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Kinetic Engineering Ltd.

BSE: 500240 Sector: Auto
NSE: KINETICENG ISIN Code: INE266B01017
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OPEN 65.25
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VOLUME 16355
52-Week high 112.40
52-Week low 64.00
P/E
Mkt Cap.(Rs cr) 113
Buy Price 67.50
Buy Qty 181.00
Sell Price 68.40
Sell Qty 599.00
OPEN 65.25
CLOSE 66.40
VOLUME 16355
52-Week high 112.40
52-Week low 64.00
P/E
Mkt Cap.(Rs cr) 113
Buy Price 67.50
Buy Qty 181.00
Sell Price 68.40
Sell Qty 599.00

Kinetic Engineering Ltd. (KINETICENG) - Director Report

Company director report

2015-16

(Including Management Discussion & Analysis)

Dear Members

Your Directors present the 45th Annual Report on the business and operationsof Kinetic Engineering Limited and the Audited Financial Accounts for the financial yearended 31st March 2016.

Business Overview

I believe that the year 2015 2016 is a historic year for your Company. During thisyear your Company which forayed into auto components a few years ago has implementedmajor strategic initiatives to ensure a healthy and bright future in the chosen field. Dueto these initiatives which are explained below your Company now lies at the path ofgrowth and profitability in the coming future. These initiatives include:

Initiatives taken towards business growth

In the year 2015 2016 your Company has obtained and developed major business frominternational customers. It has utilized its available technical expertise to ensure asuccessful implementation of these high volume prestigious programmes. The following isthe status:

1) Development of components for Renault Nissan: Your company has successfullydeveloped sleeves and dog teeth components for global major Renault Nissan. Thesecomponents are supplied to the new platform of gearboxes developed by RNTBC and is used inthe widely successful Renault Kwid and the Nissan Redi Go. Our customer has seen a majorsuccess in both these models due to its features styling and value proposition and YourCompany is proud to be a part of a high growing programme. Currently the production forthis continues to grow at 20% month on month; and is expected to further double by the endof the year 2016 2017 as per the volume projections given to us. Furthermore Your companyshall export the same components for RNTBC s worldwide usage of the gearbox which is alsoexpected to comment shortly. Overall hence this business shall become a major part of theCompany s growth in the coming years

2) Development of High Value Component for American Axle: Your company has successfullycompleted the development and validation requirement of a single component that shall beexported (deemed) to the American Major American Axle. The production and supply of thiscomponent has begun and is in high ramp up stage.

The Above 2 business alone are expected to ramp up to an annual revenue of 55 60crores which is equal to your company s current revenues!

In addition to the above your company has also commenced mass production to MagnaPowertrain in Muncie USA. Your Company has also received the order for the developmentand production for a 380 NM gearbox to be supplied to Ashok Leyland for one of theirimportant vehicles. This gearbox has been designed under Your Company s technicalagreement with Magna Styer India and shall be supplied as a fully assembled gearboxstrengthening your Company s image as the country s fastest growing commercial vehiclegearbox manufacturer. Your Company also believes that successful implementation of theabove initiatives shall result in larger business opportunities from these very premiumcustomers.

The new gearbox being developed for Ashok Leyland

Your Company continues to make products for Indian OEMs including TATA MahindraCarraro India and exporting to BRP (USA) Tomos (Slovenia) which have been the customerswho have supported Your Company since the beginning of its foray into auto components.

Initiatives taken towards reduction of costs:

Debt and interest burden reduction

Your Company has settled and paid the entire FCCB due as well as the loan from RelianceCapital Ltd amounting to a debt reduction of Rs. 77.50 crores. Currently hence theliabilities of the company have come substantially down and your company is now left withworking capital limits and

ICDs from promoters freeing itself from external long term debt. This way the companycan now focus on implementing a robust business model on the strength of itsinfrastructure and technical knowledge. This has also reduced the interest burden for thecompany by Rs. 1.49 Crores enabling it to use its cash flow usage towards business andrequired capex.

