free through the year. The Company ended the year with Rs. 170.12 Crores in cash, investments and deposits as against Rs. 86.41 Crores at the end of the previous financial year.

Capital Expenditure was about Rs. 1,335 lakhs as against Rs. 1,132 lakhs in the preceding year. The capital expenditure was primarily on productivity improvements, capacity enhancements and upgrading IT systems.

Inventories were higher in value terms despite growth in sales and focused actions on disposal of old inventory apart from continuing improvements in the supply chain. Debtors were significantly higher mainly on account of a sudden lockdown which stalled collections very significantly in the last 2 weeks of March 2020.

16. SUBSIDIARY / JOINT VENTURE / ASSOCIATE COMPANY

The Company does not have any subsidiary, joint venture or an associate company.

17. HOLDING COMPANY

Colfax Corporation is a Delaware, USA based industrial group with existing global business interests in, medical devices, fabrication technology products and services. Colfax Corporation holds 73.72% of equity shares of your Company through ESAB Holdings Limited, UK and Exelvia Group India BV, Netherlands which are its indirect wholly-owned subsidiaries.

18. EXTRACT OF THE ANNUAL RETURN

The Extract of the Annual Return in form MGT-9 of the Company made up as on the Financial Year ended 31 March, 2020 is attached by way of Annexure 1. This is also made available in the website of the Company viz. www.esabindia.com. Those interested may visit our website and see the details of MGT-9.

19. STATUTORY AUDITORS

M/s. S R Batliboi & Associates, LLP, Chennai (Firm Regn No.101049W / E300004) were appointed by the shareholders at the Annual General Meeting held on 7 August, 2015 as the Statutory Auditors of the Company for a period of five years in compliance with Section 139 (1). They hold office up to the end of this Annual General Meeting. Based on the recommendations of the Audit Committee and the Board Meetings held on 24 June, 2020 the re-appointment of S R Batliboi & Associates, LLP for a further period of four (4) years is being recommended for approval by the shareholders at the forthcoming annual general meeting. The details on current remuneration of the statutory auditors, as required by the provisions of amended SEBI (LODR) Regulations is given as part of the Notice calling the annual general meeting.

This is the fifth consecutive year out of the five years that they have been appointed. The statutory auditors are due for reappointment subject to the approval of the shareholders at the forthcoming Annual General Meeting. The subject of their re-appointment for a further period of four years up to the Annual General Meeting to be held during the year 2024. Their remuneration is fixed in line with the recommendations of the audit committee and as duly approved by the Board of Directors. The details of their remuneration are given elsewhere in the Notice calling the annual general meeting.

M/s. S R Batliboi & Associates, LLP, Chartered Accountants, have vide their letter in 23 June, 2020 given their written consent to continue as the Statutory Auditors of the Company and have also issued a certificate that the appointment if made shall be in accordance with the conditions and that they satisfy the criteria provided under Section 139(1) and Chapter X of the Companies Act read with Companies (Audit and Auditors) Rules, 2014.

The Statutory Auditors have issued a clean report on the financials of the Company and have not issued any qualifications for the financial year ended 31 March, 2020. Members may please take note of the changes in the requirements with respect to the report of the Auditors including specific references to key audit matters.

20. SECRETARIAL AUDIT

In terms of Section 204 (1) of the Companies Act, 2013, the Company has appointed M/s. V Mahesh & Associates, Chennai to do the secretarial audit of the Company for the financial year 1 April, 2019 to 31 March, 2020. Their appointment was informed to the Registrar of Companies, Chennai vide SRN G89457873 form MGT-14 dated 14 June, 2019

M/s. V Mahesh & Associates, have now completed their secretarial audit and have issued their certificate dated 12 June, 2020 as per the prescribed format in MR-3 to the shareholders of the Company, which is annexed to this Report as Annexure - 2. They have no observations in their report and have confirmed that the Company has proper board processes and a compliance mechanism in place. They have also affirmed that the Company has complied with the relevant statutes, rules and regulations and secretarial standards, as applicable.

21. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE OUTGO

The information required under Section 134 (3) (m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is given in the Annexure - 3 and forms part of this Report.

22. DETAILS RELATING TO DEPOSITS

The Company has not accepted any deposits during the period under review as envisaged under Section 73, 74 & 76 of the Companies Act, 2013. There have been additional filing requirements introduced recently with respect to liabilities not in the nature of deposits. The necessary form DPT 3 has been filed by the Company for the financial year 2018-19 on 13.06.2019 vide SRN No.H64503246 and an one time form DPT 3 was also filed on 13.06.2019 vide SRN No.H64498900.

23. SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS

During the year under review, there have been no significant and material orders passed by any regulators / courts / tribunals that could impact the going concern status and the companys operations in future.

24. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

The Company had not lent any loan to any related party as envisaged under Section 186 of the Companies Act, 2013 during the year under review.

