kolar biotech ltd share price Directors report

KOLAR BIOTECH LIMITED ANNUAL REPORT 2002-2003 DIRECTORS REPORT To The Members, Your Directors are pleased to present the 10th Annual Report, together with the audited accounts, for the financial year ended 30th June, 2003. (Rs in Lakhs) FINANCIAL RESULTS Particulars 2002 - 03 2001 - 02 Gross Income 2537.20 1123.69 Total Expenditure 1791.51 743.67 Profit Before Tax 745.69 380.02 Provision for Tax 85.00 50.00 Provisions for Deffered Tax .02 - Profit after Tax 660.67 330.02 (Short)/Excess Provisions 14.66 1.21 of Earlier Years Surplus brought forward 247.12 215.89 from the previous year Surplus Available 922.45 547.12 for Appropriation Appropriation General Reserve 200.00 200.00 Dividend 112.82 100.00 Surplus Carried Forward 609.63 247.12 DIVIDEND Your Directors have recommended a final dividend of 10% on the equity shares. The final dividend will be paid upon approval by the members in the ensuing Annual General Meeting, to the registered members as on the book closure date. RESULTS OF OPERATIONS The Company recorded a handsome growth in both turnover, as well as in net profits, during the year under review. It was due to smart turnover management by your Directors and an intense focus on the meeting of customer needs, through competitively priced products, supplied in a timely manner. The working capital too was managed efficiently during the year, to ensure optimum returns on rotation of assets. Your Directors express satisfaction on this performance and view it as part of an ongoing long term effort, to drive profitable growth. While formulating such strategies, the Company has been dealing in products and ancilliaries, which have less competition and apart from endowing benign customer relationships, also bestow healthy profit margins. As part of such moves, your Directors have identified biotechnology products as those with better and assured margins in the coming years. During the year under review your Directors have formulated and firmed up strategies for making forays into the manufacture of RDNA biotechnology products, which have a huge untapped market in India. A detailed viability and appraisal report has been received and appropriate measures are being initiated for set up of the said business. Aided by a buoyant economy and riding the crest of the perception that India has the potential to repeat its success story of information technology, (wherein the Company has its lineages), in the sector of biotech too, your Directors are confident of the lingering success of this strategy, which is reflected in the change of name of the Company, which was effected during the year under review. FUTURE BUSINESS AND OUTLOOK India is now recognised as the brightest star on the horizon of emerging economies. It is also recognised as a technology power house, which can be a world leader in sectors, such as biotechnology also. The time has come for Indian enterprises to be integrated with global markets, in order to tap their inherent potential. At such times, though the markets will deepen for Indian corporates, yet the demand on them will be to produce world class products at optimum costs. Thus though the opportunities could be lucrative, yet the challenges are equally daunting. Your Directors are confident of repositioning the Companys operations, to make the most of emerging opportunities and to build up long term shareholder value. MANAGEMENT DISCUSSION AND ANALYSIS REPORT Pursuant to Clause 49 of the Listing Agreement, a Management Discussion and Analysis Report, giving segment wise performance and outlook is given as Annexure to this Report. CORPORATE GOVERNANCE A separate section on Corporate Governance Report, is included in the Annual Report together with the Certificate from the Companys Auditors, confirming the compliance of the conditions. DIRECTORS RESPONSIBILITY STATEMENTS Pursuant to Section 217 (2AA) of the Companies Act, 1956, your Directors subscribe to the Directors Responsibility Statement and confirm that :- 1. In the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures. 2. The Directors have such accounting policies and applied them consistently and made judgments and estimates that are resonable and prudent, so as to give a true and fair view of the state affairs of the Company, at the end of the financial year and of the profit or loss of the Company, for that period. 3. They have taken proper and sufficient care, to the best of their knowledge and ability, 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. They have prepared the financial statements on a going concern basis. FIXED DEPOSITS The Company has accepted fixed deposits within the meaning of Section 58A of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 and the required rules have been duly complied with. DIRECTORS Dr. Umesh R Khariwala, retire by rotation and being eligible, offer himself for reappointment at the ensuing Annual General Meeting. Mr. Raj Basantani, Dr. Swamy Pravin Kartikaswamy, Mr. Vijay Jain, Dr. Umesh Khariwala, Dr. Pushpa Mahadik, Dr. Prithvizit Debnath, Dr. Anil Bhaskar Tambi, Dr. Jayendra Pragji Thakkar, Mr. R.K.Maheshwari and Mr. Haresh Teckchandani