Kirloskar Oil Engines Ltd Directors Report.
TO THE MEMBERS OF KIRLOSKAR OIL ENGINES LIMITED
The Directors are pleased to present the 10th Annual Report together with the Audited Statement of Accounts for the year ended 31 March 2019.
FINANCIAL RESULTS (STANDALONE)
|(र in Crores)|
|Profit before exceptional items and tax||335.54||222.48|
|Profit before tax||335.54||222.48|
|Tax Expense (Current & Deferred Tax)||110.56||72.37|
|Net Profit for the Period||224.98||150.11|
|Other Comprehensive Income||(0.03)||1.06|
|Total Comprehensive Income for the year, net of tax||224.95||151.17|
|Profit Brought Forward||999.83||979.20|
|Profit Available for Appropriation||1,224.81||1,129.31|
|Transfer to General Reserve||-||-|
|Dividend and dividend distribution tax||87.17||130.54|
|Balance of the Profit carried forward||1,137.61||999.83|
COMPANYS FINANCIAL PERFORMANCE
Your Company posted sales of र 3119 Crores an increase of 11% as compared to the previous year of र 2804 Crores. Profit from operations was र 336 Crores as against र 222 Crores in the previous year.
The Company was eligible for Industrial Promotion Subsidy (IPS) under the Packaged Scheme of Incentives-2001 (Scheme) from 1 April 2008 to 31 March 2017. The eligibility period of the said Scheme was extended for further period of 2 years till 31 March 2019. The receivables under the said Scheme for the extended period are fair valued at र 51.52 Crores and are included in the total income for the year ended 31 March 2019.
The Profit After Tax was र 225 Crores as against र 150 Crores in the previous year.
For the year under review, the Directors have declared an Interim Dividend of 125% (र 2.50/- per share) and also recommended a final dividend of 125% (र 2.50/- per share), a total of 250% for the year (PY Interim Dividend 125% and Final Dividend 125%, र 5 per share). Total dividend payout for the year was र 72.31 Crores, and payment of र 14.86 Crores, as dividend distribution tax.
The Dividend Distribution Policy of the Company is enclosed in Annexure A.
SUBSIDIARY COMPANY AND CONSOLIDATED FINANCIAL STATEMENTS
As on 31 March 2019, the Company had the following three subsidiaries:
1. KOEL Americas Corp., USA (KOEL Americas)
For the fiscal ended 31 March 2019, the Sales Revenue was $ 21,67,916 (र 15 Crores.) [Previous Year $ 37,30,142]. The Profit after Tax was $ 65,999 (र 0.46 Crores) [Previous Year $ 112,221].
During the year under review, in Latin America the Company has entered into two new markets i.e. Mexico & Dominican Republic and also established one new Original Equipment Manufacturer (OEM) for generator sets which has contributed revenue of US$ 361,479. The revenue of US$ 910,560 from sale in the Central American Region came from Agricultural & Industrial Engines segment. Revenue generated from Power Generation segment and sale of FM & UL Listed Fire Pump engines, was sustained at similar levels as compared to previous fiscal year.
The Company has also started stocking Generator sets in Miami, Florida. Nearly 1/5th of the total current years revenue was achieved from sales of this inventory.
Severe economic conditions in some markets viz. Argentina, Nicaragua and Venezuela and time taken for establishing the brand in new markets viz. Peru, Argentina, Ecuador, Colombia, Venezuela and Caribbean islands are reasons attributed for lower revenue in the Financial Year 2018-19.
In 2018-19, of the 3 targeted engine families, two engine families have been certified by Environment Protection Agency (EPA). This certification is a pre-condition for sale of diesel engines in North America. We are hopeful that EPA approval for the one remaining engine family will be obtained in the Financial Year 2019-20.
2. La-Gajjar Machineries Private Limited (LGM)
For the fiscal ended 31 March 2019, the Sales Revenue was र 414 Crores. (PY for the Period 1 August 2017 to 31 March 2018, र 214 Crores). Net Profit was र 11.5 Crores (PY for the Period 1 August 2017 to 31 March 2018, Net loss of र 8 Crores).
