Kernex Microsystems (India) Limited.
The directors annual report of Kernex Microsystems (India) Limited (the"Company" or "KERNEX") along with the audited financial statements forthe financial year ended March 31 2016 below and consolidated performance of the Companyand its subsidiary has been referred to wherever required.
| || ||Rs in Lakhs |
| ||2015-2016 ||2014-2015 |
|Sales and Other Income ||1422.41 ||2300.11 |
|Profit/Loss before Depreciation Finance Cost and Tax ||(731.35) ||(284.36) |
|Less:- Finance Cost ||309.18 ||267.28 |
|Less:- Depreciation ||321.00 ||416.56 |
|Profit/Loss after Depreciation Interest and before tax ||(1361.55) ||(968.20) |
|Tax expense ||(32.60) ||(28.91) |
|Profit/Loss after Tax ||(1328.94) ||(939.29) |
|Add: Balance brought forward from previous year ||799.01 ||1806.30 |
|Less: Adjustments consequent to revision of useful life of certain assets pursuant to Schedule II of Companies Act 2013 ||Nil ||(68.00) |
|Balance carried forward to Balance sheet ||(529.93) ||799.01 |
|Profit available for appropriation || || |
|Earnings Per Share (Rs.) || || |
|- Basic ||(10.63) ||(7.51) |
|- Diluted ||(10.63) ||(7.51) |
|Appropriations: || || |
|Transfer to General Reserve ||- ||- |
|Proposed Dividend ||- ||- |
|Income Tax on proposed Dividend ||- ||- |
|Balance carried to the Balance sheet ||(529.93) ||799.01 |
This year 2015-16 was a difficult year and company has incurred a loss (approx.) ofRs.13.29Crores. The abrupt stoppage of Operation Maintenance Contract (OMC) and AnnualMaintenance Contract (AMC) of ACD project by Railways in NF Region and slow progress ofENR project severely affected our income earning capacity as well as shortage ofimportant components which had to be resourced locally in Egypt. Besides the companycontinued to invest in R & D of Train Collision Avoidance System of which the IndianRailways wish to adopt and also provisioning of collision prevention device in Richard BayCoal Terminal in South Africa; Diversification could only be taken up after studyingemerging markets demand supply position and mobilization of funds. Banks have tightenedissue of extra working capital affecting progress of works even though company hadadequate collateral backup. Thus the overall earnings decreased to Rs. 14 crores thelowest in the last 8 years leading to large loss.
The Company's business and operational results:
1. The Company's joint development of Train Collision Avoidance Systems (TCAS) alongwith RDSO Railway Board is yielding good results. It has reached user trials stage andlast minute fine tuning by way of last minute additions/ modifications is being done. Theproject is expected to be ready for deployment all over Indian Railways. Indian Railwayshas already asked the concerned zonal railways to be ready with plan and execute TCAS fromNew Delhi to Guwahati and also in Guntakal Division of SC zonal railways.
2. Safety Certification by an accredited agency of your company's Train CollisionAvoidance System has been entrusted to an international accredited agency Ital CertiferMilan Italy and this work is in progress. Certification may be obtained by Dec 2016 andin case major alterations are required it may be go up to June- 2017.
3. Progress on ENR project has been stalled as ENR wanted us to source an importantcomponent of the system i.e Booms with mechanical fuse locally in Egypt from militaryproduction wing of Government of Egypt. The product delivered by Egypt has not beenapproved by ENR and forcing your company to procure the same from other countries. Thoseare expected to be delivered in September 2016 and accepted by ENR. On such acceptanceproject can pick up thereafter.
4. Your company has been awarded an order for US$ 846000/- and contract forprovision of collision prevention system in Richard Bay Coal Terminal in South Africaincluding proving the concept of collusion avoidance and execute the system over 10 locosand track equipment on the ground to prevent collision and avoid the delays &breakdowns in coal unloading & dispatching. The first phase of demonstration ofconcept was successfully completed in April-June 2016 and manufacturing of the system isin progress.
5. Annual Maintenance & Operation Maintenance Contract of NF Railway has beendiscontinued suddenly with effect from 01 July 2015. We are however continuing our effortto impress upon the Railways to use the Safety System and achieve better safety record inNF Railways. However owing to change over to TCAS there is no surety.
6. Your MD has taken an active part in the discussion & collaboration oftechnologies for high speed bullet train project from Mumbai to Ahmedabad sector inorder to meet up Japanese companies for signal and safety related technologies.
7. Egypt: Egypt is likely to come-up with new Lx systems and also modernization ofRailways with new locos Rolling stock signal and safety systems. We are exploring thepossibilities with MNCs to take up execution as a local partner with a matchingup-gradation of local marketing setup.