has resigned as Directors of the Company, in view of their other pressing engagements, which prevented them from devoting adequate time to the Company. The Board places on record, its appreciation for the valuable contributions made by them. Further Dr. Umesh R Khariwala were appointed as Additional Directors in the Board. Mr. Vikash Seth and Mr. Nooman Usmani were appointed as the Managing Director and Executive Director of the company respectively, subject to the approval of the members in the General Meeting. Thus, your approval is sought for their appointment vide resolutions set in the accompanying notice. CHANGE OF CONTROL The Company is planning to come up with a public issue. Mr. Raj Basantani was the Chairman and Director of the company and looking after day to day management of the company. The Securities and Exchange Board of India in its order dated September 19, 2002 barred Mr. Raj Basantani from assessing the Capital Market for a period of 3 years. Since the company is planning to come up with a public issue, the order against Mr. Raj Basantani could be a road block in the smooth going of process of public issue work. Thus Mr. Raj Basantani has requested the Board to accept his resignation in the best interest of the company and proposed to shift the control to Mr. Vinod Hingorani and to appoint him as the Chairman of the company. The Board has approved the change of control in its Board Meeting dated 27th June, 2003 and the same is being confirmed by special resolution under section 192A of the Companies Act, 1956 and Regulation 12 of the SEBI (Take Over) Regulation in the Extra Ordinary General Meeting held on 22nd August, 2003 with the facility of Postal Ballot. AUDITORS During the year Ms. Sunita Narang, Chartered Accountants have resigned as the Statutory Auditor of the Company due to her other pre-occupations. The casual vacancy caused by her resignation was filled by the appointment of M/s. V.Subramanian It Co., Chartered Accountants, in the Extra-ordinary General Meeting held on 22nd August, 2003 till the conclusion of 1 Oth Annual General Meeting. Shareholders are requested to re-appoint the Auditors to the Company. M/s. V.Subramanian & Co., Chartered Accountants, the statutory auditor of the Company, retires at the Annual General Meeting and is eligible for reappointment. PARTICULARS OF EMPLOYEES Information, in accordance with the provisions o Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, regarding the employees, is presently not applicable to the Company. Since no employee draws the amount, as specified in the provision. CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION The operations of the Company are not energy intensive. Adequate measures, have however been taken, to reduce energy consumption. There was no transaction pertaining to technology acquisition during the year under review. FOREIGN EXCHANGE EARNINGS AND OUTGO : The total foreign exchange earned during the year, through exports is Rs. 92.65 lacs (Previous year Rs. 124.10 lacs) as against the total foreign exchange expenditure amount of Rs. Nil (Previous Year Rs. Nil). APPRECIATION Your Companys relation with the employees at all level has been cordial. The Directors take this opportunity of placing on record their apperceptions of the devoted and committed services rendered by the staff during the year under review. By and on behalf of the Board of Directors For Kolar Biotech Limited Vinod Hingorani Chairman Place : Mumbai Dated : 10th November, 2003 FORWARD LOOKING STATEMENTS This report contains forward looking statements, which maybe identified, by their use of words like plans, expects, will, anticipates, believes, intends, projects, estimates or other words of similar meaning. All statements that address expectations or projections about the future, including, but not limited to statements about the Companys strategy for growth, product development, market position, expenditures and results are forward looking statements. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Companys actual results, performance or achievements could thus differ materially from those projected in any such forward looking statements. The The Company assumes no responsibility to publicly amend modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. A. GENERAL The global economy during the year under review was catatonic and marked with lingering uncertaintly. The American economy was listless and lacked any firm growth trend. Its capital markets continued to be in a downturn and due to increased defence spending, arising out of its actions in Iraq and Afghanistan, its fiscal deficit inched upto a dangerous 4.6% of the GDP, amounting to a huge,$ 455 bn. Interest rates in the USA are at a fifty year tow, as the Federal Reserve there, sought to resuscitate a tired economy, through a soft interest rate regime. Industrial growth there was sluggish, unemployment was high and there was a public outcry, over the shifting of jobs to India, in the white collar segment of IT and IT enabled services. All growth predictions have failed to materialise so far and uncertainty looms large. The Eurobellwether economy of Germany as well as that