telephone cables ltd Directors report

TELEPHONE CABLES LIMITED ANNUAL REPORT 2001-2002 DIRECTORS REPORT Dear Members, Your Directors present their report together with Audited Accounts for the period ended 30th June, 2002. The financial year under review was extended to 15 months from 1st April, 2001 to 30th June, 2002. The subsequent financial years will be from 1st July to 30th June instead of 1st April to 31st March. The change in the financial year was necessitated to depict the working of the Company in a balanced manner and for administrative convenience. PERFORMANCE REVIEW The Company has been passing through a very difficult period. The financial results for the period under review are dis-appointing as the Company has suffered substantial losses amounting to Rs 3842 lacs as against Rs 238 lacs during the previous year comprising of 18 months. These losses were due to receipt of lower orders of 9.97 Lac Conductor Kilometers (LCKM) on adhoc basis from Bharat Sanchar Nigam Limited (BSNL) as against the original allocation of 15.50 LCKM made by them in October, 2001, substantial reduction of 1606 in prices as compared to the previous year and various other factors beyond the control of the Company resulting in significant decline in turnover on account of which the Company suffered losses amounting to Rs 2058 lacs after accounting for interest of Rs 1626 lacs and depreciation of Rs 451 lacs. The decline in price realization of the company product was due to excessive capacity in the industry resulting in severe competition. The losses occurred despite the fact that the Company had taken a number of measures to cut down its costs, reduce consumption of raw materials and eliminate wastages by better work practices with the adoption of Total Quality Management (TOM), rationalization of managerial and labour costs. Further, by bringing about improvement in the efficiency of the plant by effecting certain modifications in the machinery and equipment and by adding some suitable balancing equipment, the installed capacity of the plant was increased from 23 LCKM in 1998-99 to 38 LCKM in 1999-2001 with a view to getting higher quantity of orders as generally BSNL restricted the orders to 50% of the annual installed capacity. The Company has also certification under ISO 9002 and ISO 14001 having regard to its quality management and environmental care. Since in spite of best efforts, BSNL did not release the balance order of 5.53 LCKM, the Company had to seek legal remedies against BSNL and the same are in process. The proceedings in Delhi High Court have been favourable to the Company and it hopes to get the release of the orders very soon by BSNL in view of the directions of the High Court. Besides the above, the Company expects very soon release of an order of 2.2 LCKM from BSNL which pertained to the tender for the year 2000-2001 for which an arbitrator award has been given in favour of the Company. During the period under review, the Company achieved a production of 13.49 LCKM as against production of 23.74 LCKM during the previous period of 18 months ended 31st March, 2001. Further, due to the interpretation assigned by the State Government to the Sales Tax Exemption Rules, the Company had to write off a sum of Rs 1784 lacs accrued to it on account of sales tax exemption which was accounted for in the earlier years to comply with the requirements of Accounting Standards issued by the Institute of Chartered Accountants of India. The Company will. however, continue to follow up the recovery of sales tax claim accrued to it and the same will be accounted for as and when received. Thus, the total losses suffered for the period ended 30th June, 2002 amounted to Rs 3842 lacs (including the write off of sales tax of Rs 1784 lacs) with the result that the entire net worth of the company which was Rs 1555 lacs as on 1st April, 2001 stood fully eroded and the Company became a sick industrial company within the meaning of Clause (o) of sub-section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). REFERENCE TO THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR): AS per the provisions of Section 15 of the SICA, where an industrial company became a sick industrial company, the Board of Directors were required to make a reference to the Board for Industrial and Financial Reconstruction (BIFR) for determination of measures which shall be adopted with respect to the Company, within 60 days from the date of finalisation of the duly audited accounts of the Company for the financial year at the end of which the company had become a sick industrial company. Reference has accordingly been made to the BIFR on 21st October, 2002. RECALL OF ASSISTANCE BY IDBI AND ICICI: In our last report, we had mentioned that at the request of the company the Financial Institutions viz., IDBI and ICICI had sanctioned reliefs and concessions to the Company in view of the losses suffered by it during the past few years for reasons beyond its control and that IFCI was also expected to follow suit. Later, IFCI have also sanctioned