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M M Forgings Ltd.

BSE: 522241 Sector: Engineering
NSE: MMFL ISIN Code: INE227C01017
BSE LIVE 15:40 | 22 Sep 652.05 -21.40
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NSE 15:59 | 22 Sep 652.00 -19.45
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OPEN

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OPEN 668.05
PREVIOUS CLOSE 673.45
VOLUME 1744
52-Week high 725.00
52-Week low 403.05
P/E 17.43
Mkt Cap.(Rs cr) 787
Buy Price 0.00
Buy Qty 0.00
Sell Price 652.05
Sell Qty 32.00
OPEN 668.05
CLOSE 673.45
VOLUME 1744
52-Week high 725.00
52-Week low 403.05
P/E 17.43
Mkt Cap.(Rs cr) 787
Buy Price 0.00
Buy Qty 0.00
Sell Price 652.05
Sell Qty 32.00

M M Forgings Ltd. (MMFL) - Director Report

Company director report

1. FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2016

( Rs. in Lakhs)

2015-16 2014-15
1.1. Forging Sales 48905.80 48950.32
1.2. Profit before exceptional items/extraordinary items and Tax 6928.91 6865.02
1.3. Exceptional/Extraordinary Items 0.55 1.42
1.4. Profit Before Tax 6929.46 6866.44
1.5. Tax
For current year 1725.00 1690.00
Relating to previous years 52.18 36.92
Deferred Tax 143.45 84.70
1920.63 1811.62
Profit After Tax 5008.83 5054.82
The Directors commend the employees for their commitment and contribution.
2. DIVIDEND AND FINANCIAL RESULTS: ( Rs. in Lakhs)
2015-16 2014-15
2.1. Profit After Tax 5008.83 5054.82
2.2. Balance in P & L Account 177.08 463.97
2.3. Profit available for appropriation 5185.91 5518.79
2.4. Transfer to General Reserve 4100.00 4500.00
2.5. Interim Dividend paid 841.71 841.71
2.6. Balance carried forward 244.20 177.08

The Directors had declared Two Interim Dividend of 30% - Rs. 3/- per share of facevalue of T 10/- each on 7 November 2015 and 10 March 2016. With this the total Dividendfor the year ended 31st March 2016 will aggregate to Rs. 6/- per share. TheDirectors do not recommend any final dividend for the year 2015-16.

3. HIGHLIGHTS OF THE COMPANY’S OPERATIONAL PERFORMANCE

3.1. Sales Turnover of the Company crossed Rs. 500 Crores for the second time in theCompany’s History.

3.2. Exports at Rs. 337.43 Crores accounting for 69% of Company's Sales. The Companyhas crossed the Rs. 325 Crore mark for the second time in export sales. The Companycontinues to be one of the largest exporter of forgings from India and has received 25consecutive Annual Awards from The Engineering Exports Promotion Council since 1989.

3.3. The Company has also crossed the Rs. 120 Crore mark for the first time in Domesticsales.

3.4. The Company continues to be a net foreign exchange earner. The net foreignexchange earnings during the current year were Rs. 278.42 Crores.

3.5. The Company has retained its ISO 9001 and TS 16949 Certification for its QualityManagement.

3.6. The capital expenditure during the year including capital work in progress was Rs.91.48 Crores. Machining capacity has been substantially increased in line with customerdemand. The Company also produces Green Energy in its Solar and in Wind farms.

3.7. The Directors retained the dividend payment to 60%.

4. EXPENSES MADE MORE THAN 10% OF THE TURNOVER

Raw material - Rs. 199.62 Crores (42%)

Personnel - Rs. 55.06 Crores (12%)

5. MANAGEMENT DISCUSSION AND ANALYSIS :

GLOBALSCENE

1. Preliminary data suggest that global growth during the second half of 2015 at 2.8percent was weaker than previously forecast with a sizable slowdown during the lastquarter of the year. This is despite the availability of "cheap money".

2. Growth in the United States is sluggish at around 1.4 percent in the fourth quarterof 2015. Unemployment rate continued to improve to reaching a low of 4.5% in March 2016.

3. The Dow Jones Industrial Average (DJIA) has increased by approximately 4% because USstock markets are seen as a haven for investment in a sea of gloom.

4. Europe - The Euro has weathered the pressures on account of the flounderingeconomies of Portugal Ireland Greece and Spain (PIGS countries). The recovery wasbroadly in line with the January forecast in the euro area as strengthening domesticdemand offset a weaker external impulse. Among countries growth was weaker than expectedin Italy but the recovery was stronger in Spain. The Euro (EUR) has appreciated versus theUS Dollar (USD) by about 11%

5. Germany along with a few countries bordering the North Sea continue to be pillars ofthe European economy. Their relative prosperity forms the back bone of the efforts to keepthe EU and ECU integrated. The moribund labour markets in France is a considerable risk tothe very EU itself.