During the year under review, LGM have leveraged the strengths and expertise of KOEL in areas of lean manufacturing, procurement and sourcing, financial restructuring, Employee Health & Safety (EHS), Production, Purchase and other related backend operations to bring synergies through structured processes and systems.
3. Kirloskar Capital Limited (KCL)
The Company has promoted and incorporated a wholly owned subsidiary, namely, Kirloskar Capital Limited (KCL) on 20 April 2018 for the purpose of commencement of a financial services business. Kirloskar Capital Limited has received a Certificate of Registration (CoR) dated 29 October 2018 to carry on the business of a Non-Banking Financial Institution from Reserve Bank of India.
KCL commenced its business operations in April 2019.
During the year under review, the Company invested र 27 Crores in equity shares of KCL.
For the period ended 20 April 2018 to 31 March 2019, Net Loss was र 7.50 Crores.
During Financial Year 2019-20, the Company further invested र 499.50 Crores towards Rights Issue of KCL.
The consolidated financial statements of the Company and its three subsidiaries, prepared in accordance with IND-AS 110, issued by Ministry of Corporate Affairs, forms part of this Annual Report. A statement containing the salient features of the financial statements of the subsidiary company is attached to the Financial Statements of the Company in Form AOC-1.
Pursuant to the provisions of Section 136 of the Companies Act, 2013, the financial statements along with relevant documents of the Company and its subsidiary are available on the Companys website.
The annual accounts of the subsidiary and related detailed information will be kept for inspection by any shareholders at the Registered Office of the Company and will also be made available to the shareholders on demand, at any point of time.
DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS:
Pursuant to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (the Regulations) including amendments thereunder:
a) Details of Key Financial Ratios of the Company as under:
|Sr. No.||Particulars||Ratio as on 31 March 2019||Ratio as on 31 March 2018|
|iii.||Interest Coverage Ratio||97.4||99.0|
|v.||Debt Equity Ratio||0.01||0.01|
|vi.||Operating Profit Margin (%)||8.7%||5.5%|
|vii.||Net Profit Margin (%)||7.0%||5.3%|
Reason for significant change (more than 25%) in the Operating Profit Margin and Net Profit Margin:
Operating Profit for the Financial Year 2018-19 was increased due to the contribution on increased sales, lower depreciation and extension of eligibility period of IPS scheme for further period of 2 years till 31 March 2019.
There are no sector specific equivalent ratios for disclosure by the Company.
b) Return on Net Worth:
Details of change in Return on Net Worth as compared to the immediately previous Financial Year as follows:
31 March 2019
31 March 2018
|Reason for significant change more than 25%|
|1||Return on Net worth||12.7%||9.2%||Increase in Net Profit.|
a) Changes in Composition of the Board of Directors:
During the year under review,
i. Mr. Vinesh Kumar Jairath resigned as an Independent Director and was appointed as a Non-Executive Director and Advisor of Kirloskar Industries Limited with effect from 14 June 2018. Consequent to this, he ceased to be Independent Director of the Company but continued as Non-Independent Director of the Company with effect from 14 June 2018.
ii. In compliance with Section 149 of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of Directors of the Company appointed Mrs. Mrunalini Deshmukh as Additional Director of the Company in the capacity of "Non-Executive Independent Director" with effect from 12 September 2018. In accordance with Section 161 of the Companies Act, 2013, she will hold office of Director up to date of ensuing Annual General Meeting. The Company has received requisite notice in writing from a member proposing her candidature for office of Director. The resolution seeking approval of the Members for the appointment of Mrs. Mrunalini Deshmukh for a term of 5 consecutive years, has been incorporated in the notice of the forthcoming Annual General Meeting of the Company.
