National Fittings Ltd Directors Report.

TO THE SHAREHOLDERS

Your Directors have pleasure in presenting the Twenty Sixth Annual Report together with the Audited Balance Sheet & Profit and Loss Account for the year ended 31.03.2019.

FINANCIAL RESULTS

The operating results for the year 2018-2019 are given below : (Rs. In lakhs)
Profit before Interest and Depreciation and Other adjustments 882.52
Less : Interest 171.01
Depreciation 264.68
435.69
Net Profit before Tax 446.83
Provision for Tax :
Current Tax 93.03
Deferred Tax (income) / expenses 43.57
IT for earlier year 11.16
147.76
Net Profit after Tax 299.07
Amount brought forward from previous year 2531.43
Amount available for appropriation 2830.50
Appropriations
Add : Transfer from Revaluation Reserve 1.31
MAT credit adjustment 16.37
Surplus carried over to Balance Sheet 2848.18

FINANCIAL PERFORMANCE:

The Companys gross income for the financial year ended 31st March, 2019 was Rs. 5,990.78 lacs compared to Rs.6,467.03 lacs in the previous year. The profit before tax for the Company is Rs. 446.83 lacs as against Rs. 1,221.99 lacs in the previous year. The depreciation for the year is Rs.264.68 lacs compared to Rs.268.54 lacs in the previous year. After providing Taxation, the Companys net profit stands at Rs.299.07 lacs against Rs.775.04 lacs in the previous year.

An amount of Rs 2,848.18 lacs is to be carried over to Balance Sheet.

The Net worth of the company is at Rs.5,031.50 lacs as on 31.03.2019 as against Rs.4,716.06 lacs in the previous year.

DIVIDEND

The Company has not declared any interim dividend during the year under review.

The Board of Directors has recommended a dividend of Rs 9.00 per preference shares on 4,00,000 9% Redeemable Non-Convertible Non-Cumulative Preference shares of Rs 100/- each aggregating to Rs 36.00 lacs on 30.05.2019 for the financial year 31st March, 2019, which if approved in the ensuing Annual General Meeting will be paid to all the preference shareholders, whose name appear in the Registrar of Members as on 16th September, 2019

The Board of Directors has recommended a final dividend of Rs 1.50 per Equity shares on 90,83,182 Equity shares of Rs 10/- each aggregating to Rs 136.24 lacs on 30.05.2019 for the financial year 31st March, 2019, which if approved in the ensuing Annual General Meeting will be paid to all the equity shareholders, whose name appear in the Registrar of Members as on 16th September, 2019

PERFORMANCE:

Company lost market share in certain items due to very low prices offered by Chinese companies during the first six months of the year. After the price reduction offered by the Company, sales have increased on those items and expect to regain the share of the market during the near financial year both in export and domestic market.

Company has completed the merger and amalgamation of the associated supply companies which will reduce the operating costs during the financial year.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

TRENDS & DEVELOPMENT

Domestic market has been improving for the products manufactured by our Company. The export market has also showing some strength amidst the competition by China.

We hope to generate sizable volume of business this year and the new products developed and likely to be introduced during the second half of the year will also help us to have strong domestic market revenue.

DIRECTORS

Mr A V Palaniswamy, Director, who retires by rotation, and being eligible, offered himself for reappointment.

KEY MANAGEMENT PERSONNEL

Mr. A.V. Palaniswamy, Managing Director, Mrs Panath Anitha, Whole Time Director, Mr Jayaram Govindarajan, Whole Time Director, Mr. J. Saravanan, Chief Financial Officer and Mr. S. Aravinthan, Company Secretary of the Company are the Key Management Personnel as per the provisions of the Companies Act, and rules made there under.

Mr Jayaram Govindarajan, was re-appointed as the Whole Time Director with effect from 14.12.2018

SUBSIDIARIES, JOINT VENTURES AND ASSOCIATE COMPANIES

The company does not have any Subsidiary, Joint Venture or Associate Company.