8. South Africa: To build up further on our strengths of providing collision preventivedevices in South Africa in coal terminals and provide appropriate TCAS to South Africanrailways a marketing tie- up is being planned.
9. Tie-up with Nippon Signal: Discussions are ongoing with Nippon Signals formanufacturing their safety systems in India for High speed trains Metros and other trunkroute trains in India. This may take up to one year as it is a slow decision makingprocess.
Future Projects Abroad:
10. Egypt South Africa Sri Lanka Australia and some African countries are at presentupgrading their railway infrastructure. With suitable technology and marketing setup wecould expand our product market.
New Areas of Business in India:
11. Immediate prospects for the company depends on the proliferation of TCAS all overIndia and the Railway ministry's early initiatives. This is being pursued at highestlevel. Union Railway Minister in the Railway Budget speech in Parliament on 26 Feb 2016that Railways have taken up 8 major works under critical mission category'including TCAS.
12.Supply of Lxs Automatic gates for dedicated freight corridors where incorporationof Rail Road over bridges could provide the company a good opportunity to expand its Lxmarket.
13. Number of defence projects under Make in India' program could provideopportunities to your companys which are being studied and explored.
Research & Development:
14. Your company has capability to undertake R & D work develop a new product andbring to the commercial stage in a short period like in the case of ACD TCAS and LxSystem. There is scope to develop products for Railways Universal Interface for locobreaking system computerized display system in Locos and division control centreElectronic inter locking system etc. Single & multiple digital axle countersIntegrated Power Supplies Hot axle & vibration detection systems. However these canbe undertaken as and when demand arises and funds are available. R & D often requirescollaboration with MNC's in important items of Defence Railways and Energy Systems. Thecompany is exploring such possibilities.
Progress on IPO
15. Progress achieved on the IPO and company expansion projects: As part of IPO relatedwork acquiring of some land corridor to the main road are in progress for which Rs. 160lakhs is in deposit with the monitoring agency State Bank of Hyderabad surplus if anycould be used for TCAS work.
16. Overseas Subsidiary and consolidated financial statement:
The Company has one 100% wholly owned subsidiary Avant Garde Info systems inc. USA asat 31st March 2016. In accordance with section 129 (3) of the Companies Act 2013 theCompany has prepared consolidated financial statement of the Company and the subsidiarywhich forms part of the Annual Report for laying before the Annual General Meeting. Areport on the performance and financial position of the subsidiary forms part of theconsolidated statement in Form AOC-1.
Dividend and Reserves:
17. The company has incurred heavy loss in the financial year as new orders did notmaterialize and the expected dues were not received. Work progress on ENR was also tardy.Your directors regret their inability to declare any dividend on the paid up capital ofthe company.
Material changes and commitments:
18. No material changes and commitments affecting the financial position of the Companyoccurred between the end of the financial year to which the financial statements relateand the date of this report. There was no change in the nature of business of the Companyduring the financial year ended 31st March 2016.
19. Directors and Key Managerial Personnel: Other Corporate Information
i. Col. L.V. Raju (Retd.) Managing Director- KMP*
ii. Mr. Murali Mohan Director Technical (WTD) - KMP
iii. Dr. ManthenaAnjiRaju Non Exec. Director
iv. Dr. ManthenaNarasaraju Non Exec. Director
v. Dr. VintaJanardhanreddy Non Exec. Director
vi. Dr. JyothiRaju Non Exec. Director
vii. Mr. M. Gopalakrishna IAS (Retd.) Independent Director
viii. Mr. A. Venkataratnam Independent Director
ix. Mr. Arun kumar Sanwalka Independent Director
x. CS. S. Srinivasa Kiran Company Secretary- cum-Compliance Officer - kMp Col L V Raju(Retd.) re-appointed from 1st July 2015 for a period three years and obtained approvalfrom Shareholders in 23rd AGM but resigned on 09th August-2016 and will continuetill 31stOctober 2016.
Dr. JyothiRaju Non-Executive Director also resigned on 09th August-2016 on personalgrounds.
20. Declaration by Independent Directors:
All the independent directors submitted their disclosures to the Board that theyfulfill all the requirements as stipulated in Section 149(6) of the Companies Act 2013 soas to continue to qualify for appointment and continue as Independent Directors under theprovisions of the Companies Act 2013 and the rules framed there under.
21. Nomination and Remuneration Policy of Directors Key Managerial Personnel and otherEmployees :
In terms of section 178(1) of the Companies Act 2013 the Board on the recommendation ofthe Nomination and Remuneration committee approved the criteria and policy for selectionand appointment of directors key managerial persons and their remuneration. Theremuneration policy forms part of the report on corporate governance.