iii. In compliance with Section 149 of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of Directors of the Company appointed Mr. Sunil Shah Singh as Additional Director of the Company in the capacity of "Non-Executive Independent Director" with effect from 12 September 2018. In accordance with Section 161 of the Companies Act, 2013, he will hold office of Director up to date of ensuing Annual General Meeting. The Company has received requisite notice in writing from a member proposing his candidature for office of Director. The resolution seeking approval of the Members by special resolution for the appointment of Mr. Sunil Shah Singh for a term of 5 consecutive years, has been incorporated in the notice of the forthcoming Annual General Meeting of the Company.
iv. The Board of Directors of the Company in its meeting held on 26 October 2018, re-designated Mr. Rajendra R. Deshpande as Managing Director & CEO from Joint Managing Director subject to the members approval. A proposal for his change in designation, has been incorporated in the notice of the forthcoming Annual General Meeting of the Company.
v. In compliance with Section 149 of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of Directors of the Company re-appointed Mr. M. Lakshminarayan as "Non-Executive Independent Director" with effect from 12 August 2019. The Company has received requisite notice in writing from a member proposing his candidature for office of Director. The resolution seeking approval of the Members by special resolution for the re-appointment of Mr. M. Lakshminarayan for a second term of 3 consecutive years, has been incorporated in the notice of the forthcoming Annual General Meeting of the Company.
vi. Mr. Vinesh Kumar Jairath retires by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment.
vii. Ms. Gauri Kirloskar retires by rotation at the ensuing Annual General Meeting and being eligible, offers herself for re-appointment.
The brief resumes and other details relating to the Directors who are proposed to be appointed / re-appointed, as required to be disclosed under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, forms part of the Notice of Annual General Meeting.
b) Changes in Key Managerial Personnel:
There are no changes in Key Managerial Personnel appointed by the Company in Financial Year 2018-19.
c) Declarations from the Independent Directors:
The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence as prescribed under Section 149 (6) of the Companies Act, 2013 and Regulation 16(1)(b) & 25(8) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
The Company has also received declarations from all the Independent Directors of the Company confirming that they have complied with the Code for Independent Directors as prescribed in Schedule IV to the Act. The said Code is available on the Companys website.
d) Board Evaluation:
The Board of Directors carried out a formal review for evaluating the performance and effectiveness of the Board, Committees of the Board and of the individual directors including the Chairman of the Board.
The performance of the Board was evaluated on the basis of criteria such as the board composition and structure, effectiveness of Board processes, participation in organization strategy including Long Range Plan and Annual Operating Plan, inorganic growth opportunity evaluation, Enterprise Risk Management etc.
Using appropriate criteria the performance of the various Committees was separately evaluated by the Board.
In a separate meeting of Independent Directors, performance of non-independent directors, performance of the Board as a whole and performance of the Chairman, taking into account the views of executive directors and non-executive directors, was evaluated.
A separate exercise was carried out to evaluate the performance of individual Directors including the Chairman of the Board, who were evaluated on parameters such as achievement against key performance objectives, attendance at meetings, time devoted for the Company, contribution in the Board process etc.
The Chairman of the Board and the Chairman of Nomination and Remuneration Committee had one-on- one meetings with the Directors. These meetings were intended to obtain Directors inputs on effectiveness of the Board/Committee processes.
e) Nomination and Remuneration Policy:
The Board of Directors, on the recommendation of the Nomination & Remuneration Committee, has adopted a policy that lays guidelines for selection and appointment of Directors, Key Managerial Personnel and Senior Management personnel together with their remuneration. The Nomination and Remuneration Policy is available on the website of the Company. (Web - link http://koel.kirloskar.com/ sites/koel.kirloskar.com/pdfs/2019/Nomination%20and%20Remuneration%20Policy.pdf)
f) Number of meetings of the Board:
During the period under review, five (5) Board Meetings were held, the details of which form part of the Report on Corporate Governance.
g) Composition of Audit Committee and other Committees of the Board:
The Composition of Committees of the Board including Audit Committee and Stakeholder Relationship Committee forms part of the Report on Corporate Governance.
