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Kemrock Industries & Exports Ltd.

BSE: 526015 Sector: Industrials
NSE: KEMROCK ISIN Code: INE990B01012
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OPEN 9.50
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VOLUME 10600
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P/E
Mkt Cap.(Rs cr) 18
Buy Price 0.00
Buy Qty 0.00
Sell Price 8.73
Sell Qty 3835.00
OPEN 9.50
CLOSE 9.18
VOLUME 10600
52-Week high 11.03
52-Week low 6.80
P/E
Mkt Cap.(Rs cr) 18
Buy Price 0.00
Buy Qty 0.00
Sell Price 8.73
Sell Qty 3835.00

Kemrock Industries & Exports Ltd. (KEMROCK) - Director Report

Company director report

DIRECTORS

To,

The Members,

the Directors have pleasure in presenting the Eighteenth Annual Report, together withthe Audited Statement of Accounts for the financial year ended on 30th June, 2012.

Standalone Financial Performance

The standalone financial performance of the Company for the year 2011-2012 as comparedto the previous year is briefly highlighted hereunder.

(Rs. in Crore)

Particulars 2011-2012 2010-2011
(01.07.2011 to 30.06.2012) (01.07.2010 to 30.06.2011)
Gross Turnover 932.36 927.50
Total Income 1014.72 905.82
Profit Before Interest, Depreciation and Tax 269.21 252.62
Interest and Financial Expenses 162.72 110.41
Depreciation 45.56 42.12
Profit Before Tax Net Profit after Tax 60.93 24.20 100.09 75.46
Add: Balance brought forward from last year 182.69 118.80
Balance available, which the Board has appropriated as under (A) 206.89 194.26
i) Dividend on Equity Shares 0 3.49
ii) Corporate Tax on Dividend 0 0.58
iii) Transfer to General Reserve 0 7.50
(B) 0 11.57
Balance Carried to Balance Sheet (A-B) 206.89 182.69

Operations

The Company has gone aggressively for capex in the last 3-4 years. One of the majorprojects which is in the nature of R&D and having strategically importance to thecountry i.e. Carbon Fibre could hot be established in the anticipated scheduled time.Similarly, for our other projects like Wind Mill and Transportation - the certifications/qualifications / approvals consumed lot of time resulting into slow revenue growth.

The major initiatives along with the expansion which have been taken by Kemrock are ofspeciality products and segments i.e. to manufacture non-standard products. Most of theproducts are of the nature whereby the certifications, qualifications and approvalsrequired. It takes lot of time and exercise to achieve. We at Kemrock took care of theseissues considering the timing wherein normally the things start moving, but due to theglobal conditions, the major customers who are being targeted on long term strategicpartnership also went slowly on these process resulting cascading effects on cash flow. Asthe qualifications took more time than anticipated; this resulted into delay in productionand subsequent supplies.

Similarly, most of the products are used in the projects involving sectors like Power,Infrastructure, Onshore, Refineries, and Petrochemical Complexes etc. Our major suppliesin the exports are with contracting firms who does large size jobs to these sectors andthey have been impacted by global economic meltdown resulting into margins squeeze anddelay in realization of export proceeds. This also resulted into stress on working capitalthereby utilizing the full working capital limits and additional interest burden onenhanced working capital. The increase in the rate of interest has also impacted theoverall cost of borrowing.

The input cost has also gone up substantially on account of Rupee depreciation. Thepercentage of Raw Material cost to Sales which was around 55% in the past has gone up toaround 62%.

The depreciation amount has also increased, resulting into lower PBT.

Restructuring Scheme

Faced with a significant liquidity crunch, your Company had submitted a restructuringscheme to Lead Bank; Allahabad Bank with the support of consortium member Banks to seek acomprehensive financial restructuring package to enable it to correct its working capitalposition and to re-schedule its term debts in line with potential earnings.

The scheme was approved for restructuring of various credit facilities by the LeadBank, Allahabad Bank vide its approval dated 24.07.2012 based on the viability studyinstituted by it. The other member Banks under the consortium have also approved theRestructuring Scheme on the lines of Allahabad Bank's appraisal except Axis Bank Limited.The effect of said restructuring shall be accounted for in the current year.

Change in Capital Structure

During the year under report, the Company, on 20th December, 2011, raised US$ 30million (Rs. 154.18 crore) through issue of 2,887,800 Global Depositary Receipts (GDRs),each representing one equity share of Rs. 10 each, at an issue price of US$ 10.389 perGDR. Pursuant to GDRs issue, the Company issued and allotted 2,887,800 equity shares ofRs. 10 each at a price of Rs. 533.89 per share (including a premium of Rs. 523.89 pershare).

