Premier Explosives Ltd Directors Report.

Dear Members

Your directors are pleased to present the 39th annual report including the audited financial statements of your company for the year ended March 31, 2019.

(Rs. in lakhs)

Standalone Consolidated
2018-19 2017-18 2018-19 2017-18
Profit for the year
Operating revenue 24093.35 26590.85 25303.19 27458.90
Other income 259.03 220.49 264.79 222.52
Total revenue 24352.38 26811.34 25567.98 27681.42
EBIDTA 2343.80 2001.64 2322.84 1955.89
% to Operating revenue 9.73% 7.53% 9.18% 7.12%
Profit before tax 1631.65 1343.94 1580.92 1,264.12
Profit after tax 1172.55 873.41 1126.65 801.25
% to Total revenue 4.81% 3.26% 4.41% 2.89%
EPS (Rs.) 11.00 8.42 10.57 7.72
Appropriations
Retained earnings at beginning of the year 9792.72 9303.39 9856.24 9425.40
Profit for the year 1172.55 873.41 1126.65 801.25
Non-controlling interest - - 8.88 13.67
Dividend paid for previous year and tax thereon (320.59) (384.08) (320.59) (384.08)
Retained earnings at end of the year 10644.68 9792.72 10671.18 9856.24

2. State of affairs

During the year your companys EBIDTA increased to Rs. 2343.80 lakhs from Rs. 2001.64 lakhs, aided by product-mix and higher prices of few products. Consequently, profit after tax also increased to Rs. 1172.55 lakhs from Rs. 873.41 lakhs.

During the year under review, your companys earned operating revenue was Rs. 24093.35 lakhs as against Rs. 26590.85 lakhs during previous year.

3. Operations

Production of Bulk explosives was 41,612 tonnes compared to previous years 43,397 tonnes, in an ongoing exercise to reduce low margin business.

Production of detonators was 29.26 million pieces as against 49.79 million pieces in previous year.

Operations & maintenance contracts at Sriharikota and Jagdalpur have been satisfactory. In July 2018, your company has completed the 11-year contract at Sriharikota and new 10-year contract commenced from January 2019.

4. Capital expenditure

During the year the company incurred a capital expenditure of Rs. 1243.80 lakhs for defence and non-defence products. There has been an increase of Rs. 434.46 lakhs in intangible assets, mainly transfer of technology fee for new missile propellant. Capital work in progress, mainly at Katepally Greenfield project, stands at Rs. 3482.52 lakhs as on March 31, 2019.

5. Dividend

Your Board, in their Board meeting held on May 18, 2019 has recommended a dividend of Rs. 2.70 per share (27%) and this proposal is subject to your approval at the ensuing Annual General Meeting.

6. Share capital and reserves

a) Share capital

Your company converted 1,15,100 warrants into equal number of equity shares of Rs. 10 each at Rs. 408 per share, including a premium of Rs. 398, to promoters (1,00,100 shares) and others (15,000 shares).

Thus the equity share capital increased to Rs. 1075.22 lakhs from Rs. 1063.71 lakhs.

b) Forfeiture of warrants

Your company forfeited 20,000 warrants as the warrant-holders did not pay the balance 75% after paying initial 25% amount. Thus an amount of Rs. 20.40 lakhs has been credited to Capital Reserve.

7. Deposits

Your company has not accepted any deposits during the year and there were no deposits outstanding as at end of the year.

8. Material changes and commitments after the reporting period

Subsequent to the reporting period, the company has received an order from Ministry of Defence for supply of Chaff valued at Rs. 100.08 crores, including GST amount. This is the largest single order ever received by the company from defence customers.

9. Subsidiary companies, Jointly controlled entity and consolidated financial statements

a) PELNEXT Defence Systems Private Limited, a 100% subsidiary company

Incorporated on July 15, 2016 PELNEXT is expected to be operated as a special purpose vehicle in defence explosives business. The company incurred a net loss of Rs. 0.96 lakh during 2018-19 (Rs. 0.45 lakh during 2017-18).

As on 31st March, 2019, Premier Explosives Limited held 10,000 Equity shares in PELNEXT representing 100% of equity share capital.

b) Premier Wire Products Limited (PWPL), an 80% subsidiary company

PWPL is engaged in manufacture of Galvanised Iron (GI) Wire catering to the requirements of detonator-manufacturers including Premier Explosives Limited. The companys revenue for the year 2018-19 was Rs. 1334.63 lakhs and there was a loss of Rs. 44.43 lakhs (Revenue of Rs. 1035.66 lakhs and loss of Rs. 68.33 lakhs during previous year).