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS
During the year under review, the Company has invested in equity shares of Kirloskar Capital Limited. The details are given in the Financial Statements. The Company has not granted any Loans and Guarantees covered under Section 186 of the Companies Act, 2013.
PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All related party transactions that were entered into during the Financial Year 2018-19 were on an arms length basis and were in the ordinary course of business. Hence, there are no transactions to be reported in Form AOC-2. None of the related party transactions entered into by the Company, were materially significant, warranting members approval under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. All Related Party Transactions are routinely placed before the Audit Committee for approval after being duly certified by the Statutory Auditors.
The policy on Related Party Transactions as adopted by the Board is uploaded on the Companys website.
The disclosures as per IND-AS 24 for transactions with related parties are provided in the Financial Statements of the Company.
RISK MANAGEMENT FRAMEWORK
The Company is aware of the need to recognize and identify emerging risks that have to be managed and mitigated to protect stakeholders interests and achieve business growth.
The risk management process of the Company is designed to facilitate identification, evaluation, mitigation and review of risks which may affect achievement of objectives. Further, it is embedded in the strategy deployment processes for all businesses and functions.
The risk management process is guided by a framework formulated by the Internal Audit Department (IAD) which is in line with size, scale and nature of the Companys operations. The risk management process which works at various levels across the organization, addresses major types of risks which are at enterprise and business level. The risks are reviewed with respect to the likelihood and impact following a balanced bottom- up and top-down approach covering all businesses and functions of the Company.
The enterprise risks and mitigation plans are reviewed by the Audit Committee and Board periodically.
INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS
The Company has in place adequate internal financial controls with reference to the Financial Statements commensurate with the size, scale and complexity of its operations. Details of internal financial control and its adequacy are included in the Management Discussion and Analysis Report, which forms part of this Report.
CORPORATE SOCIAL RESPONSIBILITY
The Company has always believed in working for the betterment and uplift of society. Corporate Social Responsibility (CSR) has been practiced and ingrained over the years in the Company. The focus areas under CSR have remained consistent over the years and include: Health, Education and Environment. The Company strongly believes in Enriching Lives of the people surrounding the communities in which it operates.
The Composition of CSR Committee of the Board and Report on CSR activities is annexed herewith as Annexure B.
VIGIL MECHANISM / WHISTLE BLOWER POLICY
The Company has a Vigil Mechanism / Whistle Blower Policy to deal with instances of fraud, unethical behavior, mismanagement etc. This Policy has been amended with effect from 1 April 2019 to include instances of leakage of Unpublished Price Sensitive Information. The Policy provides a mechanism for employees of the Company and other persons dealing with the Company to report to the Chairman of the Audit Committee any instance of unethical behaviour, actual or suspected fraud or violation of the Companys code of conduct. No person has been denied access to the Audit Committee in this regard. The Policy is uploaded on the Companys website.
EXTRACT OF ANNUAL RETURN
The details forming part of the extract of the Annual Return in form MGT 9 is annexed herewith as Annexure C to this report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE AND OUTGO
Information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo as required under section 134 (3)(m) of the Companies Act, 2013, read with the rules there under, are provided in Annexure D to this report.
PARTICULARS OF EMPLOYEES
Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are annexed in Annexure E of this report.
The particulars of employees pursuant to section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, form part of this report. In terms of Section 136 (1) of the Companies Act, 2013, the Directors report is being sent to the shareholders without this Annexure. The Shareholders interested in obtaining a copy of this annexure may write to the Company Secretary at the Companys registered office.
POLICY ON PREVENTION OF SEXUAL HARRASSMENT
The Company has in place a Policy for prevention of sexual harassment at workplace. This inter alia provides a mechanism for the resolution, settlement or prosecution of acts or instances of Sexual Harassment at work and ensures that all employees are treated with respect and dignity. There were no complaints filed / pending with the Company during the year. The Company has complied with the provisions relating to the constitution of internal complaints committee under the Sexual Harassment of Women at work place (Prevention, Prohibition and Redressal) Act, 2013.
