(Management Discussion and Analysis)
I am pleased to present 31st Annual Report for the financial year ended on 31st March2017. The operational performance during the year was historically low for various reasonsas noted below. At the same timemany good developments have taken place during the year.JSW Cement Ltd a group company of JSW has acquired about 49.4% shares of the company andnominated two directors on the Board. JSW Cement is likely to be the new promoter ofcompany subject to approval by shareholders in the forthcoming AGM. They are committed toundertake massive expansion of production capacity; which was an unfinished agenda sincelast 5-7 years. This will change the fortune of Company and its' Stakeholders. For whichI express good wishes to all concerned. I also convey thanks to all stakeholders; thosehave extended full support in last 31 years despite up & down cycle.
|Financial/Operational Performance || ||(Rs. in Lakh) |
|Particulars ||31/03/2017 ||31/03/2016 |
|Turnover ||2630.07 ||7834.20 |
|Operating Income (Loss) ||(498.58) ||924.37 |
|Exceptional Items(see details below) ||1109.54 ||-- |
|Other Income ||21.05 ||42.21 |
|PBIDT ||(1587.07) ||966.58 |
|Less: Interest ||662.90 ||363.13 |
|Cash Profit (Loss) (PBDT) ||(2249.97) ||603.45 |
|Less: Depreciation & Amortization ||645.33 ||539.64 |
|Profit (Loss) before Taxation (PBT) ||(2895.30) ||63.81 |
Capacity utilization was historically low up to 40.56% due to stoppage of Kiln forabout 211 days out of 365 days. Major stoppage was due to the closure of Mines for delayin executing Mining lease deed with extended validity up to the year 2042. Another longstoppage was due to delay in approval of Mining Plan by Indian Bureau of Mines. Duringfourth quarter new Directors of the Company opted for many changes in the Plant operationprocess which has temporarily affected the production level. However this will deliverlong term benefits in future.
The cost of electricity per unit has gone up from Rs.6.37 to Rs.6.86 mainly due tofixed monthly charges and low production. Coal consumption in terms of Kcal/Kg. of clinkerincreased due to frequent stoppage of kiln. More so higher proportion of imported coaldue to poor quality of domestic coal has increased the fuel cost per MT of clinker.Miningcost of limestone was increased by almost 76% due to extreme low production and loading ofmining overhead cost. Due to all these abnormal factors variable cost of clinker wasincreased by almost 45% and variable cost of cement by about 36%. In addition to it fixedcost towards salary & wages administrative overhead was loaded on small productionand thereby depressing operational profit to a historically low level; which was neverwitnessed in the past 30 years. However the normalcy will be crafted in next FinancialYear with higher production level with the support of JSW cement.
Besides operational loss of Rs. 49.85 million Company had also incurred additionalexpenditures of Rs.110.9 Mn.towards Deferred Revenue expenditure and Exceptional items. Asper revised accounting policy of the company those are booked in profit
& Loss account for the year. The details of such expenditure are mentioned below.
|Particulars ||Rs. In Lakh |
|Provision of expenses related to prior period ||259.14 |
|Provision of non-realizable Debts Advances& deposits ||486.40 |
|Non-operational expenses mainly related to fees of transaction || |
|advisors lawyers & consultants ||364.00 |
| ||Total 1109.54 |
In the earlier years IDBI had sanctioned a term loan of Rs.18.0 crores for expandingcapacity to 1.98 Lakh TPA. The capex was completed but commercial production could notcommence for need based working capital. Hence the company incurred additional interestof Rs. 244.17 lakh on such term loan during the year which could not be gainfullyutilized. In addition Interest was also incurred on the statutory dues and unsecured loanfor Rs.50.35 lakh. As a result total interest cost has gone up by about Rs. 300
Lakhs (82%increase) during the year. Due to additional capex for the expansiondepreciation cost has also gone up by about Rs. 105 lakh (20% increase) depressingprofitability. Overall impact of higher interest and depreciation is about Rs. 405 lakhduring year.