As on 31st March, 2019, Premier Explosives Limited held 52,00,000 Equity shares in PWPL representing 80% of their equity share capital.

c) BF Premier Energy Systems Private Limited (BFPES), a 50% jointly controlled entity

This joint venture is yet to commence commercial operations. The company incurred a net loss of Rs. 0.52 lakh during 2018-19 (Rs. 0.72 lakh during the year 2017-18).

Your company and Kalyani Strategic Systems Limited, each hold 1,00,000 equity shares in the share capital of BFPES, as on 31st March, 2019.

d) Consolidated financial statements

Your company has prepared consolidated financial statements in accordance with section 129 (3) of the Companies Act, 2013.

Details of consolidated entities are given in the Annexure 1, Form AOC-1: Statement containing salient features of the financial statements of subsidiaries / associate companies / joint ventures.

10. Future outlook

Your company is focusing on business opportunities in defence sector. Few initial steps taken by previous government have been helpful but changes in guardianship of defence ministry, slower policy decisions and other factors have delayed the implementation to some extent. Now the new Government, formed with improved majority, is expected to give momentum towards systemic changes and modernisation of defence management. Such measures are expected to create conducive defence ecology wherein your company could raise its share.

11. Board matters

A. Directors responsibility statement pursuant to section 134 of the Companies Act, 2013

Your directors confirm that

a) the applicable accounting standards have been followed;

b) the accounting policies selected were applied consistently and the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at March 31, 2019 and of the profit of the company for the year ended on that date;

c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

d) the annual accounts have been prepared on a going concern basis;

e) adequate internal financial controls have been laid down, have been followed and have been operating effectively;

f) proper systems have been devised to ensure compliance with the provisions of all applicable laws and those systems have been adequate and operating effectively.

B. Declaration of independent directors

All the independent directors confirmed that they have met the criteria of independence as required u/s 149 of the Companies Act, 2013.

C. Board meetings

During the financial year 2018-19 there were 4 Board meetings held on 23rd May 2018, 9th August 2018, 29th October 2018 and 23rd January 2019.

D. Board evaluation

Criteria and other details of Board evaluation have been provided in the Annexure -2, Report on Corporate Governance.

E. Change in directors

a) Reappointment of Deputy Managing Director

Mr. T.V.Chowdary, whose term was expiring on June 30, 2019, had been re-appointed by the Board in its meeting held on May 18, 2019, subject to the approval of shareholders. The Board recommends his reappointment as Deputy Managing Director with effect from July 1, 2019 for a period of three years till June 30, 2022.

b) Reappointment of Independent Directors

Current term of Mr.P.R.Tripathi, Mr.Anil Kumar Mehta, Mr.K.Rama Rao and Dr.A.Venkataraman as Independent Director is expiring on August 12, 2019. The Board recommends their reappointment as Independent Directors with effect from August 13, 2019 for a term of five years till 12th August, 2024.

c) Rotation of director

Dr. (Mrs). Kailash Gupta, Non-executive, Non-independent Director retires by rotation at the ensuing Annual General Meeting and being eligible offers herself for reappointment. The Board recommends reappointing her as a Director.

F. Companys policy on appointment and remuneration of directors

a) Criteria for appointment of directors

Director must have relevant experience in finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to companys business.

Director should possess the highest personal and professional ethics, integrity and values.

Director must be willing to devote sufficient time and energy in carrying out their duties and responsibilities.

Nomination and Remuneration Committee shall identify and ascertain the integrity, qualification, expertise and experience of the person for appointment as director and recommend to the Board his / her appointment or re-appointment.

The committee has discretion to decide whether qualification, expertise and experience possessed by a person are sufficient or satisfactory for the concerned position.

While appointing an independent director, Nomination and Remuneration Committee shall consider the ‘independence of the person also in addition to the above.

b) Policy on directors remuneration

i. Policy

The Company shall remunerate its directors, key managerial personnel, senior management, other employees and workers appropriately to retain and motivate them as well as to attract new talent when required.

ii. Components of remuneration

Remuneration package shall include fixed component for all employees and variable component to the extent desirable and practicable.

iii. Fixed remuneration

It shall be competitive and based on the individuals education, experience, responsibilities, performance, industry benchmark in the area, etc.

