Ucal Fuel Systems Ltd Directors Report.

The Directors hereby present the 34th Annual Report together with the audited accounts of the company for the year ended 31st March 2020.

FINANCIAL HIGHLIGHTS

The performance of the company for the year ended 31st March 2020 is as follows:

(Rs. in lakhs)

Particulars For the year ended
31.03.2020 31.03.2019
Revenue from operations 50,967.70 59,612.98
Total Expenditure 43,964.26 49,934.85
Operating Income 7,003.44 9,678.13
Other Income 766.39 391.11
Profit before Interest, Depreciation, Tax and Exceptional items 7,769.83 10,069.24
Interest 2,185.44 2,295.15
Depreciation 2,051.98 1,768.39
Profit before Tax & Exceptional items 3,532.41 6,005.70
Exceptional items (10,509.00) -
Profit/(Loss) before Tax (6,976.59) 6,005.70
Tax Expense/(credit) 1,598.45 2,127.44
Profit/(Loss) after Tax (8,575.04) 3,878.26
Balance of profit brought forward from last year 21,316.27 20,060.19
Amount available for appropriation 12,741.23 23,938.45
Appropriations
Transfer to general reserve - -
Dividend paid during the year (1,990.23) (2,211.36)
Tax on dividend (392.93) (437.75)
Other comprehensive Income/(Loss) (93.10) 26.93
Balance profit carried to Balance Sheet 10,264.97 21,316.27

DIVIDEND

The Directors are constrained from declaring a dividend for the financial year 2019-2020. Though the companies operations resulted in a pre-tax profit, in view of the recognition of impairment loss on the investments made in Ucal Holdings Inc., (UHI) a wholly-owned subsidiary as mandated under the Accounting standards, the company suffered a substantial loss. The financial year 2020-2021 is a major business transition year for the automotive / auto component industry because of change in emission norms from BSIV to BSVI. The Covid pandemic that hit the world has added to the unpredictability of the business in the financial year 2020-2021, Hence the board has decided to preserve the cash to meet any exigency that may arise in financial year 2020-2021. The board of directors is fully aware of the desires and aspirations of the individual shareholders of getting a return on their investment in the form of dividend. The Board believes that this financial year 2019-2020 is a year of exception for non payment of dividend.

TRANSFER TO GENERAL RESERVE

There has been no transfer to the general reserve of the company for the financial year 2019-2020.

SHARE CAPITAL

The paid-up equity share capital of the company as on 31st March 2020 was ^22,11,36,250. The company has not issued any shares nor granted stock options or sweat equity during the financial year 2019-2020.

FINANCIAL PERFORMANCE

The net revenue from the operations of the company stood at Rs. 50,968 lakhs in the financial year 2019-2020 as against Rs. 59,613 lakhs in the financial year 2018-19 resulting in a decreased revenue of 14.5%. This can be attributed to the reduced offtake by the existing customers owing to the ensuing change in the emission norms from 1st April 2020 and also due to a general slowdown in the economy. The earnings before Interest, Tax and Depreciation (EBITDA) stood at Rs. 7,770 lakhs in the financial year 2019-2020 as against Rs. 10,069 lakhs in the financial year 2018-19 as in addition to a decrease in the net revenue from operations there was also a constraint in raising selling prices despite an increase in the input cost.

The exports stood at Rs. 740 lakhs in the financial year 2019-2020 as compared to Rs. 550 lakhs in the financial year 2018-19. Continuous efforts are on to enhance the companys presence in the export market. The spares sales of the company in the financial year 2019-2020 stood at Rs. 6,690 lakhs as against Rs. 5,976 lakhs in the previous financial year. The offtake by the dealers and the Original Equipment Manufacturers (OEMs) increased in 2019-2020 resulting in a 12% increase. The company has put in extra efforts to expand its dealership network and become competitive in the spares market which is beset with spurious products.

The Profit/(Loss) After Tax (PAT) for the financial year 2019-2020 stood at Rs. (8,575) lakhs as against a profit of Rs. 3,878 lakhs of the previous financial year. The companys earnings per share is "Nil" for the financial year 2019-2020 due to the exceptional item of Rs. 10,509 lakhs which is the provision for impairment of value of investment made in Ucal Holdings Inc as mandated under the Accounting Standards. However the consolidated financial statements of the company show a profit of Rs. 2,115 lakhs with an earnings per share of Rs. 9.56 as the provision for impairment of value of investment made in Ucal Holdings Inc., gets offset in the consolidated financial statements.