Economic Scenario & Out look
Indian economy is thriving on the consumption led demand instead of investment leddemand. India could attract large inflow of Global funds; but those were mostly notinvested in Capital assets. Lately Government has pushed Infra spending. Government hassucceeded in creating competition among states for attracting Private investment.Currently private investment is sluggish due to high interest stretched balance sheetsand non-compatible regulations. It is expected that recent amendment of bankingregulations Act and intervention of RBI will facilitate existing productive units forrelieving financial stress through debt restructuring and fresh credit. In the event ofsuccessful implementation private investment may re-bound in coming years fueling growth.Initial three quarters of FY-2017 registered healthy growth of economy mainly due tofavorable monsoon. However de-monetization has somewhat negative impact in the fourthquarter. Big ticket reforms like GST domestic production of defense equipment andinfrastructure boost will craft positive impact on the economy. Considering sincereefforts of the Government and latent potentiality of India Indian economy will bounceback may be in second half of FY-2018. For this India must overcome past legacy anddeploy financial resources into productive activities. Simultaneously exports must bemade competitive by reducing cost of basic inputs like Energy Logistics and Capital& Minerals.
Cement Industry Outlook & Opportunities
In the past two preceding years Cement demand growth was not so promising comparing toprevious years. Considering overall scenario demand is likely to escalate from the secondhalf of FY-2018. Aggressive Road projects and Affordable housing scheme announced byGovernment will certainly give boost to cement demand. Currentlythe supply overhangsituation is continuing in most parts of the country. However the green field capacityaddition in pipeline are very low. It is expected that the excess supply will be absorbedin last part of FY 2019.
For building additional capacity and availability of cement at affordable cost theways & means are to be designed. For affordable cement cost the cost of logisticpower & fuel must be reduced through policy intervention. Also GST rates may berationalized in line with other construction materials. Production of blended cement maybe incentivized by levying lower taxes; since it is environment friendly. Government mayalso explore in reducing cost of limestone by rationalizing Royalty and other levies ormerging those with GST. All such efforts will enable cement at affordable cost forconstructing houses; which constitutes 65% of the cement demand.
In the earlier years management had appointed L&T Fincorp Ltd as financial advisorfor arranging the strategic investor for implementing expansion plans of the company;which is being deferred since last 5-7 years. As you know company has adequate reservesof limestone surplus land and statutory approvals at its disposal. With the sincereefforts of L&T Fincorp your company has succeeded to rope in JSW Cement as keyinvestor by entering in to Share Purchase Agreement on dtd.10/01/2017. JSW Cement hasalready acquired 49.4% shares in the company from promoters ACC Ltd and from the openmarket. They will be inducted as new promoter in the forthcoming Annual General Meeting ofshareholders subject to their approval.
As per indicative plan cement capacity will be expanded to 1.0/1.2 Mn.T by Oct.2019with captive clinker. Existing Kiln will be expandedbesides addition of new kiln. Surplusclinker will be sold to JSW Cement for grinding at their upcoming plants at West Bengal& Odisha. Total capital investment is likely to exceed Rs.800 crores. JSW Cement hasalso plan forfurther adding cement and clinker capacity in the Company subject tofavorable market.
Awards & Recommendations
Company is awarded with Third Prize for "Sustainable Development" byIBM-Bhubaneswar in the 19th MEMC Week 2016-17. Company is also awarded with Second prizein "General working" of Limestone mines on the occasion of 54th Annual MinesSafety Week Celebration 2016.
Company is maintaining cordial and healthy relations with its employees. Employees atall levels are extending their full support. Company has strong faith in potential ofhuman resources. It believes in the creative abilities of the people; those work for thecompany. It believes in the participatory management.
Internal Control Systems
Company has an internal management audit team to commensurate with the size of company.It carries out desired level of audit of various activities of company. This is with anaim to ensure that the laid down system and procedures are followed. Audit reports arepresented to Audit committee of the board which meets at periodic intervals.
Business Responsibility Report
As stipulated under the Listing Agreement the Business Responsibility reportdescribing the initiatives taken by the Company from environmental social and governanceperspective has been described in this Annual Report.
Environmental & Social Obligation
Environment clearance from Ministry of Environment & Forest (MoEF) is alreadyobtained for the proposed expansion. MoEF clearance is also obtained for expanding thecapacity of mines.
Your company has undertaken the CSR activities in nearby villages such as strengtheningof village road from Jindapada to SH-10 and Jindapada to Kanhei Munda developing Bathingplace in Kanheimunda village distribution of study materials to five schools atTelighana Kanheimunda Toilet Septic tank construction in three schools construction andoperation of 'Jala Chatra' (drinking water supply) at five places organizing Food balland Hockey tournament in nearby villages and free medical checkup camp in local villagesetc. CSR activities will be expanded in future years with the induction of JSW cement aspromoters.
Keeping in view of the ongoing expansion plans and working capital requirements of theCompany your directors have not recommended any dividend for the year under review.
