The Directors are pleased to present their Thirty-Third Annual Report together withaudited financial statements for the financial year ended 31st March 2017.
The Financial Year 2016-17 witnessed three significant events starting withdemonetization of high denomination currency completion of all processes leading to thepromulgation of the long awaited and transformational Goods and Service Tax (GST) andfinally a Supreme Court judgment banning with effect from 1st April 2017 sale ofvehicles which only met emission targets for BS III specifications and not the enhancedspecifications of BS IV. It is hoped that in the long term the first two events would havefavourable effect on the country's economy and its GDP which during financial year2016-17 grew at an estimated 7.1 percent against 7.9 percent in the preceding year. Whiledemonetization had its adverse impact on business in general at least in the short termthe ban on sale of vehicles stated above has had significant adverse effects discussedlater in the Report.
The growth in the financial year in Commercial Vehicle Industry at 4.3 percent waslower than the 12.2 percent of the preceding year volume reaching 822500 against788800 in the preceding year 2015-16. While Light vehicles (LCV) grew 5.5 percent toreach 476300 Medium & Heavy vehicles (M&HCV) segment growth was lower at 2.6percent with volumes at 346200.
However Your Company was able to achieve robust growth of 17.4 percent during theyear from 12700 vehicles to 14909 as a result of aggressive marketing brand buildingactions and several sales promotion initiatives.
The financial performance of the Company for the year ended 31st March 2017 issummarized below :
| ||2017 ||2016 |
|Sales volume (No. of vehicles) ||14909 ||12700 |
|Net revenue ||1373.11 ||1172.58 |
|Less : Material cost & other expenses ||1260.96 ||1079.54 |
|Operating profit ||112.15 ||93.04 |
|Profit before tax ||84.63 ||68.32 |
|Profit after tax ||62.81 ||51.16 |
|Balance of profit from prior years ||158.19 ||126.07 |
|Surplus available for appropriation ||221.00 ||177.23 |
The immediate effect of the ban on BS III vehicles was that all vehicles earlier soldto the dealers but still held in their stock as on 31st March 2017 were returned to theCompany reversing sales value and the value of all non useable components in theCompany's inventory relating to BS III vehicles had to be written off. The vehicles soreturned from the dealers together with Company's stock of BS III vehicles are beingconverted into BS IV compliant vehicles cost of which is being charged to profits as andwhen incurred. The Company is also trying to sell some of these vehicles in the overseasmarket wherever feasible which will not require any conversion.
The Directors have recommended payment of dividend of Rs. 8.0 per equity share of facevalue of Rs. 10/- each for the year ended 31 st March 2017 same as in the previous yearwhich is subject to the approval of shareholders at the forthcoming Annual GeneralMeeting. The cash outflow will be Rs. 13.93 crores including dividend distribution tax ofRs. 2.36 crores same as in the previous year.
MANAGEMENT DISCUSSION AND ANALYSIS
A Management Discussion and Analysis which also covers the state of the Company'saffairs forms a part of this report.
A report on corporate governance together with the Auditors' Certificate confirmingcompliance with corporate governance norms as stipulated under the SEBI ListingRegulations 2015 forms a part of this report.
Industrial relations and work atmosphere remained cordial throughout the year withsustained communication and engagement with workforce through various forums.
The Company continues to enjoy the highest rating for short term borrowings of A1 +(pronounced A one plus) from ICRA. Further during the year the long term rating for lineof credit / cash credit limits has been upgraded from AA- (pronounced double A minus) toAA (pronounced double A).
SAFETY HEALTH AND ENVIRONMENT
The Company continues to demonstrate strong commitment to safety health andenvironment which have been adopted as core organizational values. The Company assuressafety and audits its facilities in accordance with statutory and regulatory requirements.The Directors review these areas every quarter through reports and presentations made atthe Board Meetings.
Employees are continuously made aware of hazards / risks associated with their job andtheir knowledge and skills are updated through requisite training to meet any emergency.Regular medical and occupational check-ups of employees are conducted and eco-friendlyactivities are promoted.
Safe disposal of hazardous waste is ensured through an effluent treatment plant and anincinerator; a sewage treatment plant ensures eco-friendly disposal of sewage.
During the year the Company has received BS OHSAS 18001: 2007 certificate in respectof Occupational Health & Safety Assessment Series and ISO 14001: 2015 certificate inrespect of Environmental Management System.