The Board of Directors from time to time has authorized the Company to invest the surplus funds of the Company in deposits with Bank and investments in debt funds, liquid funds and fixed maturity plans with mutual funds for a tenor not exceeding 100 days. The investments are made in liquid and debt funds. The Company has earned an income of around Rs. 382 Lakhs for the period 1 April, 2019 to 31 March, 2020 in the form of dividends and fair value gains of investments. The Company has not given any guarantees other than bank guarantees in the normal course of business to meet contractual obligations.

25. RISK MANAGEMENT POLICY

In compliance with the requirements of Section 134(3) (n) of the Companies Act, 2013 and as required under Regulation 21 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Company has constituted a Risk Management Committee consisting of Mr Scott A Grisham, as the Chairman and Mr Rohit Gambhir, Managing Director and Mr B Mohan, Chief Financial Officer as the Members of the Committee. The said Committee lays down the procedures to identify risks and the mitigation procedures and adopted a policy in this regard. The Board of Directors defines the roles and responsibilities of the Committee. The policy on Risk Management has been hosted in the Companys website www.esabindia.com. The said committee updates the Board of Directors on a periodical basis on the material risks faced by the Company and the measures taken by the Company to mitigate the said risks.

26. CORPORATE SOCIAL RESPONSIBILITY

As required under Section 134(3)(o) read with Section 135 (1) of the Companies Act, 2013, the Company has constituted a Corporate Social Responsibility Committee. The Committee has Ms. Sabitha Rao, as the Chairperson, Mr Scott A Grisham and Mr Rohit Gambhir as the Members of the said Committee.

The Committee formulated a policy on CSR and the Board of Directors approved the same. The policy as required under Section 135 (4) (a) of the Companies Act, 2013 has been uploaded on the Companys website www.esabindia.com.

As part of ongoing initiatives, the Company has been involved in promoting and educating safe welding practices including usage of all personal protective equipment during the process of welding to ensure total safety of the welders, especially at smaller towns through deployment of duly trained resources. The Company had also tied up with certain vocational institutions for educating the welders in Tier II and Tier III cities on welding through deployment of personnel.

The Company also took up diverse initiatives on road safety, medical camps and green initiatives around the Plant locations.

During the year under review, the Company had taken up an initiative in terms of engaging with vocational training institutions in the neighbourhood of our Plant to provide training in welding consumables with the intent of providing skill sets relevant to employment.

The Company had also initiated actions on environmental protection with expenditure on greenery and gardening outside of its plant locations and also action for reduction in pollution levels caused by four and two wheelers.

The Company had also initiated action in and around its plant at Ambattur of community and infrastructure development. It also contributed towards control of COVID 19 and for the safety of the employees and general public by providing sanitizers and necessary personal protective equipment.

The Companys spend on CSR increased from Rs. 16 Lakhs in the previous year to Rs. 70 Lakhs during the year under review. The Company had clear focus and tie up with various parties to expend the entire money on CSR Budget during the current year and shall carry forward its activities as envisaged in Schedule VII of the Companies Act, 2013, in a structured manner towards its stated objectives on CSR.

The Companys policy on CSR envisages expenditure in areas falling within the purview of Schedule VII of the Companies Act, 2013. The annual report on CSR activities is enclosed by way of Annexure - 4 to this report.

27. RELATED PARTY TRANSACTIONS

As required under Section 188 of the Companies Act, 2013 and Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the company places before the audit committee the list of related parties from whom they buy raw materials or finished goods, to whom the Company extends services or exports goods. The details of the basis of pricing and the margins on such transactions are also tabled. The Audit Committee accords its omnibus approval for such related party transactions on an annual basis. The updates on the transactions with the related parties are placed before the audit committee on a quarterly basis. The details are also placed before the Board of Directors for its information.

As required under Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Company has formulated a policy on related party transactions and the same was approved by the Audit Committee and the Board of Directors. The said policy has been uploaded on the companys website www.esabindia.com.

All the transactions with the related parties entered into during the period under review have been in the ordinary course of business and at arms length basis. There have been no material related party transactions entered into during this period.

The details of related party transactions pursuant to Clause (h) of sub-section (3) of Section 134 of the Act, is enclosed in form no. AOC 2 as Annexure - 5.

28. FORMAL ANNUAL EVALUATION

As required under Section 134(3)(p) of the Companies Act, 2013 and Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of Directors had already approved the evaluation criteria for evaluating the performance of the Board of Directors, its committees and the performance of Independent Directors.

Accordingly, as required under Schedule IV of the Companies Act, 2013 and Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Independent Directors at their separate meeting held on 6 February, 2020 evaluated the performance of the nonindependent Directors and the Board as a whole. They also reviewed the performance of the Chairman of the Company and also assessed the quality, quantity and timeliness of flow of information between the Company Management and the Board that was necessary for the Board to effectively and reasonably perform their duties.