Listing at Stock Exchange & Public offer
Equity shares of the company continue to be listed on Bombay Stock Exchange andCalcutta Stock Exchange. We sincerely express our thanks to all shareholders for imposingtheir faith in the company despite of delay in implementation of the expansion plan.
After entering into Share Purchase Agreement with promoters on 10/01/2017 JSW Cementhas offered to public shareholders forpurchasing 624 lakh shares. Public has tenderednegligible quantity of 0.027 lakh shares only. This reveals that public shareholders havetremendous faith in JSW cement as future promoter and those have opted to continue theirassociation as the shareholders of company.
The principal banker of company is IDBI Bank. They have shown keen interest insupporting the expansion plan as discussed above. Company is in discussion with CanaraBank for settling their dues in view of default arising due to heavy loss in this yearcausing mis-match of cash flow.
During the year under report the Board of Directors have met 10 (Ten) times. TheDetails of board meetings and the attendance of the Directors are provided in theCorporate Governance Report.
Directors and Key Managerial Personnel :
The Company has a mix of Executive Non-Executive and Independent Directors. As atMarch 31 2017 the Board comprises of
7 Directors. Out of which one is Executive Director and six are Non-ExecutiveDirectors including three Independent Directors.
All Directors are persons of eminence and bring a wide range of expertise andexperience to the Board thereby ensuring the best interest of stakeholders and theCompany.
None of the Directors are related to any other Director on the Board in terms of thedefinition of "relative" as defined in section 2(77) of the Companies Act 2013.
During the year under review Mr. Narinder Singh Kahlon (DIN- 03578016) and Mr. ManojKumar Rustagi(DIN- 07742914) have been appointed as Additional Directors with effect fromFebruary 28 2017. Further Mr. Akash Gupta and Mrs. Preeti Gupta resigned with effectfrom March 11 2017 and February 28 2017 respectively.
According to the provisions of the Companies Act 2013 and Articles of Association ofthe Company Mr. R P Gupta is liable to retire by rotation and being eligiblehehasoffered himself for re-appointment. The Board has recommended his re-appointment asDirector.
Share Capital :
There was no change in the authorized share capital of the company during the yearunder review. The company has allotted 80 Lakh Equity Shares upon conversion of EquityShare Warrants issued by the Company.The issued subscribed and paid up Equity sharecapital of the Company as on March 31 2017 was Rs. 3900.00 Lakhs comprising of 1950 LakhEquity shares of Rs.2/-each.
Disclosure under section 149(7) of the Companies Act 2013 :
Mr. Kashi Prasad Jhunjhunwala Mr. Bimal Kumar Mangaraj and Mr. Mahendra Singh theIndependent Directors of the Company have given their declarations under section 149(7)ofthe Companies Act 2013.
Disclosure under section 43(a)(ii) of the Companies Act 2013 :
The Company has not issued any shares with differential rights and hence noinformation pursuant to section 43(a)(ii) of the Companies Act 2013 read with Rule 4(4)of the Companies (Share Capital and Debentures) Rules 2014 is furnished.
Disclosure under section 54(1)(d) of the Companies Act 2013 :
The Company has not issued sweat equity shares during the year under review and henceno information as pursuant to section 54(1)(d) of the Companies Act 2013 read with Rule8(13) of the Companies (Share Capital and Debentures) Rules 2014 is furnished.
Pursuant to the provisions of Section 177 of the Companies Act 2013 the AuditCommittee was formed by the Board of Directors to look after the internal control systemof the Company and to review the financial statements. The said Committee is consisting ofthe following directors of the Company.
|Sri K. P. Jhunjhunwala ||- Chairman |
|Sri B.K. Mangaraj ||- Member |
|Sri Mahendra Singh ||- Member |
The details of the Audit Committee meeting have been mentioned in the CorporateGovernance report.
M/s. M K Thebaria & Associates Chartered Accountants Rourkela (FRN 321180E) theStatutory Auditors of the Company will retire at the conclusion of the ensuing AnnualGeneral Meeting. The Company has received a letter from them to the effect that theirappointment if made would be within the limit prescribed under Section 139 of theCompanies Act 2013 and that they are not disqualified within the meaning of Section 141of the Companies Act 2013 read with Rule 4(1) of the Companies (Audit & Auditors)Rules 2014.