22. Board Evaluation :
SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015 mandatesthat the Board shall monitor and review the Board evaluation framework. The frameworkincludes the evaluation of Directors on various parameters such as:
Board dynamics and relationships
Relationship with stakeholders
Company Performance and strategy
Tracking Board and committees' effectiveness and
The performance of the Board was evaluated by the Board after seeking inputs from allthe directors on the basis of the criteria such as the Board composition and structureeffectiveness of board processes information and functioning etc.
The performance of the committees was evaluated by the board after seeking inputs fromthe committee members on the basis of the criteria such as the composition of committeeseffectiveness of committee meetings etc.
The Board and the Nomination and Remuneration Committee ("NRC") reviewed theperformance of the individual directors on the basis of the criteria such as thecontribution of the individual director to the Board and committee meetings likepreparedness on the issues to be discussed meaningful and constructive contribution andinputs in meetings etc. In addition the Chairman was also evaluated on the key aspectsof his role.
In a separate meeting of independent Directors performance of non-independentdirectors performance of the board as a whole and performance of the Chairman wasevaluated taking into account the views of executive directors and non-executivedirectors & KMPs. The same was discussed in the board meeting that followed themeeting of the independent Directors at which the performance of the Board itscommittees and individual directors was also discussed.
23. Number of meetings of the Board of directors :
8 times during the year 2015-16 (As per Annexure)
24. DIRECTORS' RESPONSIBILITY STATEMENT
The financial statements are prepared in accordance with the Generally AcceptedPrinciples (GAAP) under the historical cost convention on accrual basis which aremeasured at fair values. GAAPs comprises mandatory accounting standards as prescribedunder section 133 of the Companies Act 2013 (the Act) read with Rule 7 of theCompanies (Accounts) Rules 2014 the provisions of the act (to the extent notified) andguidelines issued by SEBI. Pursuant to Section 134(5) of the Companies Act 2013 theboard of directors to the best of their knowledge and ability confirm that :
I. in the preparation of the annual accounts the applicable accounting standards havebeen followed and there are no material departures;
ii. they have selected such accounting policies
and applied them consistently and made judgments and estimates that are reasonable andprudent so as to give a true and fair view of the state of affairs of the Company at theend of the financial year and of the profit of the Company for that period;
iii. they have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;
iv. they have prepared the annual accounts on a going concern basis;
v. they have laid down internal financial controls to be followed by the Company andsuch internal financial controls are adequate and operating effectively;
vi. they have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively. Based onthe framework of internal financial controls and compliance systems established andmaintained by the Company work performed by the internal statutory and secretarialauditors and external consultants and the reviews performed by management and the relevantboard committees including the audit committee the board is of the opinion that theCompany's internal financial controls were adequate and effective during the financialyear 2015-16.
25. Internal Financial controls:
The Company has laid down policies and procedures to be adopted for ensuring theorderly and efficient conduct of its business including adherence to company's policiesthe safeguarding of its assets the prevention and detection of fraud and errors theaccuracy and completeness of the accounting records and the timely preparation ofreliable financial information. An independent Audit committee of the board reviews theadequacy of internal controls.
26. Particulars of Loans Guarantees and Investments :
The details of Loans Guarantees and Investments covered under the provisions ofSection 186 of the Companies Act 2013 forms part of the financial statements.
27. Audit committee of Board:
The Audit Committee of the company comprises four (4) Directors including three (3)independent Directors and the Managing Director. The Chairman of the Audit Committee waspresent at the Board Meeting where Annual accounts have been approved.
28. Corporate Social Responsibility (CSR):
The Company having regard to the net profit/turnover/net worth is not covered under theprovisions of Section 135 of the Companies Act 2013 relating CSR activities.
29. Related Party Transactions:
All the related party transactions by the Company during the year 2015-16 were on anarm's length basis and were in the ordinary course of business and as such the provisionsof section 188 are not attracted. There are no materially significant Related PartyTransactions with Promoters Directors Key Managerial persons or other designated personsduring the year.
30. Familiarization Programme for Independent Directors :
In terms of clause 49(II)(B)(7) of the Listing Agreement with the Stock exchanges theCompany familiarizes all the independent directors about their roles responsibilitiesrights in the company nature of Industry Risk Management Board evaluation process andprocedures financial controls and management. Board effectiveness strategic directionetc.
31. Extract of Annual Returns :
The extract of the Annual Return in Form No. MGT-9 forms part of the Director's Report.