The Italian economy is also in stasis with very high public debt leaving very littleroom for maneuvering.

6. The rigid labour markets of Europe absence of political union unwillingness of theGerman public to bear a higher burden significant welfare commitments large share ofgovernment spending in the economy etc. are some of the significant structural issues.Countries like Spain Ireland etc. have embarked on a journey of significant and painfulstructural reforms which are starting to bear fruit.

7. The significant challenge for European leadership is the management of structuralreforms and containment of public spending without causing social turbulence.

8. China - The Chinese economy is showing signs of considerable slow-down on account ofslow down in real estate and NPAs in the banking sector. However because it is acontrolled economy there are reasonable chances of the leadership managing a slow downwithout a crash landing. Further fall in growth in China is expected to drag the globaleconomy.

9. Japan - Initially benefitted from Abenomics the radical monetary expansion fiscalstimulus and structural reforms promulgated by Mr.Shinzo Abe the Prime Minister ofJapan. However the effects of the fiscal stimulus have worn off with just 0.6% growth inrecent months.

10. Commodities - The Dow Jones Commodity Index (DJCI) has fallen by 22% in the lastone year due to considerable weakness in commodities. This is indicative of weaknessprevailing in large economies in both developed and developing countries.

11. Overall Global output is estimated to have grown by 3.1% in 2015 with 1.9% growthfor advanced economies and 4% growth for emerging market and developing economies pervarious economic think tanks. Global growth is projected to remain modest in 2016 at3.2% before picking up to 3.5% in 2017.

12. The issue of high levels of sovereign debt which most countries have run up overthe last two decades continues to be of serious concern. The next few years appear to bea consolidation phase for the global economy with growth stuck in a range of 3-4%. Gettingout of high levels of sovereign debt without derailing economies into recession will be asignificant conundrum.

INDIA

13. The Indian economy is expected to grow by approximately 7.5% in F16 as compared toabout 7.3% in F15.

14. During F16 the automotive industry posted growth rates of approximately 5% in thecar segment and 15% in the CV segment.

15. Steel prices have dropped by about 12% compared to the highs of the'previous year.

16. The INR ended the year lower by approximately 7% ending the year at a level of Rs.66.86 per USD. Please refer graph below. Further weakening of the INR is anticipated.However if FDI inflows are strong the pressure on the INR will be relieved.

M M FORGINGS - forging ahead

17. The following were important developments witnessed during the year :

• Domestic sales crossed Rs. 120 crore mark!

• Record production of 38713 Tons!

• Adding to the volume of existing parts were the new parts which were developedin the last 2 years.

• The company has posted a growth of 19% in domestic sales by the development ofnew parts.

• Export sales fell by 4% on the back of sluggish conditions in global markets.Despite this overall turnover posted marginal increase.

• Changes in steel prices which are in line with international markets are beingpassed on to customers as is the industry practice.

• We are focusing on capacity utilisation to take advantage of the productioncapacities created in the last 3 years.

18. As highlighted in the Directors’ Report Return On Net Worth is 17.57% andReturn On Capital

Employed is 22.63%. Current Ratio is 2.00. The total outside liabilities to networth stands at 0.87. -

Debt Equity Ratio is 0.43.

19. The details of segment-wise sales distribution are provided below:

Human Resources and Industrial Relations

20. Your company continues to focus on the development of its human resources toimprove its performance. The company currently has approximately 1289 employees. It istheir invaluable contribution that has primarily resulted in your company’s positionof strength in the industry.

21. Focus on a safe working atmosphere constantly evolving systems for recognition andreward consistent communication and imparting skills and training - all these focused onmeeting customer needs characterise the HR development of the Company.

22. Every year each plant of the Company celebrates ‘Founder’s Day’ ina family atmosphere with all employees and their household members.

Health Safety and Environment

23. The Company follows a policy of zero tolerance towards accidents. Whereverpossible visible controls and fail-safe systems are provided to ensure prevention ofaccidents. Regular communication training and periodic reviews of practices play a vitalrole in maintaining safety standards.

24. The Company ensures compliance with all pollution control regulations. Adequatepollution control equipments have been installed to treat effluents and to control airpollution.

Risk Management

25. The Company is a leading manufacturer of automotive components. Automotive industryis subjected to cyclical variations in performance and is very sensitive to policychanges. The market is very competitive. Prices of raw materials change based on supplyand demand. Margins remain under constant pressure. Any steep reduction in off-takeexposes the Company to high fixed costs.