Material Cost reduction

Your Company has successfully completed its entire backward integration into forgings.An initiative started 2 years ago today your Company makes more than 95% of itsrequirement of forgings in house compared to previous years where this was a bought outcommodity. The Company now runs 2 hammer forgings and 1 x 1300 ton press forgings which itpurchased during this year. Currently the company has reached a forging production ofabout 300 tons per month and plans to increase the same along with the business growth.Due to this major initiative Your company continues to reduce its material cost which hasnow come down to 51%.

The Company has also benefitted from the reducing fuel prices as the above forgings andheat treatment shops run primarily on crude oil products.

The Company continues to explore avenues of further reduction of costs by exploringoptions to reduce the fixed overheads including electricity manpower fuels packagingand freight.

KEL has commenced mass production for Renault s highly successful model

KWID and Nissan Redi GO. KEL is further developing components for the AMT & 100 NMversions along with commencing its exports.

With a quality system set up in tune with the requirements of ISO 9001 and with ISO/TS16949:2002 certification the Company plans to leverage its skills in domestic as well asinternational market by further striving for total customer satisfaction throughrelationship building and providing superior products and technological solutions to itscustomers. The Company has further strengthened its quality systems by an internal qualityassessment system called as"KQAA" (Kinetic Quality Assessment and Awards")which reviews and rewards exceptional practices in Quality at each cell. Various effortsand initiatives have been taken to have a larger focus on Kaizens Pokayoke QualityAnalysis methodology APQP documentation and other systems that will ensure a sustainableeffort for the business.

The company has launched KEDS ; a training center called as Knowledge Enhancement &Development of Skills Center for its employees in its Ahmednagar facility which focuses onmotivational and training of its staff and workers at regular intervals.

Overview of Settlement with FCCB holders and Reliance:

Company had a FCCB Liability of about Rs. 142 Crores. Company had settled the same andwas awaiting the approval of RBI.

During the year Company received approval of RBI for the settlement reached with FCCBholders and settlement of the liability was completed as under:

1. Rs. 70 Crores Cash Payment; and

2. By way of issuing 2340499 shares of the Company at a price of Rs. 156 per share.

During the year Company also completed the settlement of dues of Rs. 7.25 Crores withM/s. Micro Age Instruments Private Limited a promoter group Company at Rs. 3.50 Crores byissuing 224359 shares of the Company at a price of Rs. 156 per share.

Similarly during the year Company also settled the liability of Reliance CapitalLimited and Payone Enterprises Pvt. Ltd. of Rs. 33.10 Crores.

Accordingly the Loan and Preference Shares liability will be settled as under:

1. Rs. 14.15 Crores Cash Payment; and

2. By way of issuing 600000 shares of the Company at a price of Rs. 156 per share.

The said issue of 600000 shares was pending shareholders approval as on 31.03.2016.

The above referred negotiations and settlements helped the Company to further improveits net worth and reduction of its liabilities.

Management Discussion & Analysis

While the global recovery was still slow and witnessing divergenttrends Indian Economygrew at 7.8% in the Financial Year 2015-16 against 7.3% in 2014-15 (Source: IndianStatisticalOffice (CSO) of India data). The major contributor was themanufacturing sectorwhich registered 7.1% growth for the year.

The Government has initiated a slew of steps to take the economy forward.

Industry Overview

Industry structure

The automotive industry is an engine of growth for the Indian economy. The autocomponent industry contributes 25.6% to the manufacturing GDP and 2.2% to National GDPproviding direct employment to 1.5 million people. To help the auto component industrythe government has announced a slew a reforms in the Budget 2015 and the Foreign TradePolicy 2015. Forward looking policy measures such as announcement of introduction of GSTconsolidation of various exports schemes simplification of procedures to help integrateIndia into the global value chain improving ease of doing business index through onlineand e-governance interventions and reducing the transaction costs augur well for theindustry. The major business of your Company comes from exports. Company also benefittedfrom the strengthening of the rupee. All these factors have helped the Company immensely.