To augment its capacity to meet the requirements of its customers, under the stringent BSVI emission norms, the company has spent Rs. 6,092 lakhs in capital investment in the financial year 2019-2020 as compared to Rs. 3,855 lakhs spent in the financial year 2018-19. The company continues its thrust on R&D and has spent Rs. 1,585 lakhs in the financial year 2019-2020 as against an amount of Rs. 1,375 lakhs spent in the previous financial year.

The new BSVI emission norms came into effect from 1st April 2020 and the company has successfully developed and commercialised the electronic carburettor and other relevant components. Efforts are on to expand the indigenous market for the same. The company continues to supply the mechanical carburettor for the export market in addition to supplying spares to both OEMs and dealers.

DIRECTORS

Ms. Rekha Raghunathan (DIN: 00057774) retires by rotation at the ensuing Annual General Meeting and being eligible offers herself for reappointment. Necessary resolution for her reappointment has been set out in detail in the Notice convening the ensuing Annual General Meeting. The Board recommends her reappointment as Director of the company.

Ms. Lakshminarayanan Priyadarshini (DIN: 06592671) was appointed Additional Director (non-executive and Independent category) in the Board meeting held on 7th December 2020, subject to the appointment being approved by the shareholders at the ensuing Annual General Meeting. Appropriate resolutions for the appointment has been set out in detail in the Notice convening the ensuing Annual General Meeting. The Board recommends her appointment as Independent Director.

Mr. Ram Ramamurthys (DIN: 06955444) term as Whole-time Director ends on 3rd September 2020. It is proposed to reappoint him as Whole-time Director for a further period of two years from 4th September 2020 to 3rd September 2022 on a remuneration as set out in the Notice convening the ensuing Annual General Meeting. The Board recommends the reappointment of Mr. Ram Ramamurthy as Whole-time Director as per the terms and conditions laid down in the Notice to the ensuing Annual General Meeting. Appropriate resolutions for the reappointment and remuneration have been set out in detail in the Notice convening the ensuing Annual General Meeting.

Dr. V Sumantran (DIN: 02153989) resigned from the Board at the end of the working day of 24th July, 2020. The Company has benefited greatly from his association and the Board places on record its sincere appreciation for the services rendered by him during his tenure as director.

The information on Board meetings, committees of the Board, independent directors, Board diversity, remuneration policy, familiarization program for independent directors and Board evaluation are mentioned in the Corporate Governance Report.

Brief resume/details of Directors who are to be reappointed as mentioned herein has been furnished along with the explanatory statement in the Notice convening the ensuing Annual General Meeting.

DIRECTORS RESPONSIBILITY STATEMENT

In terms of section 134(3)(c) read with section 134(5) of the Companies Act, 2013 the directors to the best of their knowledge and belief and according to information and explanation obtained by them confirm that,

(a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to any material departures;

(b) Such accounting policies have been selected and applied consistently and such judgments and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year 31st March 2020 and of the profit and loss of the company for the year ended 31st March 2020

(c) Proper and sufficient care has been taken 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;

(d) The annual accounts have been prepared on a "going concern" basis.

(e) Proper internal financial controls to be followed by the company have been laid down and such internal financial controls are adequate and are operating effectively.

(f) Proper systems to ensure compliance with the provisions of all applicable laws have been devised and such systems are adequate and are operating efficiently.

APPOINTMENT OF CHIEF FINANCIAL OFFICER

Mr. Ram Ramamurthy stepped down as Chief Financial Officer of the Company with effect from the end of the working day of 1st August 2020. Consequent to his stepping down, Mr.V. Ramanathan has been appointed as Chief Financial Officer with effect from 2nd August 2020.

AUDIT COMMITTEE

The audit committee conforms to the requirements of Section 177 of the Companies Act, 2013 and Regulation 18 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. With the resignation of Dr. V. Sumantran from the board, the members of the Audit Committee as on date of this report are Mr. S. Natarajan, Mr. S. Balasubramanian and Mr. Jayakar Krishnamurthy. Mr. S. Natarajan continues as the Chairman of the Audit committee. The committee met 6 times during the year. Detailed disclosure on the terms of reference and meetings are mentioned in the corporate governance report.