The Notes to Accounts forming part of financial statements are self-explanatory andneed no further explanation.The explanations/ clarifications to the qualified opinion ofthe statutory Auditors are noted below. a. Regarding eligibility to accept publicdeposits your Company has obtained expert opinion and continued to accept hold &renew the deposits. However Management has informed that there will be no further renewaland entire deposits will be refunded on due dates. b. Regarding default in redemption ofpreference shares of Rs.54.40 lakh your directors submit that they have approachedPreference shareholders for deferring installments and the same will be paid in FY-2018.For defaults in repaying term loan interest and installments of Rs.662.91 lakh yourdirectors submit that the said payments could not be done due to low production heavyloss mismatch of cash flow during the year. However same shall be paid during financialyear 2017-18. They are also in discussion with Canara Bank for settlement of dues. c. TheCompany has changed the basis of Amortization of Deferred revenue expenses and written offthe entire opening balance of Rs.39.62 Lakh as decided by the management. The expenses ofnon-revenue nature amounting to Rs.394.00 Lakh has been charged to Profit & LossAccount as decided by the Management under exceptional items.
d. During 3rd quarter of the year the Company had written off dues of ACC Limitedamounting to Rs.422.09 Lakh due to ongoing disputes and claims. Same amount is nowreversed; since the acquirer and incoming management are willing not to pursue disputesand claims with ACC considering good relations with them. e. The Company has providedinterest on statutory dues amounting to Rs.182.14 lakh relating to prior period up to FY2015-16 which has been reflected as prior period under Exceptional items. f. As mentionedin the Auditors Report regarding irregularity in deposits of statutory dues amounting toRs.352.23 Lakh your directors submit that the said payments could not be made due tomismatch of cash flow during the financial year 2016-17. The said payments shall be madeduring the financial year 2017-18.
Pursuant to the provisions of Section 204 of Companies Act 2013 read with Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Board of Directorshave appointed M/s.Prakash Sahoo & Associates Practicing Company Secretaries ofRourkela to undertake Secretarial Audit of Company for the FY 2016-17. The report ofSecretarial Audit forms part of this Board's Report in "Annexure -A".
The Women Director has resigned from the Board of Company w.e.f 01/03/2017 and thevacancy shall be filled up within stipulated time.
During the period under review the Board has not appointed whole-time key managerialpersonnel viz. (a) Chief Financial Officer (CFO); and (b) Company Secretary. The office ofCompany Secretary was vacant for a period more than six months as at the year end. Thesame will be filled up at the earliest.
Evaluation of Board Committees and Board Members pursuant to provisions of theCompanies Act 2013
Good Governance requires Boards to have effective processes to evaluate theirperformance. The evaluation process is a constructive mechanism for improvingeffectiveness of Board maximizing strengths and tackling weaknesses which leads to animmediate improvement in performance throughout the organization.
Evaluation by Independent Director
In terms of the Code for Independent Directors (Schedule IV) the IndependentDirector(s) on the Board of Company shall evaluate performance of the Non-IndependentDirector(s) Board as a whole and review performance of Chairperson. Broad parameters forreviewing performance are based on the structured questionnaires related to composition ofBoard Function of Board Meeting attended by Board Members conflict of interestparticipation in discussion time contribution Governance and ethical problem etc.
Evaluation by Nomination and Remuneration (NRC) Committee
Nomination and Remuneration committee constituted under section 178 of the CompaniesAct 2013 has been made responsible for carrying out evaluation of every Director'sperformance. The evaluation of individual Director focuses on contribution to the work ofBoard.
Evaluation by Board
The purpose of Board Evaluation is to achieve persistent and consistent improvement inthe governance of Company at Board level with an intention to establish and follow bestpractices in Board Governance in order to fulfill fiduciary obligation to Company. TheBoard believes the evaluation will lead to a working relationship among Board membersgreater efficiency using Board's time and increased effectiveness of Board as governingbody. A structured questionnaire was prepared covering all aspects of the Board's andCommittee's function for the evaluation of the Board and Committees. The evaluation ofthe Independent Directors was based on the range of the criteria like independent judgmentstrategy performance and risk management; skill knowledge and Familiarity about thecompany professional advice attendance in Board and Committee meeting etc.
Pursuant to the provisions of Section177 (9) of Companies Act 2013 the Board ofDirectors has established a committee to provide adequate safeguard against victimization& to protect interest of the directors and employees to report their genuine concerns.The Company has uploaded the code of conduct in relation to the employees & directorson its website (www.shivacement.com).
Disclosure under section 67(3) of the Companies Act 2013
The Company has not passed any special resolution pursuant to Section 67(3) of theCompanies Act 2013 hence no disclosure is required to be made.