26. A considerable portion of the customers of the Company are situated outside ofIndia. Hence demand for the Company’s product is subject to the health of the globaleconomy.

27. The Company has spread its risks by increasing the geographic spread of itscustomer base.

The Company proposes to improve capacity utilization in its existing facilities.Working capital management will receive high priority.

M M FORGINGS - forging ahead

28. Our goals in the coming months:

• Focus on improving sales in keeping with market conditions.

• Increase the production capacity to 65000 Tons.

• Focus on cost reduction continuously - particularly on reducing energyconsumption and improving productivity.

• Enhance IT systems with the continued development of the ERP system in place. _

• Continue the evolution into green sources of energy in the coming months.

• Reduce the impact on the environment.

Sources:

1. IMF World Economic Output

2. The Economist

6 TRANSFER TO RESERVE

Transfer to General Reserve - Rs. 4100 Lakhs.

7 PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS UNDER SECTION 186 Not applicable

8 DIRECTORS

8.1 Shri. Vidyashankar Krishnan Director retires by rotation and being eligibleoffers himself for reappointment.

9. DETAILS OF DIRECTORS OR KEY MANAGERIAL PERSONNEL APPOINTED / RESIGNEDDURING THE YEAR - Smt Kavitha Vijay a Woman Director was appointed on 1 April 2016.

10. BOARD AND COMMITTEE MEETING DATES

Details are provided in Annexure III of this Report

11 DETAILS OF RECOMMENDATIONS OF AUDIT COMMITTEE WHICH WERE NOT ACCEPTED BY THE BOARDALONG WITH REASONS - None

12 PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES

All the transactions with related parties are in the ordinary course of business and onarm's length basis; and there are no material contracts or arrangement or transactions atarm’s length basis.

Such transactions done in the ordinary course of business has been specified in theNotes on accounts

13. POLICY ON RELATED PARTY TRANSACTION

The Company has a policy on Related Party Transaction and the same has been displayedon the Company’s website.

14. NOMINATION AND REMUNERATION POLICY

A Board level Committee of Nomination and Remuneration Committee has been constitutedand the Board had adopted Nomination and Remuneration Policy. Human Resources Policy ofthe Company considers Human Resources as its valuable asset.

15. CORPORATE SOCIAL RESPONSIBILITY

A Board Level Committee of CSR has been constituted and the Board has adopted a CSRPolicy as recommended by the Committee. The thrust areas of CSR Policy are EradicatingHunger and Poverty

Education Combating Diseases and Social Business Projects.

Annual Report on CSR has been provided in Annexure III of this Report.

16. POLICY ON DIRECTORS’ APPOINTMENT AND REMUNERATION INCLUDING CRITERIA FORDETERMINING QUALIFICATIONS POSITIVE ATTRIBUTES INDEPENDENCE OF A DIRECTOR KEYMANAGERIAL PERSONNEL AND OTHER EMPLOYEES

• The Board shall have minimum 3 and maximum 15 Directors unless otherwiseapproved.

• No person of age less than 21 years shall be appointed as a Director on theBoard.

• The Company shall have such person on the Board who complies with therequirements of the Companies Act 2013 Provisions of the Listing Agreement Memorandumof Association and Articles of Association of the Company and all other statutoryprovisions and guidelines as may be applicable from time to time.

• Composition of the Board shall be in compliance with the requirements of Clause49 of the Listing Agreement of the Stock Exchanges. Regulation 17 of SEBI (ListingObligations and Disclosures Requirements Regulations 2015 [(SEBI (LODR)]

• Majority of the Directors shall have specialised knowledge/experience in theareas like Agriculture Banking SSI Legal Risk Management Accountancy FinanceWindmill manufacturing of forgings etc.

• Except for the Vice Chairman and Managing Director and the Joint ManagingDirector no other .

Directors are paid remuneration but are paid only sitting fees and Commission subjectto the ceiling provided in the Companies Act 2013.

• Vice Chairman and Managing Director / CEO Company Secretary and Chief FinancialOfficer shall be the Key Managerial Personnel (KMPs) of the Company.

• All persons who are Directors / KMPs members of Senior Management and all otheremployees shall abide by the Code of Conduct. Directors/KMPs shall not acquire anydisqualification and shall be persons of sound integrity and honesty apart fromknowledge experience etc. in their respective fields.

17. PARTICULARS OF EMPLOYEES

The information required under Section 197(12) of the Companies Act 2013 and the rulesmade there under as amended has been given in the annexure appended hereto and formspart of this report.