During Financial Year 2018-19:
a. There were no public deposits accepted by the Company pursuant to provisions of the Companies Act, 2013, including rules thereunder.
b. There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Companys operations in future.
c. Neither the Managing Director nor the Whole-time Directors of the Company received any remuneration or commission from the subsidiary.
d. There was no instance of frauds during the year under review which required the statutory Auditors to Report to the Audit Committee and/or Board under section 143(12) of the Act and rural framed thereunder.
e. There was no instance of fraud during the year under review which required the Statuary Auditors to Report to the Audit Committee and/or Board under section 143(12) of act and rules framed thereunder.
f. The Company complies with all applicable mandatory Secretarial Standards issued by the Institute of Company Secretaries of India.
a) Statutory Auditors
The members of the Company in its meeting held on 5 August 2016, re-appointed M/s. P. G. Bhagwat, Chartered Accountants, Pune, (Firm Registration Number 101118W) as Statutory Auditors of the Company for a second term of 5 consecutive years to hold office from Annual General Meeting held on 5 August 2016 till the conclusion of the Annual General Meeting to be held in the year 2021.
The Company has received from them the requisite certificate pursuant to Section 139 of the Companies Act, 2013.
There are no adverse remarks / qualifications of Statutory Auditors on financial statements for the year ended 31 March 2019.
b) Cost Auditors
The Company has appointed M/s. Parkhi Limaye & Co. as Cost Auditors of the Company for the Financial Year 2019-20 under section 148 of the Companies Act, 2013 and rules thereof.
c) Secretarial Audit Report
The Company has appointed Mr. M. J. Risbud, Practicing Company Secretary to conduct Secretarial Audit of the Company under section 204 of the Companies Act, 2013 and the rules thereof. The Secretarial Audit Report is annexed herewith as Annexure F.
There are no adverse remarks / qualifications of Secretarial Auditors in the Secretarial Audit Report for the year ended 31 March 2019.
Mr. Mahesh J. Risbud, Practising Company Secretary, Pune, has submitted Secretarial Compliance Report as laid down in SEBI Circular CIR/CFD/CMD1/27/2019 dated 8 February 2019, and has also confirmed that the Company has complied with of all applicable SEBI Regulations and circulars / guidelines issued thereunder, for the Financial Year 2018-19.
MANAGEMENT DISCUSSION & ANALYSIS AND REPORT ON CORPORATE GOVERNANCE
The Management Discussion and Analysis and the Report on Corporate Governance as required under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, including amendments thereunder, forms part of this Annual report.
A Certificate from the Statutory Auditors of the Company regarding compliance with conditions of corporate governance as required under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, including amendments thereunder, also forms part of this Annual Report.
BUSINESS RESPONSIBILITY REPORT
Business Responsibility Report as required under Regulation 34(2)(f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, including amendments thereunder, forms part of this Annual Report.
DIRECTORS RESPONSIBILITY STATEMENT
Pursuant to Section 134 of the Companies Act, 2013, including amendments thereunder, the Directors, based on the representations received from the Operating Management, confirm that:
a. In preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures;
b. they have in the selection of the accounting policies, consulted the Statutory Auditors and have 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 31 March 2019 and of the profit of the Company for the year ended on that date;
c. they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding assets of the Company and for preventing and detecting fraud and other irregularities;
d. they have prepared the annual accounts on a going concern basis;
e. they have laid down internal financial controls to be followed by the Company and such internal financial controls are adequate and operating effectively; and
f. they have devised proper systems to ensure compliance with provisions of all applicable laws and such systems are adequate and operating effectively.
Statements in this report, particularly those which relate to Management Discussion & Analysis, describing the Companys objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied.
The Directors would like to place on record their appreciation of the contribution made and support provided to the Company by its shareholders, employees, bankers, suppliers and customers.
|For and on behalf of the Board of Directors|
|ATUL C. KIRLOSKAR|
|Date: 17 May 2019|