of France too were deficit laden and faced a distressing downturn in growth, revisiting fears of a dreaded deflation. Europe continues to display spotty growth, with large patches of lack of growth or its downtick. The year witnessed an unprecedented strengthening of the Euro versus the dollar, bringing that nascent currency into the limelight and an increased usage. Buoyant consumer demand has kept the hope of an increased growth alive, despite the current moribund state of affairs there. India is slowly emerging as the desired global economic destination. Smart and aggressive diplomacy and a growth in the economy, despite a debilitating drought during the year, reinforced confidence in the strength and resilience of our economy, as the world took note. GDP grew at 4.8% in FY 03, the rupee appreciated considerably in the current financial year, forex reserves have exceeded $85 bn, inflation is at an acceptable average of 4% and interest rates are at an all time low. Exports recorded a growth of 18%, despite an appreciating rupee and non oil imports have recently registered a sharp increase, indicating the resurgence of industrial growth in the country. Encouraged by its overflowing forex reserves, the country has prepaid foreign exchange loans amounting to about $ 5bn and now enjoys the rare status of being a creditor to the IMF, changing its earlier tag of a perennial borrower. Sensing the sound fundamentals of the economy, also mirrored in the stew of recently declared profitable and growth laden corporate results, the capital markets have staged a sharp recovery and are on an upswing. The only factor, which can upset our success story, is the venom of fiscal deficit, which has reached ominous levels of over 6%. The governments expenditure remains unbridled, at a time of falling revenues, reflecting on the uncontrolled deficit too. The technology sector grew at a fast pace of over 25%, but the silver lining in the growth story was that of BPOs, which now bring in foreign exchange earnings of over Rs. 11000 crores and are poised for a rapid growth. Despite the brouhaha in America against the outsourcing of such jobs to India, the sector is very well positioned, not just due to the wage arbitrage opportunities, but due to the world class capability of our personnel and the excellent services that they provide. The pharma and biotechnology sectors too are emerging on the horizon and are expected to repeat the success story, which India displayed in the information technology sector, in the past. B. BUSINESS STRATEGY AND OUTLOOK Deriving confidence from its ability and intention to provide top quality products and services to its clients, at competitive terms, the Companys business strategy has been directed towards moving into sectors which have lesser competition, involve the latest in technology and generate better operating and profit margins. It often involves pioneering forays into sunrise sectors, with the attendant risk of failures, but the unbeatable attraction of unbridled profits, due to a vast potential for growth. The business strategy of the Company is thus focussed on the following matters:- * Spotting of new products/ services, for better margins of profit. * Acqusition of new skills in existing activities, to Prevent any technical obsolescence. * Customer retention and growth, based on the supply of competitively priced, top quality products to them. * Continuous cost review and cost cutting for profit enhancement. * Wider business networking, through proven business relationships. * Continued quality upgradation and product improvement. * Retention of proven personnel. As a result of such dynamic corporate thinking, the Company has resolved to get into the manufacture of RDNA biotechnology products, which involve state of the art technology and for which there is a large untapped market in India. Thus riding its faith in the capacity of technology, to deliver profits, the Company proposes to diversity into another promising technology segment. The Company has retained top class consultants, to examine the project viability and to provide it with all the necessary support to embark into this venture. In its segment of information technology, the Company continues to move with the times, as it switches over to newer products and technology, to address its ever evolving customer needs. The IT sector has witnessed a moderate erosion in profit margins, due to ever increasing competition, accentuated by the dangers of unforeseen product obsolescence. The Company however has avoided these pitfalls due to increased business vigilance and an optimum product mix, with better profit margins. Though the future outlook is bright, it is best approached with a sense of cautious optimism. Though the industry demand is expected to go up, yet the risks of obsolescence, fierce competition and shifting customer preferences and loyalty remain. Your Directors are, confident of exercising appropriate dynamism, tempered with suitable care and caution, so as to ensure a continuity in growth and profits. C. INDUSTRY STRUCTURE AND DEVELOPMENT With the increased integration of Indias technology segments into global