reliefs and concessions. IDBI, however, vide its letter dated 23rd April, 2002. recalled their outstanding principal amount of the loan together with interest aggregating Rs 33,01,68,602 calculated upto 31st March, 2002 on the ground that the Company did not make payment to them as per the re-structured package. The various constraints and hardships under which the Company was passing and the circumstances through which the Company could not make payment to them were explained to IDBI. They were requested to withdraw their notice of recalling the assistance. Ignoring the request of the Company, IDBI have filed application in the Debts Recovery Tribunal (DIRT), Chandigarh. The case is yet to be heard. ICICI Bank Limited (ICICI has been merged into ICICI Bank Limited) vide its letter dated July 9, 2002 has also recalled the assistance provided by them and outstanding aggregating Rs 8,71,33,203 as on 15th May, 2002. LATEST DEVELOPMENT IN THE INDUSTRY AND FUTURE OUTLOOK: Bharat Sanchar Nigam Limited (BSNL)/Mahanagar Telephone Nigam Limited (MTNL), are the major users of PIJF cables; the other small buyers being Railways, Defence Authorities, etc. The industrys production plans including that of the Company, therefore, largely depend on the business plans and demand emanating from BSNL/MTNL. Though the demand from the said buyers had been growing at about 10-15% per annum till the year 2001, it went down by almost 50% during the year 2002 due to a sudden adoption of technology from fixed lines to Wireless in Local Loop (WILL) by BSNL. The future growth, therefore, depends largely on the business plans of BSNL/MTNL though it is expected that they will continue procuring PIJF cables in the coming years on the same pattern as in the past leaving aside the exceptional year 2002. The Department of Telecommunications, Government of India has ambitious plans for the development and growth of telecommunication sector and multimedia communication. The new perspective plan 2002-2010 as per the New Telecom Policy of the Government of India envisages growth rate of 16-19% to meet the objective of providing telephone on demand and connecting each and every village. Thus, PIJF cable industry would also be expected to play its role in meeting the demand which shall emanate out of the said growth plans of telecom companies as per the overall perspective of the 10th Five Year Plan relating to telecom infrastructure in India. The Company has an excellent infrastructure and has well established itself in the PIJF cable industry in the country in terms of its work practices and efficiencies. As per the 10th Five Year Plan (2002-2007) projections also, there will be a substantial growth in the offtake of PIJF cables during the next few years. The Company has participated in a number of export enquiries and expected export orders also. With the said emerging scenario, the Company hopes to make a better utilization of its capacity in the coming years. The envisaged product diversification, i.e., the manufacture of domestic electrical wires and other cables by using a part of the present facilities will also lead to a better capacity utilization. The Company also expects that with the unlocking of substantial funds/refunds from BSNL, State Government (in respect of sales tax accrued), Income tax authorities and banks, it will not only improve its liquidity but will substantially reduce its financial costs which is the major cause of its losses in the past. As per the RBIs latest credit policy announced in October this year, the banks have been urged to review the maximum spreads over their PLRs and reduce them wherever they are unreasonably high. The banks have, therefore, been called upon to review both their PLRs and spreads and align spreads within reasonable limits around their PLR. The company is, therefore, hopeful that in view of the latest credit policy announced by the RBI, the incidence of interest charged by the banks is expected to come down which will reduce its financial costs and ensure better margins. The industry structure, development, opportunities and threats being faced by it, risks and concerns to which it is exposed, etc., have been discussed and analysed in detail in the "Management Discussion and Analysis Report" which forms a part of this report. PUBLIC DEPOSITS: The Company has not accepted any deposits from the public during the period under review. INDUSTRIAL RELATIONS: The industrial relations remained cordial. OTHER INFORMATION/DISCLOSURE: During the period ended 30th June, 2002, there was no employee of the company whose particulars need to be included in this report under section 217 (2A) of the Companies Act, 1956. Information required by the Companies (Amendment) Act, 1988 is given in Annexure - I to this Report. CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSIONS AND ANALYSIS REPORT: The Management Discussions and Analysis Report required in terms of clause 49 of the Listing Agreement with Stock Exchanges, forming a part of the report is attached as Annexure - II. The Corporate