CURRENT BUSINESS ENVIRONMENT
Pre-buying of vehicles during the last quarter of financial year 2016-17 on account ofimplementation of BS IV emission norms effective 1st April 2017 and customers'expectation of reduction in vehicle prices post implementation of GST has moderated demandin first four months of current financial year with CV volumes contracting 8.1% during theperiod. Your Company has sold 3928 vehicles during April-July 2017 against 6261 sold inthe same period last year.
The above drop in sales volume had its inevitable impact on financial results of thefirst quarter. On net revenue of Rs. 357.98 crores (Rs. 516.10 crores) during thequarter the Company has earned profit after tax of Rs. 6.75 crores (Rs. 40.86 crores).
CRISIL has forecast GDP growth at 7.4 percent for 2017-18 based on factors such asnormal monsoons softer interest rates and relatively benign inflation. As for CVIndustry experts' view is that CV industry will improve gradually and register growth of6-8 percent during financial year 2017-18. For the Company however competition isbecoming intense with entry of new players and existing players expanding their productportfolios.
Based on the above and expected recovery in demand for commercial vehicles in thesecond half of the current financial year the Directors can look towards recovering thelost ground so far during rest of the year.
Amidst the tough competitive environment the Company will continue its focus onproduct development innovative and cost effective technology solutions up-gradation ofplant infrastructure to improve manufacturing technology and efficiencies and costcutting.
The Company's capex project envisaging an outlay of Rs. 220 crores for technologyproduct development and up-gradation of plant infrastructure to improve manufacturingefficiency is progressing well. An amount of Rs 107.0 crores has been spent till 31stMarch 2017. To part finance this capex the Company had drawn Rs. 35.0 crores ExternalCommercial Borrowings (ECB) during financial year 2016-17 designated in US Dollars (fullyhedged) and the rest has been from internal accruals. The Company has also planned toincur an estimated capex of Rs. 30.0 crores towards enhancing the production capacity ofits Plant from 18000 vehicles to 24000 vehicles per annum by setting up an additionalassembly line to be funded through internal accruals.
Mr. Kimitoshi Kurokawa tendered his resignation as Director of the Company with effectfrom 5th August 2016. The Board in its Meeting held on 5th August 2016 recorded itsdeep appreciation for his valuable support and advice during his tenure.
Mr. Kazuo Goda was appointed as an Additional Director of the Company on 5th August2016 and holds office up to the forthcoming Annual General Meeting. The Company hasreceived Notice under Section 160 of the Companies Act 2013 proposing Mr. Goda'sappointment as a Director of the Company for consideration of the Members at theforthcoming Annual General Meeting.
Mr. Kei Katayama tendered his resignation as Director-R&D of the Company witheffect from 25th May 2017. The Board in its Meeting held on 10th May 2017 recorded itsdeep appreciation for Mr. Katayama's contribution in R&D activities of the Companyduring his tenure.
Mr. Takahiro Imai was appointed as an Additional Director and Whole-time Director ofthe Company on 10th May 2017 (effective 26th May 2017) designated as Director-R&D(Isuzu Products & Projects) for two years and holds office up to the forthcomingAnnual General Meeting. The Company has received Notice under Section 160 of the CompaniesAct 2013 proposing Mr. Imai's appointment as a Director of the Company for considerationof the Members at the forthcoming Annual General Meeting.
At the last Annual General Meeting held in August 2016 the Members had approved theappointment of Mr. Takeru Kikkawa as Non-Executive Director.
Mr. Masaki Nakajima retires by rotation and being eligible offers himself forre-appointment.
Mr. Masahiro Narikyo retires by rotation and being eligible offers himself forre-appointment.
The details of the Directors being recommended for appointment / re-appointment arecontained in the Notice convening the forthcoming Annual General Meeting of the Company.
All the independent Directors have given declaration to the Company that they meet thecriteria of 'independence' set out in the SEBI (LODR) Regulations 2015 and the CompaniesAct 2013.
KEY MANAGERIAL PERSONNEL (KMPs)
In terms of the applicable provisions of the Companies Act 2013 Mr. Eiichi SetoManaging Director & CEO Mr. Gopal Bansal Whole-time Director & CFO and Mr.Parvesh Madan Company Secretary are the Key Managerial Personnel of the Company.