Pursuant to the provisions of Section 129(3) of the Act, a statement containing salient features of the Financial Statements of your Companys Subsidiaries, Associates and Joint Ventures in Form AOC-1 is attached to the Financial Statements of your Company as Annexure 1.

Pursuant to the provisions of Section 136 of the Act, the Financial Statements of your Company, Financial Statements along with relevant documents are available on the website of your Company.

DIRECTORS RESPONSIBILITY STATEMENT

Your Directors further report that

(i) in the preparation of annual accounts the applicable accounting standards have been followed and there were no material departures;

(ii) the accounting policies selected have been applied consistently, prudent judgments and estimates have been made to give a true and fair view of the state of affairs of the company as at 31st March 2019 and of the Profit of the company and the cash flow statement for the year ended 31.03.2019.

(iii) 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 the assets of the company and for preventing and detecting fraud and other irregularities;

(iv) the annual accounts have been prepared on a going concern basis.

(v) the directors, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively Internal financial control means the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business including adherence to Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information.

(vi) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

CODE OF CONDUCT

All Directors and senior management of the Company have affirmed Compliance with the Code of Conduct of National Fittings Limited for the financial Year ended 31st March 2019.

DECLARATION OF INDEPENDENT DIRECTORS

The Independent Directors have submitted their disclosures to the Board that they fulfill all the requirements as stipulated in Section 149(6) of the Companies Act, 2013 so as to qualify themselves to be appointed as Independent Directors under the provisions of the Companies Act, 2013 and the relevant rules.

NUMBER OF BOARD MEETINGS

During the year, 5 (Five) Board Meetings were convened and held, the details of which are given in Corporate Governance Report.

POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION INCLUDING CRITERIA FOR DETERMINING QUALIFICATIONS, POSITIVE ATTRIBUTES, INDEPENDENCE OF A DIRECTOR, KEY MANAGEMENT PERSONNEL AND OTHER EMPLOYEES

The company shall have such person on the Board who complies with the requirements of the Companies Act, 2013.

Directors/KMPs shall be persons of sound integrity and honesty, apart from knowledge, experience etc in the respective fields.

Composition of the Board shall be in compliance with the requirements of the Companies Act, 2013. No person less than the age of 21 years shall be appointed as the director of the Board.

The Executive Directors are paid with remuneration as approved by the members but are not paid sitting fees.

Independent directors are not entitled for ESOPs

Managing Director, Whole Time Director, Company Secretary and Chief Financial Officer shall be the Key Management Personnel (KMPs) of the Company.

All persons who are Directors, KMPs, members of Senior Management and all the employees shall abide by the code of conduct.

MANNER IN WHICH FORMAL ANNUAL EVALUATION HAS BEEN MADE BY THE BOARD OF ITS OWN PERFORMANCE AND THAT OF ITS COMMITTEES AND INDIVIDUAL DIRECTORS

1. Nomination and Remuneration Committee of the Board prepared and sent through its Chairman Draft feedback form for evaluation of the Board and independent directors.

2. Independent Directors at a meeting of themselves considered and evaluated the Boards performance, performance of the Chairman and other non-independent Directors.

3. The Board subsequently evaluated performance of the Board, the Committees and Independent Directors.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS MADE UNDER SECTION 186 OF THE COMPANIES ACT, 2013

Investments made by the Company under Section 186 of the Companies Act, 2013 during the year under review are given in para 2.2 of Notes forming part of the financial statements.

There were no loans, guarantees made by the Company under Section 186 of the Companies Act, 2013 during the year.

PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES

There were no materially significant related party transactions entered by the Company with its promoters, Directors, Key Management Personnel and other persons which may have a potential conflict with the interest of the Company.

All the related party transactions that were entered during the financial year were in the ordinary course of the business of the Company

All the related party transactions are placed before the Audit Committee for approval. For the business transactions with the related parties which are of repetitive nature as well as for the normal business transactions which cannot be foreseen prior omnibus approval from the Audit Committee are obtained and accordingly required disclosures are made to the Committee on quarterly basis in terms of the approval of the Committee.

The Policy on materiality of related party transactions and also on dealing with the related party transactions as approved by the Audit Committee and Board of Directors is uploaded on the Companys web-site and the link for the same is https://www.nationalfitting.com.