STATUTORY AUDITORS

M/s R. Subramanian and Company LLP, Chartered Accountants, Chennai (Registration Number: 004137S/S200041) were appointed statutory auditors of the company for a period of five consecutive years commencing from the conclusion of the 31st Annual General Meeting held on 28th September 2017 till the conclusion of the 36th Annual General meeting subject to the ratification of their appointment by the shareholders at the Annual General Meeting every year. However, as per the amendment in Section 40 of the Companies Amendment Act 2017, the ratification of the appointment of statutory auditor at the Annual General Meeting every year is not required. The emphasis of matter specified in the Independent auditors report on the Standalone Financial Statements has been explained in Note No. 38 (c) of the notes to accounts.

SECRETARIAL AUDITOR

Pursuant to the provisions of section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the company had appointed M/s. P. Sriram & Associates, a firm of practising company secretaries as secretarial auditor of the company to undertake secretarial audit of the company for the financial year 2019-2020. The report of the secretarial auditor is given in Annexure-I and forms part of this report. It does not contain any qualification, reservation, adverse remark or disclaimer. The Board of Directors has reappointed M/s. P. Sriram & Associates, as secretarial auditor for the financial year 2020-2021. Necessary consent has been received from them to act as secretarial auditor.

INTERNAL AUDITORS

M/s. P. Chandrasekar, Chartered Accountants, continue as internal auditors of the company. Their scope of work is periodically reviewed and updated by the audit committee. It includes among other things a review of the operational efficiency, effectiveness of systems and controls in existence, review of the processes to safeguard the assets of the company and assessing the strength of the internal control in all areas. The internal auditors report is discussed with the concerned stakeholders and corrective remedial action is taken on a regular basis in consultation with the audit committee. The internal auditors were present at the audit committee meetings as and when required.

COST AUDITOR

The cost audit for the financial year 2019-20 was conducted by Mr. L. Thriyambak who was appointed by the Board as the cost auditor of the Company for the financial year 2019-20.

SUBSIDIARY COMPANIES

The company has two wholly-owned subsidiaries.-.

Ucal Polymer Industries Limited (UPIL)-The revenue from operation of UPIL stood at Rs. 4,994 lakhs in the financial year 2019-2020 as against Rs. 5,917 lakhs in the financial year 2018-2019. The decreased revenue can be attributed to the decreased offtake by UCAL Fuel Systems Limited (UFSL) which continues to be the only major customer of UPIL. The net profit after tax stood at Rs. 648 lakhs in the financial year 2019-2020. UPIL continues to support the operations of UFSL by providing it an advantage in terms of pricing, quality and timeliness of supplies. UPIL has successfully met the new business requirements of UFSL as per BSVI emission norms.

Ucal Holdings Inc., (UHI)-The revenue from operations of UHI was Rs. 21,780 lakhs in the financial year 2019-2020 as against Rs. 27,784 lakhs in the financial year 2018-2019. In terms of US dollar, the revenue from operations was $ 300 lakhs during financial year 2019-2020 as compared to $ 411 lakhs in the financial year 2018-2019 recording a decrease of 27%. UHI has earned a net profit/ (loss) after tax of Rs. (757) lakhs during the financial year 2019-2020 as against a profit of Rs. 484 lakhs in the financial year 2018-2019. The reduced revenue from operations and the profitability is due to the down turn in the US economy which had a direct impact on the operations of the company.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements for the year ended 31st March 2020 of the company and its subsidiaries together with the auditors report thereon are enclosed. The statement pursuant to sub section(3) of Section 129 of the Companies Act, 2013 read with Rule 5 of Companies (Accounts) Rules, 2014 in the prescribed form AOC-1 relating to the subsidiary companies is given in Annexure-II.

The consolidated results of the company and its subsidiaries show that a net profit after tax of U2115 lakhs has been achieved during the financial year 2019-2020 as against Rs. 4,581 lakhs in the financial year 2018-2019. The consolidated financial statements of 2019-2020 have been prepared taking into account the audited financial statements of all the subsidiary companies for the financial year 2019-2020 and all adjustments have been given effect to in the consolidated statements.