18. PARTICULARS PURSUANT TO SECTION 197(12) AND THE RELEVANT RULES :

18.1 The ratio of remuneration of each Director to the median remuneration of theemployees: •

Name Ratio
Shri. N. Srinivasan 3.77 : 1
Shri V. Vaidyanathan 2.01 : 1
Shri A. Gopalakrishnan 1.51 : 1
Smt Kavitha Vijay 1.51 : 1
Shri Vidyashankar Krishnan 189 : 1
Vice Chairman and Managing Director
(Chief Executive Officer)
Shri. K. Venkatramanan Joint Managing Director 183 : 1

For this purpose sitting fees paid to the Directors have not been considered asremuneration

18.2 Percentage increase in remuneration of each Director KMP in the financial year:

Name % Increase
Shri. N. Srinivasan 0.81%
Shri V. Vaidyanathan 2.24%
Shri A. Gopalakrishnan 2.84%
Smt Kavitha Vijay NA
Shri Vidyashankar Krishnan 1.78%
Vice Chairman and Managing Director
(Chief Executive Officer)
Shri. K. Venkatramanan Joint Managing Director 1.53%
Smt.J.Sumathi 9.40%
Shri.R.Venkatakrishnan 9.10%
18.3 Percentage increase in median remuneration of employees : 9.2%
18.4 The number of permanent employees on the rolls of Company: 1289

18.5 Explanation of relationship between average increase in remuneration and companyperformance

PAT - (last year) - Rs. 5054.82 Lakhs PAT - (this year) - Rs. 5008.83 Lakhs Decrease -0.91% against which the average increase in remuneration is 7.90%.

18.6 Comparison of remuneration of each KMP against performance of company

Name Designation CTC %increase in CTC PAT Rs. Lakhs % in PAT
Vidyashankar Krishnan CEO 37544012 1.78%
J.Sumathi Company Secretary 948143 9.40% 5008.83 -0.91%
R.Venkatakrishnan CFO 1331350 9.10%

18.7 Variation in market cap/net worth of company:

Date Issued Capital (Shares) Closing Market Price per share in Rs. EPS PE Ratio Market Capitalisation Rs. in crores
31.03. 2015 12070400 678 41.88 16.19 818.37
31.03.2016 12070400 443 41.50 10.67 534.72
Increase/

(Decrease)

NIL (235) (0.38) (5.51) (283.65)
% of Increase / (Decrease) NIL (34.66) (0.91) (34.06) (34.66)

18.8 Justification of increase in managerial remuneration with that of increase inremuneration ot other employees.

Average Increase in Remuneration for employees other than Directors and KMP is 9.20% inkeeping with industry trends.

Average Increase in Remuneration for Promoters is 1.66% in keeping with profits of theCompany.

18.9 Key parameters for any variable remuneration of Directors:

Directors are paid Commission. However the overall managerial remuneration payable issubject to the provisions of the Companies Act 2013

18.10 Ratio of remuneration of highest paid Director to other employees who getsremuneration more than highest paid Director. - NOT APPLICABLE

18.11 Is remuneration is as per remuneration policy of the Company: YES

19. SIGNIFICANT AND MATERIAL ORDERS PASSED BYTHE REGULATIONS OR COURTS OR TRIBUNALS

IMPACTING THE GOING CONCERN STATUS AND COMPANY’S OPERATIONS IN FUTURE

Not applicable

20 MATERIAL CHANGES AND COMMITMENTS IF ANY AFFECTING THE FINANCIAL POSITION OF THECOMPANY WHICH HAS OCCURED SINCE 31.03.2016 TILL THE DATE OF THIS REPORT:

Not applicable

21 DIRECTORS RESPONSIBILITY STATEMENT:

The Directors have fulfilled their responsibility for the preparation of theaccompanying financial statements by taking all reasonable steps to ensure that -

21.1 In the preparation of the annual accounts the applicable accounting standardshave been followed along with proper explanation relating to material departures;

21.2 The Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the company at the end of the financial year and ofthe profit or loss of the company for that period;

21.3 The Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act forsafeguarding the assets of the company and for preventing and detecting fraud and otherirregularities;

21.4 The Directors had prepared the annual accounts on a going concern basis.

21.5 The Directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively.

21.6 The Directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

22. ESTABLISHMENT OF VIGIL MECHANISM

The Company has in place a vigil mechanism pursuant to which a Whistle Blower Policyhas been in vogue . The Whistle Blower Policy covering all employees and directors ishosted on the Company's website. ‘

23. ADEQUACY OF INTERNAL FINANCIAL CONTROL

Company has a process to continuously monitor the existing controls and identify gapsif any. It implements new / improved controls wherever the effect of such gaps would havea material effect on the Company's operation.