Outlook Opportunities and Threat

The Indian auto industry (the industry) is one of the largest and one of the mostcompetitive in the world. The industry is expected to perform better in the financial year2016-17 in view of the improving macros the Seventh Central Pay Commission bountysoftening interest rates lower fuel cost and inflation.

The Indian Commercial Vehicle Industry is witnessing sizeable investments by OriginalEquipment Manufacturers (OEMs) towards upgrading their product portfolio introducing newmodels and expanding manufacturing capacities.

Government of India aims to make automobile manufacturing the main driver of 'Make inIndia' initiative and has set up a separate independent Department for Transportcomprising of experts from the automobile sector. Investments in road projects is expectedto grow at a healthy pace during the next five years led by the government's focus on thesector.

Deposits

During the year under review your Company did not accept any deposits within themeaning of provisions of Chapter V Acceptance of Deposits by Companies of the CompaniesAct 2013 read with the Companies (Acceptance of Deposits) Rules 2014.

Share Capital

The paid up equity share capital as on 31st March 2016 was Rs. 16.13 cr.

During the year Company issued 2340499 Shares to FCCB holders and 224359 Shares toPromoters on account of Settlement reached and full and final Settlement of their dues.

Research & Development

Research and development is viewed as crucial for development of the Company. Theseactivities add in expanding and upgrading the product portfolio and improving theofferings to the customers.

Conservation of Energy Technology Absorption and Foreign Exchange Earnings and Outgo

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 I andis attached to this Report.

Auditors

The auditors M/s P. G. Bhagwat Chartered Accountants hold office until the ensuingAnnual General Meeting and have furnished a certificate in terms of Sec. 224(1) of theCompanies Act 2013 about their eligibility.

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 hasappointed Mr. Devendra V. Deshpande Practicing Company Secretary (Certificate of PracticeNumber: 6099) to undertake the Secretarial Audit of the Company.

In terms of provisions of sub-section 1 of section 204 of the Companies Act 2013 theCompany has annexed to this Board Report as Annexure II a Secretarial Audit Report givenby the Secretarial Auditor.

The Secretarial Audit Report does not contain any qualification reservation or adverseremark.

Employees

Key Managerial Personnel (KMP)

The following have been designated as the Key Managerial Personnel of the Companypursuant to sections 2(51) and 203 of the Companies Act 2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014:

a) Ms. Sulajja Firodia Motwani Vice Chairperson

b) Mr. Ajinkya A. Firodia Managing Director & CFO

c) Mr. Rohit Purandare Company Secretary (CS)

Mr. Mukund Tasgaonkar CFO of the Company resigned during the year. In his place Mr.Ajinkya A. Firodia Managing Director of the Company was designated as Chief FinancialOfficer (CFO).

Particulars of Employees and related disclosures:

In terms of the provisions of Section 197(12) of the Companies Act 2013 read withRules 5(2) and 5(3) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 a statement showing the names and other particulars of theemployees drawing remuneration in excess of the limits set out in the said Rules areprovided in the Annexure forming part of the Annual Report.

Disclosures pertaining to remuneration and other details as required under Section197(12) of the Companies Act 2013 read with Rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 are provided in the Corporate GovernanceReport which is attached as Annexure III forming part of the Annual Report.

Having regard to the provisions of Section 136(1) read with its relevant provision ofthe Companies Act 2013 the Annual Report excluding the aforesaid information is beingsent to the members of the Company. The said information is available for inspection atthe Registered Office of the Company during working hours and any member interested inobtaining such information may write to the Company Secretary and the same will befurnished without any fee and free of cost.

Board Meetings and Annual General Meeting

During the year 5 meetings of the Board of Directors were held. The details of themeetings are furnished in the Corporate Governance Report which is attached asAnnexure-III to this Report.