markets, the overall structure of the industry too has been evolving and mutating. Since all technology sectors are dependent on human talent, all business structures are such, as nurture and retain cutting edge talent, for continued and enhanced profitability of the enterprise. These industries are thus more human oriented, than machine oriented and pose appropriate challenges. The IT and technology industry in India has been one of surging dynamism. At the bottom are hundreds of firms, started by trained and experienced technocrats, but possessing state of the art skills and a deep understanding of customer needs. These firms have expertise that match the best in the world and are like boutique technology enterprises, operating in niche areas. Indias emergence as a IT super house is founded on such firms, which also network with the biggest and the best in the world, as they move up the value chain. Sitting atop the value chain are the software biggies, with vast capabilities, to service the biggest corporates in the world, thorough a combination of off share as well as onshore services. A recent trend however has been the desire of foreign majors, to tie up with our small software firms and to partner them for servicing their own needs as well as those of others. The margins at all levels are determined by the skill levels of the firms and the quality of work that they deliver to their clients. A large number of Indian firms, also partner such software giants as Microsoft, Oracle, SAP, Adobe etc., jointly developing a wide range of software solutions. In order to enhance their profit margins, software firms are adding consultancy services to their business matrix, as they seek to develop and absorb domain knowledge, for the clients who they serve. Software exports growth during the year, stabilised at about 25%, which is very satisfactory, at a time when our major demand markets are recession ridden. While software markets continue to grow and mature, the nascent market of BPO, has been recording rapid growth. Call centres are mushrooming all over, as the world majors look at India as the most preferred destination for this business. Most of such call centres are Indian arms of foreign MNCs, and it looks to be merely the start of the growth story in this segment. The current year thus witnessed the stabilising of growth in our IT sector and the seeding of a boom in the IT enabled services sector. In the biotech sector, it is said that India has the potential to take rich pickings as it took in the IT sector and can emerge as a global leader. Even the local markets for such products provide a ready and lucrative opportunity waiting to be encashed, by the supply of top quality products. The Company is confident of making a profitable mark in this segment too. D. OPPORTUNITIES AND THREATS In a world reeling under a downturn, now for the fourth consecutive year, the best of opportunities are known to emerge, only from technology laden segments. But in technology based industries, the opportunities and threats are two sides of the same coin. Uncharted areas do hold the promise of windfall gains, but they also carry a fatal risk of unknown dangers. Moreover, rapid changes in technology, which suddenly alter user demands, or render existing products obsolete, is the biggest threat which can make firms insolvent, overnight. Technology is however, the most lucrative opportunity for those firms, which are able to see the writing on the wall, effect the necessary changes and absorb the requisite skills, in order to tap the emerging opportunities. Industry phases tend to be short and sudden too. What is hot today is not tomorrow. Adaptability and the willingness to change, is the key to a profitable survival. Yet the biggest operators in technology segments have faced obsolescence and have had their own share of pitfalls in their unremitting quest for growth. The demand patterns as usual are shifting. Computing is being replaced by online servers and the sales of PCs has been tepid. Moreover connectivity to the hardware is becoming a must, in the new technology scenario. Giants like Microsoft too face the threat of software like Linux, as the demand for more value in technology spend keeps growing. Gadgets which combine the integration of technologies ie. computing, telephony and visuals are in top demand today. While firms constantly face the threat of obsolescence, they also face the danger of depleting competitiveness, due to their increased costs. While India seems smug of its supremacy in the technology segments, players like China are working hard, to eat into our markets. While the competition will erode our market share in the low end jobs, we have to rapidly move up the value chain, in order to yet make handsome profits and keep ahead of competition. Such threats can be further nullified by making forays into newer segments with lesser competition and better margins. The Company has been always looking out for growth opportunities, recognising the possibility of unforeseen risks, upsetting its growth efforts. Such opportunities in the technology sector are tapped, if they are compatible with the existing infrastructure