CARNATION INDUSTRIES LIMITED
ANNUAL REPORT 2011-2012
DIRECTORS' REPORT AND MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Your Directors are pleased to present the 29th Annual Report and the
Audited Statement of Accounts for the year ended 31st March, 2012.
FINANCIAL PERFORMANCE (Rs. in Lakhs)
For Year Ended For Year Ended
Revenue from operation and
other operating revenue:
Export Sales (Net of Freight) 8222.18 5833.99
Domestic Sales( Net of Central 470.66 130.46
Excise and Vat)
Export Incentives 473.95 411.39
Other Income 84.54 9251.33 53.82 6429.66
Profit before Finance Costs, 823.22 202.74
Depreciation & Amortisation,
Extra Ordinary Item and Tax
Finance Costs 510.85 310.30
Depreciation & Amortisation 178.23 155.65
Profit/(Loss) before 134.14 (263.21)
Extra-Ordinary Item - 11.61
Profit/(Loss) before Tax 134.14 (274.82)
Provision for Tax
- Current 29.44 -
- Deferred 14.19 (2.03)
- Tax for Earlier Year (2.93) (2.11)
Profit/(Loss) after Tax 93.44 (270.68)
Surplus brought forward from (75.26) 211.49
Available Surplus/(Deficit) 18.18 (59.19)
Proposed Dividend 20.74 13.83
Dividend Distribution Tax 3.36 2.24
to Balance Sheet (5.92) (75.26)
During the financial year ended 31st March, 2012 the Company achieved total
revenue (net) from operations of Rs. 9251.33 lacs against Rs 6429.66 lacs
in the previous year registering a growth of about 45%. The profit before
depreciation, financial costs and extra ordinary item was Rs 823.22 lacs
against Rs 202.74 lacs in the previous year recording an improvement in
excess of 300% (3 times). The profit before tax was Rs 134.14 lacs (2010-
2011, loss of Rs 274.82 lacs) and the profit after tax was Rs 93.44 lacs
(2010-2011, loss of Rs 270.68 lacs) representing significant turnaround in
operation. This turnaround was mainly attributable to improved export
earnings and a favourable exchange rate.
Finance costs during the year under review was higher than the previous
year, based on higher trade receivables as well as higher sales achieved.
The extremely slow progress in the refund of input tax credit compounded
the liquidity problems further. This level of increase in working capital
required additional fund and non fund based borrowing which resulted in the
higher finance cost. The Management has taken appropriate steps to ensure
expeditious realization of the input tax credit and the export proceeds.
FOREIGN EXCHANGE EARNINGS AND OUTGO (Rs. in Lakhs)
For Year Ended For Year Ended
Earnings - Export (F.O.B.) 8222.18 5833.99
Travelling & Conveyance 21.59 19.83
Certification Charge - 5.82
Commission 42.67 39.21
Foreign Bank Charges 31.18 11.62
Raw Materials Other Purchase(CIF Value) 110.45 77.17
Licence Fees 5.08 -
Inspection Charges 2.93 -
MANAGEMENT DISCUSSION AND ANALYSIS
INDUSTRY STRUCTURE AND DEVELOPMENT
Global Census on Foundries now show that India is the second highest
producer of castings in the world with a production of approx. 8 million
tons of castings per annum, second only to China which produces approx 32
million tons of castings. However the strange fact is that China produces 8
million tons of Ductile Iron which constitute 25% of their castings and
India produces only 10%(of total castings) i.e. 0.8 million tons. This
indicates the immense potential that India has in the future. With the
massive shift of European buyers towards India - the export demand holds
out strong potential. The domestic increase in automobiles, tractors and
earth moving equipments is giving rise to the increased domestic demand as
OPPORTUNITIES AND THREATS
India's low share in the global market, in a situation of the possible
shift of bulk of the sourcing moving to China & India, holds out strong
possibility of a larger market share for India and your Company.
Weak infrastructure and shortages of trained labour are the major threat to
the industry and in-house training and retention of the skilled persons
remains the strength of your Company.
Rising prices of Electricity, Diesel and Coal continue to put pressure on
costs and for which, these need to be controlled inter-alia, through a
process of cost price matching. The only positive factor is that the
customers are showing signs of accepting the increases. Basic raw materials
prices remained steady over a range, however the Ferro Alloys and Foundry
Chemicals registered an increase.
The Management reviewed the disclosure requirement of segment wise
reporting and is of the view that since the Company manufactures Castings &
M.S. products which are subject to same risk and returns and hence there is
one primary segment in terms of AS-17, a separate disclosure on reporting
by business segments is not required. The analysis of geographical segments
is based on the areas in which the Company operates.
In the current fiscal year we expect to strengthen our presence in the US
and in the German markets by addition of newer products and customers. We
also have plans to do major business in domestic market. This should bring
an additional growth in the turnover. The US Dollar and Euro are expected
to remain buoyant and market volumes are expected to improve compared to
the previous year. The Export incentive through DEPB was discontinued
w.e.f. October, 2011 and the drawback scheme has come in place and is
RISKS AND CONCERN
Being predominantly in export, your Company's revenue is always subject to
risks of exchange fluctuations. The Company has adopted a comprehensive
risk management review system wherein it actitively hedges its foreign
exchange exposures within defined parameters, through use of hedging
instruments such as forward contracts. The matter of concern however
remains shortage of skilled labour resulting in higher labour cost. In
order to overcome this problem your Company is laying stress on in-house
training and skill development, besides retention of the skilled workers.