The particulars of Contracts or Arrangements with the related parties made under Section 188 of the Companies Act, 2013 are furnished in Annexure - 2 and are attached to this report.

SHARES

The company issued 4,00,000 9% Redemable Non-convertible Non-Cumulative Preference Shares of Rs 100/- each and 54,60,192 Equity Shares of Rs 10/- each allotted in pursuance to the Scheme of Amalgamation. No Bonus Shares were issued. The Company has not issued any Sweat Equity Shares and not provided any Employee Stock Option Scheme. The Company has not bought back any of its securities during the year under review.

INTERNAL FINANCIAL CONTROLS AND THEIR ADEQUACY

The Company has implemented adequate procedures and internal controls which provide reasonable assurance regarding reliability of financial reporting and preparation of financial statements.

The Company also assures that internal controls are operating effectively.

MATERIAL CHANGES AND COMMITMENTS

There were no material changes and commitments affecting the financial position of the company which have occurred between the end of the financial year and the date of the report.

RISK MANAGEMENT POLICY

Potential risk for the business of the Company and steps to be adopted by the Company to handle the risks has been reviewed regularly. Following are the few risks and the methods to be adopted by the Company to handle them.

1) Market Risk

Input costs have increased another 20% resulting in the total cost increase by 10-12%. The increased competition from China and other companies using China as a manufacturing base has resulted in reduction of selling price nearly 20% from last year prices. Cost increase and the reduction in selling price has eroded our margins substantially. Export market is becoming more and more unviable.

Company has increased domestic market share after the price reduction and is being approved by major contractors for projects as against Chinese product supplies.

2) Exchange Risk

Indian currency did not depreciate enough to offset the input cost increase and to meet the low cost products from China in the international markets. China has depreciated their currency nearly 10% during the last six months due to USA duty on Chinese imports into USA.

3) Power

Power cost has increased marginally due to less availability of wind power.

4) Manpower Requirement

Company continues to rely on expat labour from northern belt for nearly 70% of work force due to non-availability of local labour in production areas. Cost of manpower has nearly doubled in the last two years. Company has installed more automated machine operations to reduce manpower.

Company has taken steps to diversify the product base into pumps for domestic and international market requirements. Design will be attractive enough to get an acceptable share of the domestic and export market. Developed models are under testing and will be into production line during the current year. Company will provide the major components like casting in Iron and Stainless Steel. Machining and assembly will be done by outside sources and will be entered into the production line during the year.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

A Board level Committee of CSR has been constituted and the Board has adopted a CSR Policy as recommended by the Committee.

Your Company completed the construction of a school building at a Government Municipal School at Madhapur village at a cost of Rs 34.56 lacs.

The Annual Report on the Companys CSR activities is furnished in Annexure 3 and attached to this report.

EXTRACTS OF ANNUAL RETURN

Pursuant to Section 134(3)(a) and Section 92 (3) of the Companies Act, 2013 read with the corresponding rules the extract of the Annual Return as at March 31, 2019 in Form MGT 9 is hosted on the website www.nationalfitting.com

LEGAL COMPLIANCE

There were no significant and material orders passed by the regulators or courts or tribunals impactingthe going concern status and companys operations in future.

CORPORATE GOVERNANCE

Your Company is in compliance with the Corporate Governance guidelines, as laid out in the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations). All the Directors and the Senior Management personnel have affirmed in writing their compliance with and adherence to the Code of Conduct adopted by the Company.

The annual report of the Company contains a certificate by the Managing Director in terms of SEBI Listing Regulations on the compliance declarations received from the Directors and the Senior Management personnel.

The Statutory Auditors of the Company have examined the requirements of Corporate Governance with reference to SEBI Listing Regulations and have certified the compliance, as required under SEBI Listing Regulations. The Certificate in this regard is attached as Annexure 4 to this Report.

The Chief Executive Officer / Chief Financial Officer (CEO/CFO) certification as required under SEBI Listing Regulations is attached as Annexure 5 to this Report. Related Party disclosures/transactions are detailed in Note 2.29 of the Notes to the financial statement.