and operations of the Company. A slew of opportunities are now envisaged in the biotechnology segment, wherein the Company has planned a firm foray. E. SEGMENTWISE, PRODUCTWISE PERFORMANCE The segment wise details of performance are as follows :- (Rs. In Lakhs) 2002 - 2003 2001 - 2002 SALES International Trade 92.65 124.10 Local Trade 2389.43 939.17 Other Income 55.12 60.42 TOTAL 2537.20 1123.69 The productwise sales have been as follows :- 2002 - 2003 2001 - 2002 IT PRODUCTS - Hardware 1202.14 710.28 Software 493.45 352.99 SUB-TOTAL 1695.59 1063.27 Biotech Products 786.49 - TOTAL 2482.08 1063.27 The turnover during the year, recorded a growth of 133.44%, on a YOY basis, which is considered to be excellent, at a time when most demand centres were mired a recession /downturn. Moreover even the Indian economy during the period under review witnessed a lower growth, due to the severe drought. The margin of net profit too increased by a huge 100%, and endowed a strong and healthy cashflow to the Company. Such profit growth was a result of optimum product mix, catering to customer demand particularly for new and high technology products, excellent customer relationships continued emphasis on top quality products, ruthless cost cutting and an innate ability to adapt to new skills and products. Though the gross margins during the year under review have been satisfactory, yet with further changes in the product portfolio, the Company should be able to improve them further. The year under review has greatly benefitted from structural changes in the business processes and products of the Company, which were instituted during the earlier years and the year under review. In a dynamic industry and an ever competitive scenario, though ups and downs can be minimised but not eliminated, but yet with appropriate changes in business strategy, the long term trend is expected to display a north bound trajectory, in both turnover and profits. The company has ensured an adequate and timely supply of resources to the respective segments, to ensure that growth does not suffer for want of resources, by the concerned segments. The current years performance has been exemplary, but should be viewed as an accumulation and aggregation of the focussed efforts, spread over many years in the past. F. RISKS AND CONCERNS The biggest risk in a technology business is that of obsolescence and the emergence of new products/ alternates, to those in use. Technological obsolescence remain the biggest risk in the IT business. It affects our software business as well as our in house hardware capabilities. The fact yet remains that the single most important factor, for the continued profitability of the IT trade is this change and sudden death of technologies, challenged by emerging ones. Yet, unlike any other industry, change here is sudden and widespread. Anticipating change and getting prepared for it, poses the biggest challenge to firms in the technology industries. If unprepared for, it has the potential to wipe out the entire profitability and can endanger survival too. It bestows windfall bounties upon those firms, which are prepared to change and are confident of mining it profitably. In order to address this recurring concern, the Company trains its staff in a continuous manner and also ensures that new staff is recruited, so as to acquire and absorb, upto date skills and technology. The Company also seeks to obtain business in those skills which are new or are just emerging, in order to build its strengths and to keep pace with the times. In order to ensure that forays of the Company into biotechnology are profitable and meet the strategic targets, the Company has retained the services of the foremost biotech consulting firm in the country. Competition remains a constant business concern. Like in war, the dangers of competition lurk all around and are fraught with possibilities of fatal errors. The Company fights competition, by nurturing customer loyalty, founded on the supply of competitively priced top quality, products and excellent services. It also ensures that competition is thwarted and left behind, by moving up the value chain. The levels of competition keep receding as the Company moves up the value chain. In an ever evolving technology world, issues of concern, keep emerging with predictable regularity. The slow pace of our movement up the value chain and the delayed entry into software solution and products, has deprived us of much deserved value gains. India and its IT industry need to graduate from services to products and from people to skills to encash their inherent potential. The fact remains that despite a decade of unrelenting growth, few Indian firms operate at global scales and in high product segments. Moreover, much as the American public cries hoarse over the shifting of white collared IT jobs to India, yet we are far from having achieved an undisputed supremacy. Rising wages and skill build up by emerging countries like Phillipines, China, Rusia, could slowdown and erode our gains in the segment of IT enabled services. The Indian companies also need to aggesively build alternate markets for their products and services, in