Governance Report and Auditors Certificate regarding compliance of conditions of Corporate Governance required as per the said clause 49 of the Listing Agreement is also attached as Annexure - III. AUDITORS: M/s. A.F Ferguson Associates, Chartered Accountants, New Delhi, Auditors of the Company, retire at the conclusion of the ensuing Annual General Meeting and being eligible, have offered themselves for re-appointment. Your Company has obtained from them the certificate required under Section 224 (1 B) of the Companies Act, 1956 to the effect that their re-appointment, if made, would be within the limits specified in that section. AUDITORS REPORT: With reference to Note Nos. 19 and 20 in Schedule L to the Accounts referred to by the Auditors in Para 5 f (i) and f (ii) of their Report, it is clarified that the notes are self-explanatory. COST AUDIT: The report of M/s. V. Kumar Associates, Cost Accountants, in respect of audit of the Cost Accounts of the Company for the period ended 30th June, 2002 has been submitted to the Central Government. AUDIT COMMITTEE: The Audit Committee of the Directors had been constituted by the Board on 30th April, 2001 comprising of Mr. A.S. Chatha, Mr. Narendar Kumar, Mr. K.S. Grewal, Directors and Mr. D.C. Mehandru, Director (Finance) with Mr. Chatha as its Chairman. The Board reviewed the composition of the Audit Committee at its meeting held on 23rd September, 2002 and in order to comply with clause 49 of the Listing Agreement regarding Corporate Governance which, interalia, provided that Audit Committee shall have minimum three members all being non-executive directors, the Board withdrew Mr. D.C. Mehandru, Director (Finance) being an executive director from the Committee. The Committee, thus, now comprises of Mr. A.S. Chatha as its Chairman and Mr. Narendar Kumar and Mr. K.S. Grewal as members. DIRECTORS RESPONSIBILITY STATEMENT: As required under section 217A (2AA) of the Companies Act, 1956, we confirm: a) that in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; b) that the Directors have selected such accounting policies and 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 30th June, 2002 and its loss for that period; c) that the Directors have taken proper and sufficient care 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; and d) that the Directors have prepared the annual accounts on a going concern basis. DIRECTORS: IDBI withdrew the nomination of Mr. K.P. Nair and in his place, nominated Mr. B. Dasgupta with effect from 5th September, 2001. Mr. Dasgupta was also withdrawn by IDBI with effect from 30th September, 2002. The Punjab State Industrial Development Corporation Limited (PSIDC) withdrew the nomination of Mr. Rakesh Kumar and in his place nominated Mr. S.L. Bansal, their General Manager (MIS) with effect from 20th September, 2002. The Board placed on record its appreciation of the valuable contribution made by Mr. K.P Nair, Mr. B. Dasgupta and Mr. Rakesh Kumar during their tenure on the Board. Mrs. G.K. Brar and Mr. S.L. Bansal retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for re- appointment. ACKNOWLEDGEMENT: Your Directors express their deep appreciation to the employees at all levels for sincere and dedicated services rendered by them during the critical and trying period through which the Company is passing. For and on behalf of the Board Place : Chandigarh Mrs. G.K. Brar Dated : 11th November, 2002. Chairperson ANNEXURE-I TO THE DIRECTORS REPORT INFORMATION REQUIRED UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988 DISCLOSURE A. CONSERVATION OF ENERGY The machines under operation are power intensive using state of the art technology like micro processor based heat control systems, highly efficient motor control, etc. Automatic power factor control systems maintain the optimum power factor through capacitor-banks thereby saving energy. In general the machines are already equipped with energy conservation devices. B. TECHNOLOGY ABSORPTION 1. Research & Development (R&D) (i) The Company is an ISO 9002 and ISO 14001 Company having regard to its quality management and environmental care. (ii) The Company has ongoing R&D Program which is continuously being upgraded. (iii) The Company has continuously been adding to its already well-equipped laboratory so as to keep abreast with the latest developments. 