nicco corporation ltd Management discussions


ANNEXURE

ANNEXURE — A

A. Industry Structure & Development Power Cables Division :

The Energy Cables sector registered hardly any growth in 2012-13. The margins continued to remain under pressure due to reduced demand and over-capacity in the industry. Both Medium Voltage and Low Voltage Power Cables are predominantly dependant on growth in Distribution Sector of Power Utilities and overall Infrastructure development and both these sectors have not grown as compared to the projection at the National level. The Cable Division is therefore concentrating on special cables segment which offers slightly better margins and also offers reasonable growth potential.

There has been tremendous pressure on collections due to tight monetary position in the market in general and our customers in particular.

Project Division

The Project Division executes on a turn-key basis multidisciplinary engineering projects. It has established itself as an Engineering, Procurement and Construction (EPC) contractor of repute in the Country. The Division also provides Engineering Consultancy Services. The target industries are Oil & Gas, Petrochemicals, Refineries, Nuclear Power, Ferrous and Non-Ferrous and Chemical Industries. The opening order book of the division was at an all time low and major fresh orders could not be secured due to the negative net-worth of the Company. A JV agreement had already been signed to spin off the Division subject to approval of BIFR/AAIFR

Segment-wise Performance

Power Cables Division:

The Cables Division registered a gross sales turnover of Rs. 257 crore against last year’s turnover of Rs. 268 crore. Due to stringent working capital position the Division focussed on the business with higher margins with a view to ensure marginally better operating results during the year. The major focus for operation had been on Speciality Cables at Shyamnagar Works and Electrical Contract division.

Project Division

The Division registered a turnover of approximately Rs. 13 crore (Rs. 40 crore previous year). The performance of the Division suffered due to substantial shortage of working capital and inability to book orders as enumerated above.

B. Business Strategy Power Cables Division :

The Division will continue to focus on achieving internal efficiency to reduce cost of production. The focus on R&D would also continue in developing new products for both existing markets as also for new markets. Efforts would be made to increase the volume of Speciality Cables especially in the segments of Railways, Ship Wiring, Wind Energy, Defence, Material Handling and Electrical Contracts.

Project Division

The main focus is to obtain the approvals from BIFR/AAIFR at the earliest for the proposed spin off, into a JV Company with Nicco retaining a minor shareholding.

C. Risks and Concerns Power Cables Division :

The concerns are availability of working capital, fluctuations in price and availability of raw material. Collections on due dates from customers is also very difficult. Internal plans have to be constantly worked out to partially mitigate the concerns.

Project Division :

Owing to the working capital crisis and low margins it is important to obtain approval of BIFR/AAIFR at the earliest for spinning off the Division to JV.

D. Internal Control Systems and their Adequacy

Internal Control procedures viz. authorizations and approvals of transactions are well laid down with a view to efficient usage and protection of Company’s resources as also to ensure strict adherence to statutory compliances requirements. External Chartered Accountant firms conduct Internal Audits at specified intervals. The Audit Committee of the Board reviews the Internal Audit Reports with Management observations along with action taken reports on earlier decisions. The Statutory Audit Reports are also placed before the Audit Committee. The actions as deemed necessary are suggested. The Audit Committee monitors the performance, efficacy in resource utilization and the statutory compliances. The Audit Committee’s observations and recommendations are reported to the Board of Directors. In addition, the Risk Register is maintained and periodic risk assessments are carried out. Moreover both the Audit Committee and the Board conduct reviews of the actions arising from the said Risk Analysis.

E. Human Resource Management

The Major focus has been to build a cohesive team for effectively implementing the desired objectives of your Company. With a view to keep the morale high, the performance of the employees is measured through an internal appraisal system and providing systematic feedback.

As a commitment to the revival process of the Company, all the employees including whole-time Directors have contributed at the rate of 10% of salary as per CDR scheme 2009 totalling to approx Rs. 4.61 crore towards fresh equity of the Company till March 2013.

The long term agreement for 5 years has been signed with the Unions at Shyamnagar unit.

F. Financial and Operational Performance

The Cable Division has earned an OPBIDT of Rs. 2972 lacs (Rs. 2629 lacs in 2011-12). The improvement has been achieved by introducing a series of measures, viz. reduction of operating cycle, cost reduction, etc., coupled with a large high contribution order. The activity level of Cables has also registered improvement. The Project Division has suffered setback for reasons mentioned in earlier sections. The working capital position has remained critical due to the losses suffered in the past and instalment payment towards repayment of loan as per CDR scheme. The efficiency enhancement measures undertaken by the Company would continue in the current year to achieve further improvement.

G. Outlook

The most important necessity for the Company is to obtain approval for the DRS under BIFR. The working capital situation will remain critical in the current year. With the continued thrust in improving the operational efficiencies and the financial parameters, the Directors are endeavouring to achieve better financial performance in the current financial year.

H. Cautionary Statement

Statements in the Management Discussion and Analysis Report in regard to projections, estimates and expectations have been made in good faith. Many unforeseen factors may come into play and affect the actual results, which could be different from what the Directors envisage in terms of future performance and outlook.

Raw material availability and its prices, demand and pricing in the Company’s markets, changes in government regulations, economic developments in India, shortage of working capital and other incidental factors could make a difference to the Company’s operations. Industry information contained in this Report, have been based on information gathered from various published and unpublished reports and their accuracy, reliability and completeness cannot be assured.