32. Risk Management :
During the year under review the Audit Committee of Directors was entrusted with theresponsibility of identification assessment and addressing of various risks which maythreaten the existence of the Company and to assist the Board in overseeing the riskmanagement framework and to manage monitor and report on the principal risk anduncertainties that can impact its ability to achieve its strategic objectives. The absenceof the Chief Financial Officer and collection of overdue amounts from M/s. Konkan Railway
Corporation Limited (KRCL) and tardy project management in ENR Egypt have affected ourattempts at better risk management. We have referred our case regarding dues from KRCL toArbitration for a sum of Rs. 98 Crores (approx.)
33.Transfer of Unclaimed dividend :
The unclaimed dividend for the financial year 2008-09 Rs.48779/- was transferred toInvestor Education and Protection Fund and the sum for the financial year 2009-10 is duefor transfer.
34.Statutory Auditors: M/s GMK Associates Chartered Accountants Hyderabad werereappointed as statutory auditors at 23rd AGM of the Company held on 28th September 2015for a period of three years subject to ratification at every AGM. They have confirmedtheir eligibility to the effect that their re-appointment if made would be within theprescribed limits under the Act and that they are not disqualified for reappointment
35. Secretarial Audit :
In terms of section 204(1) of the Companies Act 2013 and the Companies (Appointment andRemuneration of Managerial Personnel) Rules 201 4 the Company has appointed Mr.AbhishekShukla Practicing Company Secretary and Sr. Partner of M/s. AbhiskekShukla&Associates to conduct Secretarial Audit for the year 2015-16 and their report is annexedto this report
36. Conservation of Energy Technology Absorption and Foreign Exchange Earnings andoutgo:
The information pertaining to conservation of energy technology absorption foreignexchange earnings and outgo as required under section 134(3) (m) of the Companies Act 2013read with Rule 8 (3) of the companies (Accounts) Rules 2014 is furnished in Annexure B andforms part of this report.
37. Particulars Relating to Remuneration of Directors/Key Managerial Personnel andemployees:
Disclosures pertaining to remuneration and other details as required under section192(12) of the Act read with Rules 5(1) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 are provided in the Annual Report.
There were no employees drawing remuneration in excess of the limits contained in Rules5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014.
No disclosure or reporting is required on the following:
a. The Company has not accepted any deposits covered under Chapter V of the Act
b. No equity shares with differential rights as to dividend voting or otherwise wereissued.
c. No sweat equity shares were issued
d. No remuneration or commission was received by the Managing Director/Whole-timedirector of the Company from subsidiary company
e. No significant or material orders were passed by the Regulators or Courts orTribunals which impact the going concern's status and Company's operations in future
f. No cases filed pursuant to the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013
38. Corporate Governance Report:
The Company's committed to adhere to the corporate governance requirements set out bySEBI. The report on Corporate Governance as stipulated under the Listing Agreement formsan integral part of this Report. The requisite certificate from the Auditors of theCompany confirming compliance with the conditions of corporate governance is attached tothe report on Corporate Governance.
39. Management Discussion & Analysis (MDA):
Management's Discussion and analysis Report for the year under review as stipulatedunder Clause 49 of the Listing Agreement with the Stock Exchanges in India is presentedin a separate section forming part of the Annual Report.
40. Share Capital & Unsecured Loans:
The authorised share capital of the Company has remained unchanged atRs.150000000/-. The called up and paid up Share capital as on 31.03.2016 stood at Rs.124996550/-. No fresh loans were taken from the Banks/Government during the year.
41. Board Composition
The Company has a Non-Executive Chairman. The Board of Directors of the Companyconsists of eminent persons with professional expertise. The Board comprises of twoExecutive Directors and Seven Non-executive Directors of whom three are independentDirectors as on March 31 2016. Accordingly the Composition of the Board is in conformitywith the listing agreement entered with Stock Exchanges.
None of the Directors on the Board is a member on more than 10 committees or Chairmanof more than 5 committees as specified in listing agreement across all the Companies inwhich he is a Director. Necessary disclosures regarding Committee positions have been madeby the Directors.
The names and categories of the Directors on the Board their attendance at BoardMeetings held during the year and the number of Directorships and Committee membershipsheld by them in other companies is given below. Other directorships do not includealternate directorships directorships of private limited Companies and companiesincorporated outside India. Chairmanship/membership of Board committees includesmembership of Audit and Shareholders/Investor Grievance Committee.
42. Auditors Certificate on Corporate Governance:
As required by SEBI (LODR) Regulations 2015 the Auditors Certificate on CorporateGovernance is enclosed as Annexure which forms part of the Directors Report. The AuditorsCertificate for fiscal 2016 doesn't contain any qualification reservation or adverseremark.