order to mitigate the adverse impact of dependence on a large single market and the vagaries posed by it. Technology is viewed as a lucrative segment by people all over the world and there are too many entities vying for its fruits. G. INTERNAL CONTROLS Robust and evolving systems of internal control are the best defence against frauds or asset abuse. The Company has a reasonable system of internal control, comprising of appropriate authority levels and powers, supervision, checks and balances, policies, procedures and internal audit. The systems are reviewed, rectified and updated, on an ongoing basis. These systems provide a reasonable assurance with regard to the maintenance of proper financial records, preserving the economy and efficiency of operations, safeguarding assets against unauthorised use or losses and facilitating the reliability of the financial and operating information. The Management Information Systems (MIS) constitutes the backbone of the overall control mechanism. Clearly defined roles and responsibilities, down the line, have been institutionalised. All operating parameters are monitored and controlled. Regular internal audits and checks ensure that responsibilities are executed effectively and that the MIS is flawless, among a well established system of managerial control. The internal control systems include - - Clear delegation of power with authority limits for incurring capital and revenue expenditure. - Corporate policies on accounting and capital raising. - Established policies/ process for setting and reviewing annual and long term business plans and the preparation and monitoring of annual budgets. - A suitable internal audit system, which inter alia, reviews the internal controls of the Company and actively contributes to cost control. - An audit committee of the Board of Directors, with a majority of independent directors, which regularly reviews the audit plans, material audit findings, adequacy of internal controls, as welt as the compliance with accounting standards. The system of internal control of the Company is adequate, keeping in mind the nature and size of the business of the Company. H. DISCUSSION ON FINANCIAL PERFORMANCE The financial statements are prepared, in compliance with the requirements of the Companies Act, 1956 and the Generally Accepted Accounting Principles, as established by the Institute of Chartered Accountants in India. The management of the Company accepts the responsibility for the integrity and objectivity of these financial statements and the basis for various estimates and judgements, used in preparing the financial statements. Balance Sheet as at 30th June, 2003 Rs. (in Lakhs) Share Capital 1,000.00 Reserves Et Surplus 1,214.27 Secured Loans - Unsecured Loans 394.55 Fixed Assets 16.37 Depreciation 8.24 Net Block 8.13 Investments 0.44 Inventories - Debtors 1529.31 Loans Et Advances 837.53 Cash & Bank balances 573.76 Current Liabilities and 344.98 Provisions RESULTS OF OPERATIONS Income from Sales 2482.08 Other Income 55.12 Purchases 1750.43 Salaries and Manpower Cost 20.99 Interest 8.12 Income Tax 85.02 Non Recurring/ - Extra Ordinary items Appropriation from profits Equity Dividend 112.82 (Inclusive of Tax) Transfer to 200.00 General Reserves Balance Carried Forward 6096.30 I. OUTLOOK FOR 2003 - 2004 The outlook for the year 2003 - 2004, despite such excellent operating results during the period under review, is best approached with cautions optimism. The robust fundamentals of the Indian economy, further strengthened by a very bountiful monsoon, have indeed laid the foundation for a year of solid growth. The business confidence levels are thus brimming and corporate projections are swelling with growth. The Indian economy should post a bouyant growth, which will reflect on the fortunes of all segments of the economy. Thus despite a strengthening rupee and a weakening dollar, exports continue to record a handsome growth and are expected to do so in the current year. As a reflection of a latent and surging demand, non oil imports have grown by over 29% during the current fisc, hinting at the addition of new capacity, which will further drive growth. Realising the potential for growth, the government too is providing the required support, in the form of a soft interest rate regime, and a further liberalisation of economic policies. India is very well positioned to be the locomotive economy of the world, to drive global growth and is increasingly being so recognised. Indias technology firms too are poised for growth and have built up the ability to do so. While businesses need the right atmosphere for growth, which is provided by the government, yet strengthening itself to seize the growth opportunities, is the responsibility of the entity itself. Indian corporates over the years, through relentless cost cutting, eliminating capacity redundancies and building world class abilities, have metamorphised themselves into globally competitive players. The coming year could thus be an encore of growth and profitability. By and on behalf of the Board of Directors For Kolar Biotech Limited Vinod Hingorani Chairman Place : Mumbai Dated : 10th November, 2003