Post issue of Global Depositary Receipts as aforesaid of 2,887,800 equity shares duringthe year under report, the paid up share capital of the Company increased from Rs.17,44,21,980 to Rs. 20,32,99,980 divided into 2,03,29,998 equity shares of Rs. 10/- each.

Issue of FCCBs

During the year under report, the Company, on 17th April, 2012, has issued and allottedUS$ 100,000,000 5.5% Foreign Currency convertible Bonds due 2017, of the US$ 1000 eachaggregating to US$ 100 million convertible into equity shares having par value of Rs. 10/-each of the Company at the option of the investors at an initial conversion price Rs.529.04 per share with a fixed rate of exchange on conversion of Rs. 50.60 to U.S.$1.00.

These FCCBs are listed on Luxembourg Stock Exchange.

Listing of Shares

All the 2,03,29,998 equity shares (of Rs.10/- each) of your Company, as at the date ofthis report, are listed on the Bombay Stock Exchange Limited, Mumbai and National StockExchange of India Limited, Mumbai. The Company has paid Listing Fees to both the StockExchanges for the period from 1st April, 2012 to 31st March, 2013.

The Global Depository Receipts issued by the Company in previous year as well as in theyear under report continues to be listed on the Luxembourg Stock Exchange, Luxembourg andthe company has paid its Listing fees

Board of Directors

During the year under consideration, Mr. K. K. Rai resigned as a Director of theCompany w.e.f., 21st December, 2011. Mr. Venugopal Shastri resigned as a Directorof the Company w.e.f, 15"1 July, 2012.

The Board places on record its sincere appreciation for the valuable contribution madeby Mr. K. K. Rai and Mr. Venugopal Shastri, during their tenure as Directors of theCompany.

Mr. Navin Patel, the Non- Executive Director of the Company, will retire by rotation atthe ensuing Annual General Meeting, and being eligible offer himself for re-appointment.

As per the requirement of Clause 49 of the Listing Agreement, brief profile of Mr.Navin Patel is given in the Annexure-1 appended to the Notice convening the Annual GeneralMeeting.

Directors" Responsibility Statement

Pursuant to the requirement of Section 217 (2AA) of the Companies Act, 1956, withrespect to Directors' Responsibility Statement, it is hereby confirmed that:

a) in the preparation of the Annual Accounts for the year 2011 -12, the applicableAccounting Standards have been followed by the Company;

b) the Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that were reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as at 30th June, 2012 and of the Profitof the Company for the year ended on that date;

c) the Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities; and

d) the Directors have prepared the annual accounts of the Company on a 'going concern'basis.

Wholly Owned & Overseas subsidiary and Joint Venture Companies

a) Wholly Owned domestic Subsidiary Companies

The Company has Eight wholly owned Indian subsidiaries viz.,

Kemrock Renewable Energy Limited (in renewable energy); Kemrock Hi-PerformanceComposites Limited (in mass transportation); Kemrock Infratech Limited (in EPC); KemrockAdvanced Composites Limited (in windmill blades); Kemrock Advance Reinforcements Limited(in carbon fibre); Kemrock Filament Windings Limited (in pipes); and Kemrock SpecialityPolymers Limited (in resins). These subsidiaries are yet to commence their business.

During the year under report, the company has acquired further 50% equity shares inKemrock Aerospace India Private Limited. The 50:50 Joint Venture between "KemrockIndustries and Exports Limited" and "SAERTEX Beteiligungsgesellschaft mbH",Germany, set up under the name of "SAERTEX-KEMROCK India Pvt. Ltd." (entity) hasbeen discontinued w.e.f., 28,h December, 2011, with the mutual agreement of boththe partners, in view of the change in business plan of the foreign JV partner. The saidentity, now being a wholly owned subsidiary, has been renamed as "KemrockAerospace India Pvt. Ltd". This Company shall continue to forge ahead with itsplan to manufacture materials and components for aeronautical industry.

b) Wholly Owned Overseas Subsidiary Companies

The Company has two wholly owned overseas subsidiaries viz., Kemrock UK Limited, in UKand Kemrock International FZE, in DAFZA, Dubai. These subsidiaries are engaged in thebusiness of international marketing in the fields of composite products and its parts andcomponents including related materials like glass fiber, technical fabric, resins,polymers and chemicals.

c) Overseas Subsidiary Company

The Company continues to hold 80% stake in Top Glass S. p. A., Italy, which is one ofthe chief and highly qualified producers of

Pultruded Composite Profiles, situated 20 kms. north east of Milano, Italy.

d) Joint Venture Company

During the report under review, the Company continued to have interest into its jointventure company, viz., Georgia-Pacific Kemrock International Private Limited, inwhich your Company holds 49% equity shares and M/s. GP Chemicals International HoldingS.A.R.L. holds 51% equity shares.