In terms of section 136 of the Companies Act, 2013 the company has not attached the financial statements of the subsidiary companies. However, the financial information of the subsidiary companies is disclosed in the annual report. The annual accounts, reports and other documents of the subsidiary companies will be available for inspection during business hours, by any shareholder of the company at the registered office of the company and also at the registered office of the concerned subsidiary and has also been posted on the website of the company www.ucalfuel.com. The annual accounts, reports and other documents of the subsidiary companies will be dispatched to the shareholders upon receipt of a request from them.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The companys CSR activities are in the field of education, sports, health, sanitation and preservation of culture and heritage. As per Section 135 of the Companies Act, 2013, the CSR Policy was formulated by the CSR Committee and thereafter approved by the Board. The CSR policy is displayed on the website of the company www.ucalfuel.com, weblink: http://www.ucalfuel.com/policy- csrp.pdf. Mr. S. Balasubramanian is the chairman of the committee and Mr. Ram Ramamurthy and Mr. Jayakar Krishnamurthy are the other members of the committee. For the financial year 2019-2020 the report on corporate social responsibility is given as Annexure-III and forms part of the Boards Report.

PUBLIC DEPOSITS

During the financial year 2019-2020, the company has not accepted any deposits from the public within the meaning of Section 73 of the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules 2014 and there is no outstanding amount on account of principal or interest on deposits from public as on date.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The company has an efficient internal control system commensurate with its size and nature of business to safeguard the assets of the company and to ensure effective utilisation of resources. These controls ensure that transactions are completed on time and in an accurate manner and by following proper procedures and systems. The internal auditors cover a wide area of operations and this is being continuously reviewed by the audit committee. Internal audit is conducted on a quarterly basis by a team of internal auditors and the reports together with the action taken reports are reviewed by the audit committee periodically. A system of management controls is also in place to ensure higher levels of efficiency and to keep the organisation competitive. All the critical functions of the company i.e., Sourcing and Procurement, Manufacturing, Costing, Finance, Dispatch and Sales are handled through Oracle system which is well-integrated. Checks and controls have been built into the system to handle the transactions. Existing internal controls provide adequate assurance to the management for all the transactions covering operations, inventory, fixed assets, financial records and compliance to statuary requirements. The systems and controls are reviewed periodically to ensure their effectiveness. The Board has adopted various policies like Material Subsidiary Policy, Whistle Blower Policy, Related Party Transactions Policy to safeguard the assets of the company, to ensure timely information and to prevent and detect frauds and errors.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE, EARNINGS AND OUTGO

Information required under Section 134(3)(m)of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules 2014, on energy conservation, technology absorption, foreign exchange earnings and outgo is given in Annexure-IV.

EXTRACT OF ANNUAL RETURN

An extract of Annual Return in form MGT-9 is given in Annexure-V and forms part of this report.

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

Particulars of loans and advances given, guarantees given, securities provided and investments made are provided in the Note Nos 3,4,11 and 43 of the notes to accounts of the Standalone Financial Statements.

MATERIAL CHANGES AND COMMITMENTS

The lockdown due to the Covid pandemic and the transition to BSVI emission norms had an impact on the turnover and the profitability of the company for the first two quarters of the financial year 2020-21. The impact of COVID-19 will be felt in the Financial Year 2020-21 as it is expected to further drag the slowness in the auto / auto component industry and the revival is bound to be slow. The Company has gradually resumed operations in its facilities, as per the guidelines issued by the Ministry of Health and Family Welfare. The Company has taken steps to build in all the safety and precautionary measures across all its facilities and locations. In spite of the various challenges due to the lockdown, the overall financial position of the company continues to remain stable.

PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES

The company did not enter into any material transaction with any related party which may have potential conflict with the interest of company at large during the financial year 2019-2020 as per Section 188 of Companies Act, 2013. All transactions entered into with related parties were at an arms length basis and in the ordinary course of business. Form AOC-2 as required under Section 134(3)(h) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Accounts) Rules 2014, is given in Annexure-VI and forms part of this report. The companys related party transactions have been entered into for meeting the requirements of operations and at an arms length basis and in the ordinary course of business.

CHANGE IN NATURE OF BUSINESS

There was no change in the nature of business of the company during the year under review.

REGULATORY/COURT ORDERS

During the year 2019-2020 no significant and material orders were passed by the courts, regulators or tribunals affecting the going concern status of the company and its future operations.

NAMES OF COMPANIES WHICH HAVE BECOME OR CEASED TO BE COMPANYS SUBSIDIARIES, JOINT VENTURES OR ASSOCIATE COMPANIES DURING THE YEAR

No company has become or ceased to be the companys subsidiary, joint venture or associate company during the financial year 2019-2020.