A calendar of Meetings is prepared and circulated in advance to the Directors Rs

During the year 1st April 2015 to 31st March 2016 5 Board Meetings were held on 22ndJuly 2015 13th August 2015 9th November 2015 31st December 2015 12th February2016. The 44thAnnual General Meeting (AGM) of the Company was held on 30thSeptember2015.

Meetings of Independent Directors

The Independent Directors of the Company meet before the Board Meetings without thepresence of the Chairman & Managing Director or Executive Director or otherNon-Independent Directors or Chief Financial Officer or any other Management Personnel.

These Meetings are conducted in an informal and flexible manner to enable theIndependent Directors to discuss matters pertaining to inter alia review of performanceof Non-Independent Directors and the Board as a whole review the performance of theChairman of the Company (taking into account the views of the Executive and Non-ExecutiveDirectors) assess the quality quantity and timeliness of flow of information between theCompany Management and the Board that is necessary for the Board to effectively andreasonably perform their duties.

Audit Committee

This Committee comprises of the following Directors viz. Mr. Shirish R. Kotecha(Chairman of the Committee) Mr. Jinendra H. Munot Mr. Ramesh J. Kabra and Mr. K. H.Sancheti. All the Members are Independent Directors. All the Members of the Committeepossess strong accounting and financial management knowledge. The Company Secretary of theCompany is the Secretary of the Committee.

All the recommendations of the Audit Committee were accepted by the Board.

Directors and Key Managerial Personnel

During the year under review there was no change in the composition in the Board ofDirectors of the Company.

Ms. Sulajja Firodia Motwani Vice Chairperson of the Company retires by rotation atthe forthcoming Annual General Meeting and being eligible offers herself forre-appointment.

The Independent Directors of the Company have declared that they meet the criteria ofIndependence in terms of Section 149(6) of the Companies Act 2013 and that there is nochange in their status of Independence.

Mr. Mukund Tasgaonkar Chief Financial Officer of the Company resigned from the postw.e.f. 30th June 2015. In his place Mr. Ajinkya A. Firodia Managing Directorof the Company was designated as Chief Financial Officer at the Board Meeting held on 31stDecember 2015.

Extract of Annual Return

Pursuant to sub-section 3(a) of section 134 and sub-section (3) of section 92 of theCompanies Act 2013 read with Rule 12(1) of the Companies (Management and Administration)Rules 2014 an extract of the Annual Return as on 31st March 2016 in Form No. MGT 9 isattached herewith as Annexure IV and forms part of this Report.

Board Evaluation

Pursuant to the provisions of the Companies Act 2013 and Clause 49 of the ListingAgreement Independent Directors at their meeting without the participation of theNon-independent Directors and Management considered/evaluated the Boards performancePerformance of the Chairman and other Non-independent Directors.

The Board have undergone a formal review which comprised Board effectiveness survey360 degree and review of materials. This was delivered by an external specialist andresulted in afull Board effectiveness report and Directors feedback. This is furthersupported by the Chairman s Annual Director Performance Review.

The Board subsequently evaluated its own performance the working of its Committees(Audit Nomination and Remuneration and Stakeholders Relationship Committee) andIndependent Directors (without participation of the relevant Director).

The criteria for performance evaluation have been detailed in the Corporate GovernanceReport which is attached as Annexure-III to this Report.

Material changes and commitments affecting the financial position of the Company whichhave occurred between March 31 2016 and August 9 2016 (date of the Report)

There were no material changes and commitments affecting the financial position of theCompany between the end of financial year (March 31 2016) and the date of the Report(August 09 2016).

GOVERNANCE

Corporate Governance

Your Company has a rich legacy of ethical governance practices many of which wereimplemented by the Company even before they were mandated by law. Your Company iscommitted to transparency in all its dealings and places high emphasis on business ethics.A Report on Corporate Governance along with a Certificate from the Statutory Auditors ofthe Company regarding compliance with the conditions of Corporate Governance as stipulatedunder Clause 49 of the Listing Agreement which is attached as Annexure III to this AnnualReport.