The 50:50 joint venture Company viz., S. K. Polymers, FZCO, of the Company wasclosed w.e.f., 22™ April, 2012, it being nonviable to carry on its business.

As required by Accounting Standard-AS 21 on Consolidated Financial Statements, theaudited Consolidated Financial Statements of the Company and its Subsidiaries areattached.

In accordance with the General Circular No: 2/2011 issued by Government ofIndia, Ministry of Corporate Affairs, dated 8lh February, 2011, the Balance Sheet,Statement of Profit & Loss and other documents of the Subsidiary companies are notbeing attached with the Balance Sneet of the Company.

The Annual Accounts of the subsidiary companies and the related detailed informationshall be made available to shareholders of the holding and subsidiary companies seekingsuch information at any point. The Annua! Accounts of the subsidiary companies shall bekept for inspection by any shareholders at registered office of the holding company and ofthe subsidiary companies concerned. A Statement containing prescribed particulars of theCompany's subsidiaries are given in Annexure- II appended to this report.

Corporate Governance & Management Discussion & Analysis

The Corporate Governance Report, pursuant to Clause 49 of the Listing Agreement withthe Stock Exchanges, is separately given under the head titled as "CorporateGovernance Report", which forms part of this Annual Report. A certificate of thecompany secretary of the Company regarding compliance with the Corporate Governancerequirements as stipulated in Clause 49 of the-Listing Agreement is annexed to this Reportas Annexure-B forming part of the report.

The Management Discussion and Analysis forming part of this Report is separately givenunder the head titled as "Management Discussion and Analysis".

Conservation of Energy, Technology Absorption & Foreign Exchange Earnings and Outgo

The particulars required under Section 217(1 )(e) of the Companies Act, 1956, read withthe Companies (Disclosures of Particulars in the Report of Board of Directors) Rules,1988, are set out in Annexure-A to this report.

Particulars of Employees

As required under the provisions of Section 217(2A)of the Companies Act, 1956, readwith the Companies (Particulars of Employees) Rules, 1975, as amended, the particulars ofemployees are set out in Annexure and forms part of this report. However, having regard tothe provisions of Section 219(1 )(b)(iv) of the Companies Act, 1956, this Annual Report isbeing sent to all shareholders and others entitled thereto excluding aforesaid particulars(Annexure). Any member interested in obtaining such particulars may write to the CompanySecretary at the Registered Office of the Company.

Health, Safety and Environmental (HSE)

Company had focused on continued training and awareness regarding Health, Safety &Environmental improvements for entire cross section of employees with emphasis on shopfloor employees. This resulted in avoiding any major unsafe incident and also reportablefire throughout the year. Company continues to have mutual aid arrangement withneighboring industries and ourfire protection network had helped to reduce damagesubstantially during major unsafe incidents in nearby some of the industries. Company hasin totality satisfied all specified statutory compliances including solid, liquid andgaseous effluents. Company has prepared and updated disaster management plan and alsoreviewed risk assessment of the entire site engaging services of outside agency andimplemented recommendation including reemphasizing awareness at some of the criticallocations. Company has concentrated on optimizing use of natural resources and developednew green belt in additional 5000 square meter. Company has additionally carried out rainwater harvesting of 5 bore wells making total 26 recharge bore wells at Kemrock.

Recognition to In-House R&D Unit

The Department of Scientific and industrial Research, Ministry of Science andTechnology, Government of India, has recognized the Company's In-House R&D unit videletter dated 23rd August, 2012 recognizing the efforts made by your Company in Research& Development Activities.

Public Deposits

The Company has not accepted any deposits from the Public within the meaning of Section58Aof the Companies Act, 1956, and as such, no amount on account of principal or interestthereon was outstanding on the date of Balance Sheet.

Auditors

The Shareholders of the Company are requested to appoint auditors and to fix theirremuneration. M/s. Talati & Talati, Chartered Accountants, the existing Auditors ofthe Company, will retire at the conclusion of the next Annual General Meeting of theCompany. The Company has received certificate from the Auditors to the effect that theirappointment, if made, would be within the limits prescribed under Section 224(1 B) of theCompanies Act, 1956.

Auditors Report

Auditors comments in the report are self-explanatory and we assure that the same willbe complied immediately. Acknowledgment

Your Directors take this opportunity to express their gratitude to the Banks, Centraland State Governments and their departments and the local authorities for their support.