2. Technology Absorption Information regarding Imported Technology (i) Technology imported from ESSEX GROUP OF USA for manufacturing Polyethylene Insulated Jelly Filled Telecommunication Cables. (ii) Year of Import : 1988. (iii) Technology has been fully absorbed. The Company has set up an R&D Wing to develop manufacturing of LAN and other cables. C. FOREIGN EXCHANGE EARNINGS AND OUTGO Earnings : Nil Outgo Rs. 32,36,138 For and on behalf of the hoard Mrs. G.K. Brar Chairperson Place : Chandigarh Dated : 11th November, 2002. ANNEXURE-II TO THE DIRECTORS REPORT MANAGEMENT DISCUSSION AND ANALYSIS REPORT BUSINESS OF THE COMPANY The Company is engaged in the manufacture and marketing of Polyethylene Insulated Jelly Filled Telephone Cables (PIJF Cables). The main buyers of these cables are Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL). INDUSTRY STRUCTURE AND DEVELOPMENT: The year 2001-2002 was indeed a very difficult year for the telecom cable industry as a whole in general and PIJF cable industry in particular. The demand for PIJF cables has hitherto been growing @ 10% to 15%. However, the demand emanating from BSNL/MTNL went down suddenly by almost 50% during the year 2002 as against the requirement of 454 LCKM last year, the total required quantity on the basis of tender finalized in June, 2002 was about 242 LCKM both by BSNL (215 LCKM) and MTNL (27 LCKM) for the current year. This is mainly on account of sudden shift in technology from fixed lines to Wireless in Local Loop (WILL) even though it is a costlier technology and somewhat un-affordable by the users for whom it is intended. This coupled with the excess capacity in the industry led to unprecedented under-bidding resulting in fall in tendered prices. The business plans of the company hinge largely on the demand from BSNL/MTNL. However, having regard to the ambitious plans of the Government for the telecom sector as discussed below under the heading "Opportunities and Threats", it is expected that both of them will continue to procure PIFJ cables in the coming years on the same pattern as in the past leaving aside the exceptional year 2002. OPPORTUNITIES AND THREATS: The decline in demand of PIJF cables, reduction in its prices, over capacity and intense competition are posing great threat to the PIJF telephone cable industry. Opportunities may, however also arise in view of the fact that the Government has ambitious plans for the development of telecommunication sector and multimedia communication. The new Perspective Plan 2000-2010 as per the new Telecom Policy of the Government envisages growth rate of 16% to 19% to meet the objectives of providing telephone on demand. Out of the expected total addition of 1461 Lac telephones during the 10 year period from 2000 to 2010, 55% is estimated to be mobile phones and the remaining 45% fixed phones. Thus, even though the demand for mobile phone will increase, fixed phone will still be in demand which will sustain the PIJF cable industry in the years to come. Further, as per the 10th Five Year Plan projections also, there will be a substantial growth in the offtake of PIJF cables. RISKS AND CONCERNS: The industry is mainly dependent upon business plans and requirements of BSNL/MTNL for its survival and this is the most serious risk factor to which the industry is exposed. Further, falling demand as also prices of PIJF cables which account for 800% of the industry turnover, are matters of great concern for the industry. OUTLOOK: In view of the present situation of the industry discussed and analysed above, the future outlook of the industry depends on the implementation of the growth plans of telecommunication sector as envisaged in the Governments Perspective Plan 2000-2010 and 10th Five Year Plan and the business plans of BSNL/MTNL and their requirement of PIJF cables. It is, however, expected that the demand for these cables will pick-up and the industry will be on the path of recovery in due course. OPERATIONAL/ FINANCIAL PERFORMANCE: The substantial decline in production and turnover is due to lack of orders and significant reduction in prices as discussed above and explained in the Directors Report. Heavy losses are also due to these factors and also because the Company had to write off income of Rs 17.84 crores accrued to it on account of exemption in sales tax and accounted for in the earlier years for the reasons explained in the Directors Report. The company produces and markets only one product, i.e. PIJF cables and hence the above discussion, analysis and performance is in respect of the said segment only. INTERNAL CONTROL SYSTEM: The Company has adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchases of its stores, spare parts, raw materials, plant and machinery, equipment and other assets and for the sale of goods. The internal control systems are reviewed by the Internal Auditors and their reports are reviewed by the Management, Audit Committee and the Board of Directors. The Audit Committee exercises powers and performs functions as envisaged under section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement with the Stock Exchanges. HUMAN RESOURCE AND INDUSTRIAL RELATIONS: The Company believes in cordial industrial relations for smooth functioning and strives to ensure that harmonious relations are maintained, Necessary development and training opportunities are provided to improve the skills and efficiencies of employees. During the period under review, the Company had 303 employees on its roll as on 30th June, 2002. CAUTIONARY STATEMENT: Statements in the Management Discussion and Analyses Report describing Companys objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied. . For and on behalf of the Board Mrs. G.K. Brar Chairperson Place : Chandigarh Dated : 11th November, 2002.