Also as required under Regulation 17 (10) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board assessed the performance of the Independent Directors as per the criteria laid down and has recommended their continuation on the Board of the at its meeting held on 24 June, 2020.

As required under the said regulations, the Board of Directors assessed the performance of the individual directors on the Board based on parameters such as, relevant experience and skills, ability and willingness to speak up, focus on shareholder value creation, high governance standards, knowledge of business, processes and procedures followed, openness of discussion / integrity, relationship with management, impact on key management decisions etc. The Members of the Committees of audit, nomination & remuneration, stakeholders relationship and corporate social responsibility were also assessed on the above parameters and also in the context of the committees effectiveness visa-vis the Act and the listing regulations.

The independent Directors fulfilled the independence criteria as specified under the above regulations and the Companies Act, 2013. The Board was satisfied with the evaluation results which reflected the overall engagement and the effectiveness of the Board and its committees.

29. COST AUDITOR

As required under Section 148 of the Companies Act, 2013 the Board of Directors at its meeting held on 24 June, 2020 has appointed M/s. Geeyes & Co., Cost Accountants within the meaning of Cost & Works Accountants Act and holding a valid certificate of practice No.000044 as the Cost Auditor for conducting the Cost Audit for the financial year 2019-2020. The Audit Committee recommended the appointment subject to the compliance of the requirements stipulated in the relevant notifications issued by Ministry of Corporate Affairs.

The Company has received a letter dated April 22, 2020 from the Cost Auditor stating that the appointment, if made, will be within the limit prescribed under the Act.

The relevant Form CRA2 for appointment of Cost auditor for the financial year 2019-20 was filed with the Registrar of Companies on 18 June, 2019 vide SRN G89730162.

The cost audit report issued by the Cost Auditor for the financial year ended 31 March, 2019 was filed with the Registrar of Companies vide form CRA-4 dated 13 September, 2019 vide SRN H89160204.

30. RATIO OF REMUNERATION TO EACH DIRECTOR

As required under Section 197 (12) and Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the details of ratio of remuneration to each Director to the median employee remuneration are as given below:

A. Executive Director

Ratio of remuneration paid to Mr Rohit Gambhir, Managing Director vs the median employee is: 24:1 (24:1 for the year ended 31.3.2019).

B. The percentage increase in the median remuneration of employees in the financial year was 8.0%.

C. The number of eligible permanent employees in the rolls of the Company as on 31 March 2020 is 526 (482 as on 31 March 2019).

D. Average percentile increase made in salaries of employees other than KMP in comparison to the percentile increase in the remuneration of KMP and the justification thereof.

The average percentile increases in salaries of employees other than KMP proposed was 7.7% while that of KMPs was 7.5%. However, given the difficulties in the business post COVID 19 lockdowns, the proposed increases have been deferred till Q2 of 2020-2021.

Justification thereof: Compensation revisions generally take into account performance metrics on sales, operating profits and working capital apart from specific elements attributable to various functions within the organization. Despite the difficulties in the operating environment, we exceeded the budget in all the three metrics. Taking into consideration the rate of inflation, it was decided to consider an average increase of 7.5%. This increase also includes a higher percentage of increase that has been considered for junior / middle level employees who have been considered for promotion. However, the increase as envisaged above have been deferred by the Management till September, 2020, due to the current difficult business situation.

As at the end of March 2020 the Company had 755 employees as against 753 at the end of 31 March 2019. The Company believes in providing a working environment that is focused on the customers, teamwork, continuous improvement, innovation and a competitive environment where employees strive to improve value for shareholders.

E. The key parameters for any variable component of remuneration availed by the Directors.

Variable Component to Mr Rohit Gambhir - This is linked to various parameters, financial and non-financial. Key elements include sales, operating profit, working capital, implementation of business systems.

Variable Component to Independent Directors - Is based on the roles and responsibilities and their contribution to the Company in their respective capacities. The Commission is individually determined based on their varying commitments of time and effort to the Board and to its committees.

The Board of Directors would like to affirm that the remuneration paid to the Executive and Non-executive Directors and the Key Managerial Personnel is in line with the Remuneration Policy of the Company.

Details of employees receiving the remuneration in excess of the limits prescribed under Section 197 of the Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed as a statement and given in Annexure - 6. In terms of first proviso to Section 136(1) of the Act, 2013 the Annual report, excluding the aforesaid annexure is now being sent. The annexure is available for inspection at the Registered Office of the Company and any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Company.

31. FINANCE

The Companys relationships with its Bankers viz. AXIS Bank Ltd. and HDFC Bank Ltd. continued to be cordial during the year. The Company would like to thank its Bankers for their support.