Material Change and Commitments :
In terms of section 134(3)(l) of the Companies Act 2013 except as disclosed elsewherein this report no material changes and commitments which could affect the company'sfinancial position have occurred between March 31 2017 and the date of the report.
Significant and material orders passed by the regulators :
There were no significant material orders passed by the Regulators or Courts orTribunals which would impact the going concern status of the Company and its futureoperations.
Foreign Exchange Earnings and Outgo
There have been no foreign Exchange earnings during the year. However the company haspurchased imported coal from the domestic market.
Conservation of Energy Technology Absorption
A statement containing necessary information as required under the Companies Act 2013is annexed hereto in Annexure-"B".
Corporate Social Responsibility and Governance Committee
Your directors have constituted the Corporate Social Responsibility (CSR Committee)comprising Shri R P Gupta as the Chairman and Shri B.K. Mangaraj and Shri Mahendra Singhas other members.
The said Committee has been entrusted with the responsibility of formulating andrecommending to the Board a Corporate Social Responsibility Policy (CSR Policy)indicating the activities to be undertaken by the Company monitoring the implementationof the framework of the CSR Policy and recommending the amount to be spent on CSRactivities.
Nomination and Remuneration Committee & Stakeholder Relationship Committee
During the year under report pursuant to the provisions of Section 178 of CompaniesAct 2013 the Nomination and Remuneration Committee & Stakeholder RelationshipCommittee has been functioning in order to protect the interest of the shareholder of theCompany.
The Committee has been headed by Shri R. P. Gupta as Chairman Shri B. K. Mangaraj asMember & Shri Mahendra Singh as other member.
Related Party Transactions :
All the Related Party Transactions that were entered into during the financial yearwere on arm's length and in the ordinary course of business. Hence provisions of section188 of the Companies Act 2013 are not applicable. During the year under review the AuditCommittee has granted omnibus approval for the Related Party Transactions.
Disclosure under the Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013 :
The Company has a policy on Prevention of Sexual Harassment at workplace. The policyhas been framed as per "The Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013" and an internal Committee has been constitutedfor redressal of the complaints.
Particulars of Loans Guarantees Investments and Securities :
Particulars of loans given investments made guarantees given and securities providedalong with the purpose for which the loan or guarantee or security is proposed to beutilized by the recipient are provided in the notes to financial statements.
Extracts of Annual Return
Pursuant to the provisions of Section 92(3) of the Companies Act 2013 an Extract ofthe Annual Return in Form MGT-9 forms part of this Report as Annexure-C.
Particulars of Employees
The provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are notapplicable as none of the employees were in receipt of remuneration exceeding the limitsspecified therein.
Directors' Responsibility Statement
In terms of the provisions of section 134(3)(c) of the Companies Act 2013 we confirmthat:-
a. in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;
b. the directors had 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 and loss of the company for that period;
c. the directors had taken proper care for the maintenance of adequate accountingrecords in accordance with the provisions of this Act for safeguarding the assets of thecompany and for preventing and detecting fraud and other irregularities;
d. the directors had prepared the annual accounts on a going concern basis; and
e. the directors had laid down internal financial controls to be followed by thecompany and that such internal financial controls are adequate and were operatingeffectively.
f. the directors had devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.
Pursuant to the provisions of SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 and Clause-49 of the erstwhile Listing Agreement a report on CorporateGovernance and the compliance certificate thereon from the auditors of the company isattached to this report.
The Registed Office of the Company has been change from P-25 Civil TownshipRourkela-769004 to YY-5 Civil Township Rourkela-769004 with effect from 26th June 2017.
Your directors place on record their appreciation of the assistance and supportextended by government authorities Bankers NBFCs consultants shareholders employeessuppliers & contractors of the company.
Statements in the directors' report and the management discussion & analysisdescribing company's objectives expectations or predictions may be forward-lookingstatement within the meaning of applicable laws and regulations. Although we believe ourexpectation is based on reasonable assumption actual results may differ materially fromthose expressed in the statement. Important factors that could influence the company'soperations include: global and domestic demand and supply conditions affecting sellingprices new capacity additions availability of critical materials and their cost changesin government policies and tax laws economic development of the country and such otherfactors which are material to the business operations of the company.
| ||For and on behalf of the Board of |
| ||Shiva Cement Limited |
|Rourkela - 769 004 ||Sd/- |
|Dated : 04/08/2017 ||(R.P.Gupta) |
| ||(Managing Director) |
| ||DIN No. : 1325989 |