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
Your Company has an adequate system of internal control commensurate with
the size and nature of its business which ensures that all transactions are
recorded, authorized and correctly reported apart from safeguarding its
assets against loss from wastage, unauthorized use and removal. The
internal audit process strives to ensure compliance of internal control
systems through submission of detailed internal audit reports periodically
to the Management and the Audit Committee. The Audit Committee reviews the
adequacy of internal controls based on such reports and provides guidelines
for improvement of the same.
Your Company's Statutory Auditors have in their report confirmed the
adequacy of the internal control procedures.
EXPANSION AND NEW PROJECT
Your Company continues to upgrade its process and products.
At the Ductile Plant the new moulding machine and the furnace are in
operation now. This would enable the Company to add volumes to the sale of
castings both in the domestic and export market.
HUMAN RESOURCES DEVELOPMENT
Your Company continued to have cordial and harmonious relations with its
employees at all levels during the period under review. The operations of
the Company across functions have been strengthened through induction of
appropriately qualified and experienced personnel. Management of your
Company strongly focuses on the performance of the managers. The Board
acknowledges its thanks to all the shop floor personnel and other employees
for making significant contribution to your Company.
The Company has conducted several training programs for its employees to
improve the working. Besides this the training programs have been conducted
for improving safety and health standards of the employees.
Your Directors are pleased to recommend a dividend of 6% (Re. 0.60 per
Equity Share of Rs.10 each) for the financial year ended March 31,2012
subject to the approval of the shareholders at the Annual General Meeting.
The dividend together with the dividend tax will entail a cash outlay of
Rs. 24.10 lakhs.
POLLUTION CONTROL MEASURES
The pollution control measures installed in the units of the Company are in
full operation as required under the statutes. The Company has taken
immediate steps to rectify the Pollution Control devices wherever minor
variations were noticed by the Management during the year under review.
In terms of section 256 of the Companies Act, 1956, Mr. B. K. Datta retires
by rotation at the ensuing Annual General Meeting and being eligible,
offers himself for re-appointment. The Board recommends his re-appointment.
M/s Jain & Bagaria, Chartered Accountants, Statutory Auditors of the
Company will retire at the conclusion of the ensuing Annual General Meeting
and being eligible, offer themselves for reappointment as statutory
auditors for the financial year 2012-13. The Company has received a letter
dated 29th May, 2012 from them to the effect that their re-appointment, if
made, would be within the limit prescribed under section 224 (1B) of the
Companies Act, 1956 and that they are not disqualified for such re-
appointment within the meaning of section 226 of the Companies Act, 1956.
Mr. Deep Narayan Bandyopadhyay, Cost Accountant, was re-appointed as Cost
Auditor for the financial year 2012-13 to conduct cost audit of the
accounts maintained by the Company, in respect of the various products
prescribed under Cost Audit Rules, 2011.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND RESEARCH AND DEVELOPMENT
The particulars in respect of energy conservation as per Companies
(Disclosure of Particulars) Rules, 1988 is not required to be provided by
your Company as it is not the industry included in the Schedule to the
Rules. The Company has however taken measures for conservation of energy.
The Company has installed a Divided Blast Cupola in the unit at Liluah
which has significantly reduced the coke consumption. Further a new Cupola
has been installed at the Uluberia unit of the Company which will
significantly reduce the energy consumption by the above unit. The
production was carried using the previous technology. The company has a
quality cell which ensures the quality of the product before being sent to
PARTICULARS OF EMPLOYEES
The information required under section 217(2A) of the Companies Act, 1956
read with Companies (Particulars of Employees) Rules, 1975 as amended from
time to time is not applicable as none of the employees are drawing salary
more than the limit prescribed under the aforesaid Rule.
The Company has not taken any Public Deposits during the year.
The Equity Shares of the Company are listed with The Calcutta Stock
Exchange Limited and Bombay Stock Exchange Limited.
Your Company attaches considerable significance to good Corporate
Governance. Pursuant to Clause 49 of the Listing Agreement with the Stock
Exchanges, a compliance report on Corporate Governance and Management
Discussion and Analysis Report form part of the Annual Report alongwith the
Auditors Certificate on its compliance.
DIRECTORS RESPONSIBILITY STATEMENT
Your Directors confirm that in preparation of the Annual Accounts the
applicable accounting standards have been followed along with proper
explanation relating to material departures. The Directors have selected
such accounting policies and applies 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 on 31.03.2012 and of the
Profit and Loss of the Company for that period. The Directors have taken
proper and sufficient care 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. The Directors have prepared the accounts on a going concern
Your Directors wish to place on record their appreciation and thanks to the
Banks, Financial Institutions, various Government Authorities for their
valuable assistance and co-operation and for the trust and confidence
reposed in the Company by the Customers and Shareholders.
Your Directors also thank the Executives, Staff and Workforce of the
Company for their efficient and dedicated services.
On Behalf of the Board of Director
Place: Kolkata Arun Kumar Bose
Date : 29th May, 2012 (Whole time Director)