SEXUAL HARASSMENT

Company has a policy on prohibition, prevention and redressal of Sexual Harassment of women at work place and matters connected therewith. During the year ended 31st March, 2019

The Company has constituted an Internal Control Committee for prevention of sexual harassment of women at work place.

No complaint was received under the policy.

TRANSFER OF UNCLAIMED DIVIDEND TO INVESTOR EDUCATION AND PROTECTION FUND

The Company has unclaimed dividend amounting to Rs. 79,91,960/-

Pursuant to the provisions of Section 124 (5) of the Companies Act, 2013, unclaimed dividend of Rs 1,93,280/, which remained unpaid or unclaimed for a period of 7 years and have been transferred to the Investor Education and Protection Fund in this financial year.

The details of the unpaid and unclaimed dividend lying with the Company have been uploaded on the website of Ministry of Company Affairs.

Pursuant to the provisions of Section 124 (6) of the Companies Act, 2013, 78780 equity shares accompanying dividend which remained unpaid or unclaimed for a period of 7 years have been transferred by the Company to the Investor Education and Protection Fund in this financial year.

DEPOSITS

The Company has neither accepted nor renewed any deposits during the financial year.

PARTICULARS OF EMPLOYEES

The information required under Section 197 of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below:

(i) & (ii) The ratio of the remuneration of each Director to the median and mean remuneration of the employees of the company for the financial year and the percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year:

Name of Directors/Key Management Personnel Ratio to Median Remuneration (times) % Increase / Decrease in Remuneration
Mr A V Palaniswamy, Managing Director 12.16 3.92
Mr Jayaram Govindarajan 6.19 3.85
Mr. Dhananjayan 0.09 33.33
Mr. Selvakumar 0.38 175
Mr R Alagar 0.81 - 21.11
Mrs A PanathAnitha 1.88 11.41
Mr J Saravanan (Chief Financial Officer) 3.55 6.84
Mr S Aravinthan (Company Secretary) 2.90 6.86

iii) The percentage increase in the median remuneration of employees in the financial year: 9%

iv) The number of permanent employees on the rolls of the Company: 81

v) Explanation on the relationship between average increase in remuneration and company performance:

On an average, employees received an increase of 20% during the financial year 2018-19. The remuneration components include a fair proportion of fixed and variable pay. The increase in remuneration is in line with the market. In order to ensure that remuneration reflects Company performance, the performance pay is also linked to organization performance, apart from an individuals performance.

vi) Comparison of the remuneration of the key managerial personnel against the performance of the Company:

(In Lacs)
Aggregate remuneration of key managerial personnel (KMP) in FY 2018-19 62,17,300
Revenue 58,03,50,534
Remuneration of KMPs (as % of revenue) 1.07
Profit before Tax (PBT) 4,46,82,696
Remuneration of KMP (as % of PBT) 13.91

vii) Variations in the market capitalization of the Company, price earnings ratio as at the closing date of the current financial year and previous financial year:

(In Lacs)
Particulars As at 31.03.2019 As at 31.03.2018 % decrease
Closing price of share at BSE (Rs.) 113.05 201.8 -43.98
Market Capitalisation (Rs.) 10268.53 18329.86 -43.98
Price Earnings ratio 34.34 23.45 45.20
Net worth 5031.50 4716.06 6.69

viii) Comparison of the each remuneration of the Key Managerial Personnel against the performance of the company:

Mr. A V Palaniswamy Managing Director Mr.Jayram Govindarajan Whole Time Director Mrs. A Panath Anitha, Woman Director Mr. J Saravanan Chief Financial Officer Mr. S Aravinthan Company Secretary
Remuneration in FY2018-19 26,50,000 13,50,000 4,10,100 7,74,600 6,32,600
Revenue 58,03,50,534 58,03,50,534 58,03,50,534 58,03,50,534 58,03,50,534
Remuneration as % of Revenue 0.46 0.23 0.07 0.13 0.11
Profit before Tax (PBT) 4,46,82,696 4,46,82,696 4,46,82,696 4,46,82,696 4,46,82,696
Remuneration (as % of PBT) 5.93 3.02 0.92 1.42 1.73

There are no variable components of remuneration paid to the directors.

ix) The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year; Nil

The Company affirms that remuneration is as per the remuneration policy of the Company.