Fixed remuneration shall comprise of basic salary and other allowances like house rent allowance, conveyance allowance, etc. which are calculated as certain % of basic salary.

iv. Variable remuneration

It is paid to encourage the employees to achieve set targets and variable remuneration shall be determined on the following basis:

Category Nature Basis of variable remuneration
Whole time Directors Commission X% of Profit in a year during the contract period (% as recommended by Board and approved by Shareholders.)
Management Team (CFO, President, Vice President, Company Secretary, GM) Profit sharing bonus X% of Profit divided among them in proportion of their basic salary (% as decided by Committee of Whole time Directors)
Officers (Below GM level) Profit sharing bonus X% of Profit divided among them in proportion of their basic salary.(Minimum period of services and other conditions for eligibility are decided by Committee of Whole time Directors)
Staff and Workers Production incentive Quantity of production, as per the Wage Agreement revised every 3 years at Peddakandukuru (Those who are engaged in production and allied activities are eligible.

v. Statutory benefits

Employee benefits like Contribution to Provident Fund, Gratuity, Bonus, Employees State Insurance, Workmen Compensation, etc. shall be provided to all eligible employees.

vi. Perquisites and other benefits

Perquisite Amount
Reimbursement of medical expenses for self and family / Medical allowance Up to one month basic salary in a year to whom ESI is not applicable
Mediclaim and personal accident insurance Leave travel allowancea Reasonable coverage to whom ESI is not applicable Workers - as per wage agreement Others - one month basic salary.
Use of Company car with driver or reimbursement of driver salary, fuel, maintenance and insurance Telephone at home, Club fee Gas, electricity, water, servant, security, gardener and soft furnishing. (Up to 10% of basic salary) For Directors-as recommended by Board and approved by Shareholders For Management team-as approved by Committee of Whole time Directors

vii. Increments

Increments are made taking into account the individual performance, inflation and company performance.

Workers are given Variable Dearness Allowance as per Consumer Price Index semi-annually on 1st of April and 1st of October.

Wages of workers at Peddakandukuru are revised every 3 years as per the agreement between the management and unions.

Increments of other employees are made effective 1st April every year, as approved by Committee of Whole time Directors upon recommendation of heads of departments.

Mid-year increments are given in exceptional cases, as approved by CMD upon recommendation of concerned director and head of department.

viii. Remuneration to independent and non-whole time directors

Remuneration consists of sitting fee in respect of the Board and Committee meetings attended, at the rates approved by the Board and within the applicable provisions of the Companies Act, 2013.

ix. Service contracts, notice period and severance fees:

Executive directors have entered into a service contracts with the company. The tenure of the contract is three years. Reappointment is done by the Board based on the recommendation of the Nomination and Remuneration Committee. Notice period is as mutually agreed between the director and the Board.

None of the directors is eligible for severance pay.

G. Formal annual evaluation by the Board

The Board has evaluated its own performance and of individual directors. The details as required u/s 134(3)(p) of the Companies Act, 2013, are mentioned in the Annexure 2: Report on Corporate Governance.

12. Transfer of shares and unclaimed dividend to IEPF

As required under Section 124 of the Companies Act, 2013, 61,185 equity shares, in respect of which dividend has not been claimed by the members for seven consecutive years or more, have been transferred by the Company to the Investor Education and Protection Fund Authority (IEPF) during the financial year 2018-19. Details of shares transferred have been uploaded on the website of the Company.

Unclaimed dividend amount aggregating to Rs. 2,54,554/- pertaining to the financial year 2010-11 lying with the Company for a period of seven years was transferred during the financial year 2018-19 to the Investor Education and Protection Fund (IEPF).

13. Auditors a) Independent auditors

The Members at the 37th Annual General Meeting of the Company held on September 27, 2017, had appointed M/s. Majeti & Co., Chartered Accountants (Firm Registration No. 015975S) as the Statutory Auditors of the Company to hold office for a term of five years, i.e., from the conclusion of the said Annual General Meeting until the conclusion of 42nd Annual General Meeting of the Company to be held in 2022, subject to ratification of their appointment by the shareholders, every year.

The Ministry of Corporate Affairs vide its Notification dated May 7, 2018, has dispensed with the requirement of ratification of Auditors appointment by the shareholders, every year. Hence, from that date onwards, there is no requirement of shareholders resolution for ratification of Auditors appointment.

b) Internal auditors

M/s M. Venkata Ratnam & Associates, Chartered Accountants were the internal auditors for the year 2018-19 and they being eligible, the Board has re-appointed them for the year 2019-20.

c) Cost auditors

M/s S. S. Zanwar & Associates, Cost Accountants were cost auditors for 2018-19 and they being eligible, the Board has re-appointed them for the year 2019-20 and their remuneration is subject to the ratification of shareholders in the ensuing annual general meeting. The Board recommends ratification of their remuneration.

d) Secretarial auditor

Mr. K.V. Chalama Reddy, a practicing company secretary, was the secretarial auditor for the financial year 2018-19 and he being eligible, the Board has re-appointed him for the year 2019-20.

14. Independent auditors report

There are no qualifications, reservations or adverse remarks made by the Independent auditors in their report.

15. Ratings

ICRA has reaffirmed the long-term credit rating at ‘[ICRA] A (Stable) and short-term credit rating at ‘[ICRA] A1.

16. Management discussion and analysis

A report on management discussion and analysis is placed as a separate section in the annual report.