PARTICULARS OF EMPLOYEES

Mr. Jayakar Krishnamurthy, Mr. Ram Ramamurthy, Ms.Rekha Raghunathan and Mr. Syed Abdul Hadi hold the office of key managerial personnel of the company as on 31st March 2020. Mr. Ram Ramamurthy stepped down as Chief Financial Officer with effect from the end of the working day of 1st August 2020. Consequent to his stepping down, Mr.V Ramanathan has been appointed as Chief Financial Officer with effect from 2nd August 2020. Mr. V. Ramanathan, will also be a Key Managerial Personnel for the purpose of Compliance of Section 203 of Companies Act, 2013. The Information required pursuant to Section 197 of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 in respect of directors, key managerial personnel and employees are given in Annexure-VII.

INDUSTRIAL RELATIONS

During the year cordial and healthy relations were maintained with all sections/levels of employees.

WHISTLE BLOWER POLICY

The company has a whistle blower policy to deal with instances of fraud and mismanagement. The details are explained in the Corporate Governance Report and are also posted on the companys website www.ucalfuel.com.

SEXUAL HARASSMENT POLICY

The company has in place a policy for prevention of sexual harassment. An internal committee has been set up at each plant to redress sexual harassment complaints. All employees are covered under this policy. No complaint was received during the financial year 2019-2020.

RISK MANAGEMENT POLICY

Key business risks are identified and reviewed on a regular basis. A strategy development committee has been formed to strategise on ways to mitigate the various risks. The necessary actions and precautions are taken on time to deal with various risks associated with the company and the Board discusses the same from time to time. The details are given in Corporate Governance Report.

PREVENTION OF INSIDER TRADING

The company has framed a code of conduct for prevention of insider trading based on Securities and Exchange Board of India (prohibition of insider trading) Regulations, 2015. This code is applicable to all the board members/employees/officers of the company. This ensures prevention of dealing with shares by people who have access to unpublished price sensitive information.

CORPORATE GOVERNANCE

The company adheres to all the requirements of the code of corporate governance as stipulated in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. A report on corporate governance along with certification of the Chairman and Managing Director and Chief Financial Officer is attached in Annexure-VIII. Certificate from the Statutory Auditor regarding compliance of the conditions of corporate governance as stipulated by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is given in Annexure-IX. The Management Discussion and Analysis Report is attached in Annexure-X.

BUSINESS RESPONSIBILITY REPORT

The Business Responsibility Report as applicable to the Company in terms of Regulation 34(2) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for the financial year 2019-20 is provided in Annexure-XI to this report. The Company practices various business responsibility initiatives as per the framework developed under the guidance of the chairman and managing director who is also responsible for the implementation of the same. The Business Responsibility Policies and the Business Responsibility Report are displayed on the website of the company website: www.ucalfuel.com., weblink: http://www.ucalfuel.com/policy.asp and weblink: http://www.ucalfuel.com/business-responsibility-report.asp

STATEMENT ON COMPLIANCE TO APPLICABLE SECRETARIAL STANDARD

The company has complied with all the applicable secretarial standards as issued by the Institute of Company Secretaries of India during the year 2019-2020.

ANNUAL GENERAL MEETING

In view of government advisories on travel and public gatherings to combat the prevailing COVID-19 pandemic and to support the health and well-being of all stakeholders, the 34th AGM would be conducted through Video Conferencing (VC) or Other Audio Visual Means (OAVM) on 31st December, 2020 at 15:30 hrs IST, as per the framework notified by the Ministry of Corporate Affairs. The notice convening the 34th AGM shall contain detailed instructions and notes in this regard.

The electronic copies of the annual report and the notice convening the 34th AGM would be sent to the shareholders whose e-mail addresses are registered with the Company or their respective Depository Participants (DP). In terms of General Circulars no. 14/2020 dated April 08, 2020, 17/2020 dated April 13, 2020 and 20/2020 dated May 05, 2020 issued by the Ministry of Corporate Affairs (MCA) read with SEBI circular no. SEBI/HO/CFD/CMD1/CIR/P/2020/84 dated May 12, 2020, the Company has not printed physical copies of annual report for distribution. The full Annual Report shall be made available on the website of the Company and also shall be disseminated to the stock exchanges where shares of the Company are listed.

ACKNOWLEDGEMENT

The Board thanks all its employees, customers, bankers, vendors, suppliers and governmental agencies for their continued support. The Board is grateful to the shareholders for their continued trust and confidence in the company.