The Directors also place on record its sincere appreciation to customers, vendors,joint venture partners/subsidiaries, business associates and technology partners of theCompany.

Besides, the Directors place on record their sincere appreciation to the Shareholders,Clients, Regulatory Authorities, Stock Exchanges and Depositories for their continuedsupport and assistance and look forward to have such support in all future endeavors.

Board sincerely appreciate and acknowledge the concerted efforts of employees at alllevels.

Date: 26th November, 2012 For and on behalf of the Board
Reg.Off.:Vill.Asoj
Vadodara-Halol Express Way Kalpesh Patel
Tal. Waghodia, Dist. Vadodara - 391 510. Chairman & Managing Director

Annexure - 'A' to the Directors' Report

Statement regarding Conservation of Energy, Technology Absorption and Foreign ExchangeEarnings and Outgo for the year ended on 30'" June, 2012 as required under Section217 (1) (e) of the Companies Act, 1956, which forms part of the Directors Report.

A. CONSERVATION OF ENERGY:

(a) Energy conservation measures taken:

Conversion of 2TPH steam Boiler from wood fire to Natural Gas is taken up. This willhelp to save Electricity, improve productivity and quality of resin, and improveenvironment.

(b) Additional Investments and proposals, if any, being implemented for reduction ofconsumption of energy:

Operation of cooling tower fan Motor of chiller converted by Variable frequency Drive(VFQ) to reduce the consumption of power of Cooling tower fan motor.

Power quality audit was carried out to identify reasons for frequent powerinterruption/failure in carbon fiber plant.

Some of the corrective measures such as installation of harmonic filters, sealing thepanels etc. helped to achieve consistent operation of plant without power interruption.

(c) Impact of the measures at (a) and (b) above for reduction of energy consumptionand consequent impact on cost of production of goods:

Implementation of above measures helped to improve productivity and quality of resinand achieve consistent operation of carbon fiber plant.

(d) Total energy consumption and energy consumption per unit of production as perForm-A of the Annexure in respect of industries specified in the Schedule thereto is asunder:

FORM-A (see Rule 2)

Form for Disclosure of Particulars with respect to Conservation of Energy

(A) Power and fuel consumption

Sr. Particulars Unit

Year ended

No. 2011-2012 2010-2011
1. (a) Electricity Purchased .
Unit KWH 1,79,97,700 1,78,47,820
Total amount Rupees 13,17,84,923/- 11,55,49,568/-
Rate/Unit Rs./ KWH 7.32/- 6.47/-
(b) Own Generation
i) Through diesel generator
Unit KWH 1,22,234 1,75,084
Units per Itr. of diesel oil KWH 3.0 3.0
Cost / unit Rs./KWH 14.32/- 13.56/-
ii) Through steam turbine generator Units

Units per Itr. of diesel oil/gas Cost / units

N. A. N.A. N.A.
2. Coal (specify quality and where used) Quantity (tonnes) Total cost Average rate N.A. N. A. N.A.
3. Furnace oil
Quantity (K. Ltrs.) KL 176.78
Total amount Rs. 79,55,000/-
Average rate Rs./Ltrs

Rs.45/-

4. WoodConsumption-(Resin and Composite Section)
Quantity (MT) Rs. 5986.67 MT
Total Amount Rs./Ltrs 1,77,50,476.55/-
Average Rate MT

2965/MT

Briquettes Consumption-Resin Sec
Quantity (MT) MT 274.16 MT
Total Amount Rs. 11,17,202/-
Averaqe Rate MT 4075 MT
5. Others/internal generation (CNG)
Quantity M3-

335600NM3

111038 NM3
Total cost Rs. 1,07,39,200/- 26,64,000/-
Rate/unit Rs./NM3 Rs.32/- Rs.24/-

(B) Consumption per unit of production

The products of the Company are manufactured in different shapes and sizes and hence,consumption per unit of production is not ascertainable.

B. TECHNOLOGY ABSORPTION.

(e) Efforts made in technology absorption as per Form-B (Disclosure of particulars withrespect to Technology Absorption) are as under:

FORM-B

(See Rule 2)

Form for Disclosure of Particulars with respect to Technology Absorption

[a] Research and Development (R&D):

1. Specific areas in which R&D carried out by the Company:

Development of thermosetting resin for prepreg and coating application.

2. Benefits derived as a result of the above R&D:

More than 11 products are devolved, such as epoxy resin and hardener for infusionsystem of wind blade, powder coating resin system, water based epoxy resin and highperformance vinyl ester in field of thermosetting resin. In house Phenolic and UPR resinssystem for prepreg which is highly cost effective and as per international quality. Highperformance vinyl ester is nominated as 2"d best Innovation awards in variousfields of Petrochemicals & Downstream Plastic Processing Industry by Department ofChemicals & Petro Chemicals, Government of India.