17. Corporate governance

Pursuant to Schedule V of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, a detailed report is given at Annexure-2 along with the auditors certificate in the Annexure-3 and CEO and CFO certificate in the Annexure-4.

18. Secretarial audit report

In accordance with section 204 of the Companies Act, 2013, the secretarial audit report is attached as Annexure-5 and there are no qualifications, reservations or adverse remarks made by the Independent auditors in their report.

19. Conservation of energy, technology absorption and foreign exchange earnings and outgo

Information required under Section 134(3) (m) of the CompaniesAct,2013readwithRule8oftheCompanies (Accounts) Rules, 2014 is given in Annexure- 6 to this Report.

20. Particulars of loans, guarantees or investments in terms of section 186 of the Companies Act, 2013

Your company

a) has not given any loan to any person or other body corporate other than usual advances for supply of materials and services

b) has not given any guarantee or provide security in connection with a loan to any other body corporate or person and

c) has not acquired the securities of any other body corporate by way of subscription, purchase or otherwise,

exceeding sixty percent, of its paid-up share capital, free reserve and securities premium account or one hundred percent of its free reserves and securities premium account whichever is more.

21. Particulars of contracts or arrangements with related parties

Contracts or arrangements with related parties referred in section 188(1) of the Companies Act, 2013 have been at arms length and the particulars are reported in the Annexure - 7.

22. Risk management policy

Your company recognizes Risk Management as a very important part of business and has kept in place necessary policies, procedures and mechanisms. The company proactively identifies monitors and takes precautionary and mitigation measures in respect of various risks that threaten the operations and resources of the company.

The Risk Management Policy of the company is available at the link http://www.pelgel.com/prm.htm.

23. Vigil mechanism policy

Pursuant to the provisions of Section 177 (9) and (10) of the Companies Act, 2013 a Whistle Blower policy has been established. The policy is available at the website link http://www.pelgel.com/pwb.htm.

24. Corporate social responsibility (CSR) activities

During the year 2018-19 your company has spent an amount ofRs. 39.90 lakhs (Rs. 33.19 lakhs in previous year) on CSR activities, against the minimum mandatory amount of Rs. 36.23 lakhs, being 2% of average profit for the last three years.

Details of CSR activities are given in Annexure - 8.

25. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (Nirbhaya Act)

There are 86 women employees in your company as on March 31, 2019 (95 a year ago) and your company has formulated an anti harassment policy to ensure safe working environment. Your company also has set up an Internal Complaint Committee to redress complaints of women employees.

Details of awareness programmes and complaints are listed in Annexure - 9.

26. Disclosure of significant and material orders passed by regulators etc. under Rule 8(5)(vii) of the Companies (Accounts) Rules 2014

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.

27. Disclosure of internal financial control systems and their adequacy Rule 8(5)(viii) of the Companies (Accounts) Rules 2014

The company has in place adequate internal financial controls with reference to financial statements through

- reviews of operations by Board and committees

- vetting of various reports by management

- periodical internal audits

- setting and implementing financial policies

- checks and balances in the ERP system and other measures.

28. Extracts of annual return and other disclosures under the Companies (Appointment & Remuneration) Rules, 2014

Extract of Annual Return in form no. MGT-9 as per Section 92(3) of the Companies Act, 2013 and Rule 12 (1) of the Company (Management & Administration) Rules, 2014 is annexed hereto and forms part of this report as Annexure-10.

29. Remuneration of directors and employees and related disclosures

Remuneration is paid to directors and employees in accordance with the remuneration policy of the company and applicable statutory provisions.

Particulars required u/s 197(12) of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given as Annexure-11.

30. Listing on stock exchanges

Your Companys shares are listed on the Bombay Stock exchange (BSE) and National Stock Exchange (NSE).

During the year under review, your companys share price on BSE had moved between a maximum of Rs. 361.95 and a minimum of Rs. 168.50. The price closed at Rs. 245.00 on March 29, 2019, a decrease of 27% over the price of Rs. 335.00 on March 28, 2018.

On NSE, your companys share price had moved between a maximum of Rs. 366.75 and a minimum of Rs. 167.70. The price closed at Rs. 248.20 on March 29, 2018, a decrease of 26% over the price of Rs. 335.55 on March 28, 2018.

Strength of shareholders has increased from 10,258 on 31.03.2018 to 10,428 on 31.03.2019.

31. Industrial relations

Your directors thank all the employees for their cooperation and the contribution towards harmonious relationship and progress of the company.

32. Acknowledgements

Your directors place on record their appreciation of the continued support and cooperation from all employees, customers, suppliers, financial institutions, banks, regulatory authorities and other business associates.

Dr. A.N. Gupta
Secunderabad Chairman & Managing Director
10.08.2019