24. CORPORATE GOVERNANCE REPORT

The guidelines evolved by SEBI were applicable to the company. The company is committedto ethical management and excellence in performance. Details are Provided in Annexure 3.

25. ANNUAL RETURN

An extract of Annual Return as on 31 March 2016 pursuant to Section 92 ( 3) of theCompanies Act.

2013 and forming part of the report is attached separately.

26. ASTATEMENT INDICATING THE MANNER IN WHICH FORMAL ANNUAL EVALUATION HAS BEEN MADE BYTHE BOARD OF ITS OWN PERFORMANCE AND THAT OF ITS COMMITTEE AND INDIVIDUAL DIRECTORS

1. Nomination and Remuneration Committee of the Board had prepared and sent through itsChairman draft parameterized feed back forms for evaluation of the Board IndependentDirectors and Chairman.

2. Independent Directors at a meeting without anyone from the non-independent directorsand management considered/evaluated the Board’s performance and othernon-independent Directors at their meeting held on 07 November 2015.

3. The Board subsequently evaluated performance of the Board the Committees andIndependent Directors (without participation of the relevant director)

27. FAMILIARISATION PROGRAMME ARRANGED FOR INDEPENDENT DIRECTORS

M M Forgings Limited has put in place a system to familiarise the Independent Directorsabout the company its products business and the on-going events relating to the companyits products business and the on-going events relating to the Company.

• Independent Directors of the Company are made aware of their roleresponsibilities and liabilities at the time of their appointment / re-appointment through a formal letter of appointment which also stipulates various terms and conditionsof their engagement.

• They are also made aware of Company’s Board and Board Committee frameworkpolicies and procedures.

• As part of Board Discussions presentations on business of the Company are madeto the directors from time to time.

• important announcements and press releases for various news related to thecompany are forwarded to the directors from the time - to time.

• Each member of the Board including the independent directors have been givencomplete access to any information relating to the Company.

28. AUDITORS:

The retiring auditors of the Company G. Ramesh Kumar & Co. Chartered AccountantsTiruchirapalli being eligible offer themselves for reappointment.

29. SECRETARIAL AUDIT REPORT

Pursuant to the requirements of the Companies Act 2013 the Company has appointed V.Shankar Practicing Company Secretaries ( C.P. No. 12974 ) as the Secretarial Auditor forFY 2016 whose report of 09 May 2016 is attached separately to this report.

30. COST AUDITOR

Pursuant to the provisions contained in Rule 14 of the Companies (Audit and Auditors)Rules 2014 Shri. S. Hariharan (C.P. No. 20864) has been appointed as Cost Auditor for thefinancial year 2016

31. EXPLANATION TO AUDITOR’S REMARKS

Not applicable

32. DEPOSITS

The Company does not have any deposits. Fresh deposits are not being accepted by theCompany.

33. ENERGY TECHNOLOGY & FOREIGN EXCHANGE.

Disclosures as per requirements of Section 217 (1) (e) of the Companies Act 1956 readwith the Companies (Disclosure of particulars in report of the Board of Directors) Rules1988 with respect to Energy Conservation Technology Absorption Research &Development and Foreign Exchange Earnings / Outgo are given in Annexure

34. DECLARATION GIVEN BY INDEPENDENT DIRECTORS:

All the Independent Directors have given the necessary declarations to the Company asrequired under sub section (6) of Section 149 of the Companies Act 2013.

35. PROHIBITION AND REDRESSAL OF SEXUAL HARRASSMENT OF WOMEN AT WORK PLACE

During the year under review pursuant to the new legislation ‘PreventionProhibition and Redressal of Sexual Harassment of Women at Workplace Act 2013’introduced by the Government of India which came into effect from 09 December 2013 theCompany has framed a Policy on Prevention of Sexual Harassment at Workplace. There were nocases reported during the year under review under the said Policy.

36. ACKNOWLEDGEMENT:

Your Directors would like to express their gratitude for the cooperation and continuedassistance received from Citibank N.A. DBS bank State Bank of India and State Bank ofTravancore.

Your Directors wish to record their appreciation for the exemplary services rendered bythe employees of the company. The results achieved would not have been possible but fortheir outstanding effort.

Above all the Directors thank the shareholders for their continued confidence in themanagement.

For and On behalf of the Board
Place : Chennai Vidyashankar Krishnan
Date : 09 May 2016 Chairman of this Meeting