Pursuant to the provisions of Section 139 of the Act and the rules framed thereunderM/s. GMK & Associates Practicing Chartered Accountants (Firm Registration No.006945S) were appointed as statutory auditors of the Company from the conclusion of theTwenty Third (23rd) Annual
General Meeting (AGM) of the Company held on 28th September 2015 till the conclusionof the Twenty Fourth AGM to be held in the year 2016 subject to ratification of theirappointment at every AGM.
44. Auditors' report and secretarial auditors' report
The auditors' report and secretarial auditors' report does not contain anyqualifications reservations or adverse remarks. Report of the secretarial auditor isgiven as an annexure which forms part of this report.
45. Extract of annual return
There was one EGM (held on 24th May 2015) conducted during the Financial Year 2015-16.
46. Particulars of employees
The information required under Section 197 of the Act read with rule 5(1) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are givenbelow:
There are no employees/Whole Time Director & MD/KMPs whose salary is beyond thethreshold limit of Rs.6000000/- per annum (Rs.500000/- per month) as prescribed underSchedule V of the Companies Act 2013 and the rules thereunder.
47. Disclosure requirements
As per Clause 49 of the listing agreements entered into with the stock exchangescorporate governance report with auditors' certificate thereon and management discussionand analysis are attached which form part of this report.
As per Clause 55 of the listing agreements entered into with the stock exchanges abusiness responsibility report is attached and forms part of this annual report.
48. Corporate Governance Philosophy of Kernex
Corporate Governance is about maximizing the Shareholder value legally ethically andsustainably. At Kernex the goal of Corporate Governance is to ensure fairness for everyshareholder. We believe sound corporate governance is critical to enhance and retaininvestor trust. We always seek to ensure that our performance is driven by integrity. OurBoard exercises its fiduciary responsibilities in the widest sense of the term. Ourdisclosures seek to attain the better practices in Corporate Governance. We also endeavorto enhance longterm shareholder value and respect minority rights in all our businessdecisions.
49. Vigil Mechanism:
The Company in compliance with the provisions of Section 177(9) of the Companies Act2013 and clause 49 of the listing agreement framed a Whistle Blower Policy/Vigil Mechanismfor reporting illegal or unethical behavior. The employees are free to report violationsof applicable laws and regulations under the Code of Conduct. The Audit Committee reviewsreports received from the employees who may also directly report to the Chairman of theAudit Committee. The whistle blower policy is also posted on the Company's website.
Your Directors would like to express their sincere appreciation for the guidanceassistance and co-operation received from the Indian Railways RDSO Egyptian RailwaysKonkan Railway Corporation Ltd. State Bank of Hyderabad Government authorities andmembers during the year under review. Your Directors also wish to place on record theirdeep sense of appreciation for the dedicated contribution of all employees.
|By order of the Board || |
|For KERNEX MICROSYSTEMS (INDIA) LIMITED || |
| ||Col. L.V. Raju (Retd.) |
| ||Managing Director |
| ||(DIN:00052102) |
|Place: Hyderabad || |
|Date: 09-08-2016 || |
Annexure - B to the Director's Report
Statement in accordance with Section 134 (3) (m) of the Companies Act 2013 read withRule 8 of the Companies (Accounts) Rules 2014 and forming part of the Boards' Report forthe year ended 31st March 2016.
A. Conservation of Energy
The activities of the company do not result in significant consumption of energy.However the company takes all the necessary steps to conserve energy at the offices andwork places on an ongoing basis.
B. Technology Absorption Adaptation and Innovation :
There is no imported technology involved in the operation of the company. The companycontinues to focus its attention towards the rapid technological changes in the fields ofits activity and train the man power continuously to improve the productivity. Thetechnologies being used are indigenous and the company has evolved a training methodologyto measure the extent of adaptation by its personnel and training needs are accordinglyidentified.
The Company is further in the process of R&D projects like Train CollisionAvoidance System (TCAS) etc. these efforts are likely to become import substitutes ateconomical prices and suitable to Indian Railways and other railways working in developingcountries.
C. Foreign Exchange Earnings and Outgo :
| || ||(Rs. in Lakhs) |
| ||Current Year ||Previous year |
|Foreign Exchange Used ||94.00 ||183.70 |
|Foreign Exchange earned ||54.47 ||212.97 |
| ||For and on behalf of the Board |
| ||Col. L.V. Raju (retd.) |
| ||Managing Director |
| ||(DIN No:00052102) |
|Hyderabad || |
|09th August'2016. || |