The information required under Section 197 of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2015 are given below:

During the period under review, there was no employee drawing remuneration in excess of the limits prescribed under Section 197 of the Companies Act, 2013 and Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

STATUTORY AUDITORS

M/s V Krish & Associates, Chartered Accountants, Chennai were appointed as Statutory Auditors of the Company from the conclusion of the 25th Annual General Meeting held on 10.05.2019 until the conclusion of 28th Annual General Meeting.

The report of the Statutory Auditors for financial year ended 31st March, 2019 is given along with the Financial Statements which is annexed to and forms part of this report.

SECRETARIAL AUDIT REPORT

Pursuant to the requirements of the Companies Act, 2013, the Company has appointed Mr M R L Narasimha, B.Com, FCS, Practicing Company Secretary (Cop No: 799) as the Secretarial Auditor for the financial year 2018-19 whose report on 30th May, 2019 is attached separately to this report. Annexure 6.

EXPLANATION OR COMMENTS OR QUALIFICATIONS, RESERVATIONS OR ADVERSE REMARKS OR DISCLAIMERS MADE BY THE AUDITORS AND THE PRACTICING COMPANY SECRETARY IN THEIR REPORTS

There were no qualifications, reservations or adverse remarks made by the Statutory Auditors and there are few qualifications in the Secretarial Audit Report of the Practicing Company Secretary which are self explanatory.

CONSERVATION OF ENERGY

a) Company has replaced most of the less efficient machines with newer and less power consuming equipments in all the areas of manufacturing.

b) Long term contract has been executed with wind energy suppliers there by reducing costs and less dependency on fossil fuel energy. Nearly 80% of the energy requirement will be from wind energy.

TECHNOLOGY ABSORPTION INDUSTRIAL RELATIONS

Company has taken steps to introduce newer technology machines in production and inspection areas to increase productivity and reduce rejection levels.

Computer generated models for tooling, data collection and manufacturing processes have been introduced to improve productivity.

FOREIGN EXCHANGE EARNINGS AND OUTGO

Foreign exchange inflow (actual) : Rs. 43,19,31,230/-

Foreign exchange used (actual) : Rs. 55,13,939/-

INDUSTRIAL RELATIONS

Relationship with the employees/labor was cordial during the year under review.

ACKNOWLEDGEMENT

Your Directors take this opportunity to thank M/s. Bank of India for the support extended during the period. Your Directors also wish to thank all the suppliers, employees, Government Departments/Agencies and others for their valuable contribution and assistance during the year.

FOR AND ON BEHALF OF THE BOARD

Place : Coimbatore Sd/- A.V. PALANISWAMY Sd/- JAYARAM GOVINDARAJAN
Date : 30.05.2019 DIN No. 01817391 DIN No. 02178416
Managing Director Director

ANNEXURE1

Form No. AOC - 1

Pursuant to first proviso to Sub-Section (3) of Section 129 of the Companies Act 2013 read with rule 5 of Companies (Accounts) Rules 2014

Statement containing salient features of the Financial Statement of Subsidiaries.

- Not Applicable

ANNEXURE 2

Form No. AOC - 2

(Pursuant to clause (h) of sub-section (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2015)

A. Details of contracts or arrangements or transactions not at arms length basis

There were no contracts or arrangements or transactions entered in to during the year ended March 31, 2019, which were not at arms length basis.

B. Details of material contracts or arrangement or transactions at arms length basis

Since no material related party contract / transaction exists, disclosure under this section is not applicable:

Name of the Related Party Nature of Relationship Not Applicable
Duration of Contract/ Arrangement/ Transaction Not Applicable
Salient Terms of Contracts or arrangements or transaction including the value, If Any Not Applicable
Date of approval by the Shareholders Not Applicable
Amount Not Applicable