Vigil Mechanism

The Vigil Mechanism as envisaged in the Companies Act 2013 the Rules prescribedthereunder and the Listing Agreement is implemented through the Company s Whistle BlowerPolicy to enable the Directors and employees of the Company to report genuine concerns toprovide for adequate safeguards against victimisation of persons who use such mechanismandmake provision for direct access to the Chairman of the Audit Committee.

Whistle Blower Policy of the Company is available on the Company s website at theweb-link: www.kineticindia.com/investors

Further details are available in the Report on Corporate Governance that forms part ofthis Annual Report.

Contracts or Arrangements with Related Parties

All Related Party Transactions entered into during the year were in the Ordinary Courseof Business and on Arm s Length basis. No Material Related Party Transactions i.e.transactions exceeding ten percent of the annual financial turnover as per last auditedfinancial statements were entered during the year by your Company. Accordingly thedisclosure of Related Party Transactions to be provided under section 134(3)(h) of theCompanies Act 2013 in Form AOC-2 is not applicable.

The policy on Related Party Transactions as approved by the Board is uploaded on theCompany s website and can be accessed at web link: www.kineticindia.com/investors

Internal Control System

The company has adequate internal control system commensurate with its size and natureof business for ensuring efficiency of operations adherence to management policies andprotection of company's assets. The company's Audit Committee periodically reviews theinternal control systems and compliance with Company's policies procedures and laws.

Cautionary Statement

The report contains estimates and expectations which could be 'forward looking'.Actual results however might differ from estimates and expectations expressed or impliedin this report as the same are affected by many other uncertainties including rawmaterial availability & prices changes in Government regulations tax regimeseconomic developments and other incidental factors.

Directors responsibility statement

Pursuant to section 134(5) of the Companies Act 2013 your Directors based on therepresentations received from the Operating Management and after due enquiry confirmthat:

(a) in the preparation of the annual accounts for the Financial Year ended 31st March2016 the applicable accounting standards have been followed;

(b) the Directors had in consultation with Statutory Auditors selected accountingpolicies and applied them consistently and made judgments and estimates that arereasonable and prudent so as to give a true and fair view of the state of affairs of theCompany as at 31st March 2016 and of the profit of the Company for the year ended on thatdate;

(c) the Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud andirregularities;

(d) the Directors have prepared the annual accounts on a going concern basis;

(e) the Directors have laid down adequate Internal Financial Controls to be followed bythe Company and such Internal Financial Controls were operating effectively during theFinancial Year ended 31st March 2016;

(f) the Directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectivelythroughout the Financial Year ended 31st March 2016.

Remuneration Policy of the Company

The Remuneration policy of the Company comprising the appointment and remuneration ofthe Directors Key Managerial Personnel and Senior Executives of the Company includingcriteria for determining qualifications positive attributes independence of a Directorand other related matters has been provided in the Corporate Governance Report which isattached as Annexure-III to this Report.

Particulars of loans guarantees or investments under Section 186 of the Companies Act2013

Details of loans guarantees and investments covered under the provisions of Section186 of the Companies Act 2013 are given in Note A-11 of the Notes to the financialstatements.

Significant and Material Orders Passed by the Regulators or Courts or Tribunalsimpacting the Going Concern status of the Company

There are no significant and material orders passed by the Regulators or Courts orTribunals which would impact the going concern status of the Company.

Acknowledgement

The directors express their sincere thanks to Central & State GovernmentsFinancial Institutions banks who have extended their support in form of CreditFacilities suppliers and stakeholders for the support extended to the Company and alsowish to place on record their appreciation of the dedicated services rendered by theemployees of the Company.

For and on behalf of the Board of Directors

A. H. Firodia

Chairman

Pune August 09 2016