32. ENVIRONMENT, HEALTH AND SAFETY

The Company continued its commitment to industrial safety and environment protection and all its factories have obtained its ISO 14001 and OHSAS 18001 certification. Periodical audits are done by external and internal agencies to assess the continued levels of EHS efficiency of each of these plants and the OHSAS certification given is renewed after every such audit. The Company is also networked with the Group on EHS initiatives and works closely with them on initiatives and actions concerning EHS. During the year under review, the Companys Plants at Ambattur and Nagpur won global recognition for EHS initiatives.

Cautionary Statement

Certain statements in this Directors Report may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied in this Report.

33. LISTING WITH STOCK EXCHANGES

The Companys equity shares are listed with a) BSE Limited and b) National Stock Exchange of India Limited. The annual fees for both the exchanges have been paid promptly for the year 2019-2020. Pursuant to the requirements of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the company had executed fresh listing agreements with BSE Limited and National Stock Exchange of India Limited on 9 November, 2015.

The Company had 10,729 shareholders as at the end of the year 31 March, 2020. 98.88% of the shares are held in dematerialized form.

The Company entered the list of Top 500 Companies by way of Market capitalization during the year. This brought in additional compliance requirements in terms of adoption of dividend policy, formation of risk management committee and also the introduction of Business Responsibility Reporting which forms part of this report.

As required under Regulation 39 (4) Read with Schedule VI of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the details of the shares issued by the Company consequent to amalgamation of erstwhile Maharashtra Weldaids Limited with the Company in 1994, the details of the physical shares which remains unclaimed and transferred to the Unclaimed Suspense Account and the reconciliation of the shares claimed by shareholders during the year 2019-2020 and the shares outstanding in the suspense account as on 31 March, 2020 is given below:

Sl. No. Details No. of shareholders No. of equity shares
1. Aggregate number of shareholders and the outstanding shares lying in the unclaimed suspense account at the beginning of the year i.e. as on 1.4.2019 61 4,410
2. Number of Shareholders who approached the Company during the year 6 400
3. Number of shareholders to whom shares were transferred from the unclaimed suspense account during the year 6 400
4. No. of shares transferred to Investor Education and Protection Fund Nil Nil
5. Aggregate Number of shareholders and the outstanding shares lying in the unclaimed Suspense Account at the end of the year i.e. 31.3.2020 55 4,010

55 Shareholders holding 4,010 equity shares constituting about 0.03% of shares have not made their claim from the Company on the shares outstanding in the Unclaimed Suspense Account of ESAB India Limited. The voting rights for these shares shall remain frozen until these are claimed by the rightful owners.

34. CORPORATE GOVERNANCE

In terms of Chapter IV Regulation 15 Read with Schedule II of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 a Corporate Governance Report is made part of this Annual report.

A certificate from the Statutory Auditors of the Company regarding compliance of the conditions stipulated for Corporate Governance as required under Clause E of Schedule V read with Regulation 34 (3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is attached to this report.

The declaration by the Managing Director addressed to the Members of the Company pursuant to Clause D of Schedule V Read with Regulation 34 (3) Chapter IV of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 regarding adherence to the Code of Conduct by the Members of the Board and by the Members of the Senior Management Personnel of the Company is also attached to this Report.

35. POLICY ON PREVENTION OF SEXUAL HARASSMENT OF WOMEN AT WORKPLACE ACT

The Company has also adopted the mandatory policy on Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013. Employees have been sensitized on the provisions of this enactment and the Company has also constituted an internal complaints committee with effect from 30 October, 2013 to deal with complaints, if any, under the said Act. The Committee also has an independent external NGO representative as one of its members. The Committee meets as and when requirement arises. The Company believes in providing safe working place for the Women in the Company and adequate protection are given for them to carry out their duties without fear or favour. All the employees of the Company as a part of induction as sensitized about the provisions of the said Act.

As required under Section 21 of Chapter VIII of the said Act, the Committee has submitted its annual report in the prescribed format to the designated authority within the stipulated period.

36. SECRETARIAL STANDARDS

As on 31 March, 2020 all the applicable Secretarial Standards which have been notified have been complied with by the Company.

A certificate of compliances issued by the Secretarial Auditor M/s. V Mahesh & Associates dated 12 June, 2020 is enclosed as Annexure - 2 and forms part of this Report.

37. ISSUE OF SHARES

The Company during the year under review has not issued any SWEAT equity shares or shares with differential rights or under Employee stock option scheme nor did it buy back any of its shares.

38. ACKNOWLEDGEMENTS

Your Directors place on record their appreciation for the confidence reposed and continued support extended by its customers, suppliers and shareholders.

Your Board would like to place on record, its sincere appreciation to the employees for having played a very significant part in the Companys operations till date.

For and on behalf of the Board of Directors
Chennai Scott A Grisham
24 June, 2020 Chairman