3. Future plan of action: Wind Mill application

Laminates which are made using in-house Epoxy resin Grade EPOKEM 1150 and tested atqualifying European laboratories. The result meets the global quality for Wind mill bladeapplication.

Transport Application

Varieties of Prepregs are developed in-house during the year, which have been qualifiedby various global laboratories for the speciality applications like, Windmill blade andRailway interiors and exteriors.

Based on global market and costumer requirement, R&D shall design and develop theproducts which are as per global quality standards in the area of composites. Recentdevelopment for infusion epoxy resin and Wind Mill Blade (WMB) prepreg will be used forWMB and Transport projects. Use of in house resin and fabric for Wind Mill Blade in placeof resin and fabric from overseas suppliers will help to reduce manufacturing cost.

Similarly, use of in-house Resin and prepreg for Transport Division will help to reducemanufacturing cost for different projects in Transport Division.

4. Expenditure on R&D:

a) Capital Rs. 1,12,300/-
b) Recurring Rs.65,33,666/-
c) Total Rs.66,45,966/-
d) Total R&D expenditure as a Percentage of Total Turnover 0.07%

[b] Technology Absorption, Adaptation & Innovation:

1. Efforts, in brief, made towards technology absorption, adaptation and innovation :

a) The integrated manufacturing facility for aerospace grade carbon fiber wascommissioned during the year 2010-11 and stabilized during the year 2011-12. Thiscommercial scale manufacturing facility was stabilized with focus on manufacturingconsistency and quality with objective to produce aerospace grade quality carbon fiber.After confirmation of quality as per in-house quality management system, Kemrockapproached Centre for Military Airworthiness Certification (CEMILAC), Bangalore, who areindependent certifying authority for aeronautical application. CEMILAC, checked completedetails of aerospace grade carbon fiber manufacturing at Kemrock including raw materialsourcing and testing, in process quality check and final product testing and tested onlinesamples during actual manufacturing process and confirmed the quality of all the threegrades of carbon fiber (3K, 6K & 12K) produced as per technology transfer agreementwith CSIR-NAL and released provisional clearance for Standard Modulus Carbon Fiber(Tensile Strength 3.5 GPa, Tensile Modulus 230 (GPa) to the Grade 3K, 6K and 12K forAeronautical Application. This certification is important achievement for supply of carbonfiber for aeronautical application to important organizations in India.

b) Kemrock has focused for use of in house resins and fabrics for manufacture of windturbine blade, railway coach interior and exterior laminates instead of sourcing fromoutside companies at higher cost. This requires testing and approval of our in houseresins and fabrics including laminate preparation and testing at approved laboratory ofour major important customers and getting confirmation regarding acceptance of quality ofour in house resins and fabrics.

2. Benefits derived as a result of the above efforts, e.g. product improvement, costreduction, product development, import substitution etc.:

a) Certification from CEMILAC confirms use of carbon fiber produced at Kemrock forvarious aeronautical applications. Further, Kemrock has taken up conversion of carbonfiber produced for different value added products such as drive shaft for cooling tower,rods etc. This will help to achieve better value addition of carbon fiber produced atKemrock.

b) Approval of in house resins and fabrics produced at Kemrock for manufacture of windmill blades and railway division will help to reduce manufacturing cost of wind millblades and various projects of railway division. Further, this also will help to achievehigher sales realization of resins by selling to other wind mill blade manufacturers.

3. In case of imported technology (imported during the last 5 years reckoned form thebeginning of the financial year), following information may be furnished:

a) Technology imported N. A.
b) Year of import N. A.
c) Has technology been fully absorbed? N.A.
d) If not fully absorbed, areas where this has not taken place, reasons therefore and future plans of action N.A.

[c] Foreign Exchange Earnings and Outgo:

a) Activities relating to exports; initiatives taken to increase exports; developmentof new export market for products and services; and export plans:

The Company always strives to maintain its focus and presence in the global marketbeing an export oriented unit. The Company has a good network for marketing and exportactivities and it avails and explores export opportunities based on economicconsiderations, international market analysis and embarking on new product applications.

b) Total Foreign Exchange used :

(Rs. in Lacs)

Particulars Year ended 30.06.2012
(i) Raw Material 36,913.64
(ii) Component & Spare Parts 302.85
(iii) Chemicals 6,857.51
(iv) Capital Goods 824.50 44,898.50
Total Foreign Exchange Earned: (Rs. in Lacs)
Particulars Year ended 30.06.2012
Export of goods on FOB basis: 74,439.64