No KMP has resigned or was appointed during the year.
NOMINATION AND REMUNERATION POLICY
Based on the recommendations of the Nomination and Remuneration Committee the Boardhas adopted a Nomination and Remuneration Policy which is attached as Annexure A.
SUBSIDIARIES JOINT VENTURES AND ASSOCIATE COMPANIES
The Company does not have any Subsidiary Joint Venture or Associate Company.
RELATED PARTY TRANSACTIONS
All related party transactions that were entered into during the financial year were atarm's length basis in the ordinary course of business and in compliance with theapplicable provisions of the Companies Act 2013 and the Listing Regulations. There wereno material transactions made by the Company during the year that would have requiredshareholders approval.
All related party transactions are placed before the Audit Committee for approval.Prior omnibus approval of the Audit Committee is obtained for the transactions which arerepetitive in nature.
The Company has adopted a policy to deal with related party transactions as approved bythe Board of Directors. It is uploaded on the Company's website at web link:http://smlisuzu.com/Financials/RPTPolicy.aspx
In terms of Section 134(3)(h) of the Companies Act 2013 there are no transactions tobe reported in Form AOC-2. The details of the related party transactions as per AccountingStandard 18 are set out in Note 33 to the Financial Statements.
EXTRACT OF ANNUAL RETURN
Pursuant to Section 92 (3) of the Act and Rule 12 (1) of The Companies (Management andAdministration) Rules 2014 the extract of Annual Return in Form MGT-9 is attached as AnnexureB.
MEETINGS OF THE BOARD
Five Board meetings were held during the year as detailed in the Corporate GovernanceReport which forms part of this report.
The Audit Committee comprises three independent Directors Mr. P.K. Nanda as ChairmanMr. A.K. Thakur and Mr. Sudhir Nayar and the Whole-time director & CFO Mr. GopalBansal. All the recommendations made by the Audit Committee during the year were acceptedby the Board.
PARTICULARS OF EMPLOYEES
The information as per Section 197 of the Companies Act 2013 read with Rule 5(1) ofthe Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 formspart of this Report and attached as Annexure C.
The disclosure as per Section 197 of the Companies Act 2013 read with Rule 5 (2) andRule 5 (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 is provided in a separate annexure forming part of this Report. However as per theprovisions of Section 136(1) of the Companies Act 2013 the report and financialstatements are being sent to the Members and others entitled thereto excluding theaforesaid annexure. This annexure is available for inspection by the Members at theRegistered Office of the Company during business hours on working days of the Company. Anymember interested in obtaining a copy thereof may write to the Company Secretary.
PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS UNDER SECTION 186 OF THE COMPANIES ACT2013
The Company has not given any loans guarantees or made any investments during theyear which would be covered by Section 186 of the Companies Act 2013.
AMOUNTS PROPOSED TO BE CARRIED TO RESERVES
The Company proposes to carry Rs. 6.28 crores to General Reserve for the financial year2016-17 (Previous year - Rs. 5.12 crores).
MATERIAL CHANGES AND COMMITMENTS AFFECTING FINANCIAL POSITION OF THE COMPANY
No material changes have occurred or commitments made after 31 st March 2017 whichmay affect the financial position of the Company or require disclosure.
Your Company is conscious of its responsibility towards preservation of naturalresources and continuously takes initiatives to reduce consumption of electricity andwater.
The primary objective of risk management is to protect the Company against risks to thevalue of the business its capital and its continuity. In order to achieve the objectiveand for better governance the Board has constituted a Risk Management Committee (RMC)comprising three independent Directors one non-executive Director and the Whole-timeDirector & CFO.
RMC is entrusted with the functions of determining efficacy of risk managementframework of the Company evaluation of risks and mitigating measures. The Company hasadopted a formal Risk Management Policy based on the recommendations of RMC.
The Policy sets out key risk areas - financial risks (including risk to assets)legislative and regulatory risks environmental risks (including natural disasters)operational risks (markets production technology etc.) risks relating to employmentand manpower and individual large transactional risks. The Managing Director & CEOidentifies and proposes action in respect of all risks through his management team as andwhen any are perceived or foreseen or inherent in operations; analyses these and thenreports to RMC for its review and guidance.
CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility (CSR) Committee consists of two independent Directorsnamely Mr. S.K.Tuteja as Chairman and Dr. (Mrs.) Vasantha S. Bharucha and two ExecutiveDirectors - Mr. Eiichi Seto the Managing Director & CEO and Mr. Gopal BansalWhole-time Director & CFO. On the recommendations of the Committee the Board hasadopted Company's policy on CSR with key thrust areas defined as - promoting healthcareand sanitation supporting education of girl child and under privileged childrensponsoring vocational education for women etc.
Annual Report on CSR activities for the year ended 31st March 2017 is attached as AnnexureD.
Pursuant to the provisions of the Companies Act 2013 and Listing Regulationsperformance evaluation of the Board the Directors as well as Committees of the Board hasbeen carried out and the details are covered in the Corporate Governance Report.
CHANGE IN THE NATURE OF BUSINESS
There has been no change in the nature of business of the Company during the year.
There was no change in the Company's issued subscribed and paid-up equity sharecapital during the year.
During the year the Company has not accepted any deposit under Chapter V of theCompanies Act 2013.
SIGNIFICANT ORDERS PASSED BY REGULATORS COURTS OR TRIBUNALS IMPACTING GOING CONCERNAND COMPANY'S OPERATIONS
To the best of our knowledge the Company has not received any such orders fromregulators courts or tribunals or any other authority during the year which may impactthe going concern status of the Company or its operations in future.
POLICY ON PREVENTION PROHIBITION AND REDRESSAL OF SEXUAL HARASSMENT AT WORKPLACE
The Company has adopted a policy in line with the provisions of the Sexual Harassmentof Women at Workplace (Prevention Prohibition and Redressal) Act 2013 (the Act) and theRules there under. The Policy aims to provide protection to women at the workplace andprevent and redress complaints of sexual harassment and for matters connected orincidental thereto with the objective of providing a safe working environment. TheCompany has also constituted an Internal Complaints Committee in accordance with the Actto inquire into complaints and take appropriate action.
The Company has not received any complaint of sexual harassment during the year.
VIGIL MECHANISM / WHISTLE BLOWER POLICY
The Company has adopted a whistle blower policy to provide formal mechanism to theDirectors and employees to report their concerns about unethical behaviour actual orsuspected fraud or violation of the Company's code of conduct or ethics policy. Itprovides for adequate safeguards against victimization of Directors and employees whoavail the mechanism and provides for direct access to the Chairman of the Audit Committee.
Whistle Blower Policy of the Company is available on the Company's website at web link:http://smlisuzu.com/Financials/WhistleBlowerPolicy.aspx
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to Section 134 (3) (c) and 134 (5) of the Companies Act 2013 the Directorsto the best of their knowledge and ability confirm that:
(a) in the preparation of the annual accounts for the year ended 31 st March 2017 theapplicable accounting standards have been followed and proper explanations providedrelating to material departures if any;
(b) they have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at 31 st March 2017 and of the profit ofthe Company for the year ended on that date;
(c) they 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 and otherirregularities;
(d) they have prepared the annual accounts on a going concern basis;
(e) they have laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and are operating effectively;
(f) they have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems are adequate and operating effectively.
INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO FINANCIAL STATEMENTS
Based on the work performed by the internal statutory and secretarial auditors and thereviews carried out by the Management and the relevant Board Committees the Directors areof the opinion that the Company has in place adequate internal financial controls withreference to financial statements commensurate with the size and nature of the businessof the Company. During the year such controls were tested and no reportable materialweaknesses in the design or operation were observed.
FAMILIARISATION PROGRAMME FOR INDEPENDENT DIRECTORS
The details of familiarisation programme for Independent Directors in respect of theirroles rights & responsibilities nature of the industry in which Company operatesbusiness model of the Company and related matters are available on the website of theCompany at web link: http://smlisuzu.com/Financials/FamiliarisationProgramme.aspx
Pursuant to the provisions of Section 204 of the Companies Act 2013 and The Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 M/s A. Arora &Co. a firm of Company Secretaries in practice were appointed as the Secretarial Auditorsof the Company to carry out the Secretarial Audit of the Company for financial year2016-17.
The Secretarial Audit Report does not contain any qualification and is attached as AnnexureE.
B S R & Associates LLP a firm of Chartered Accountants was appointed as theStatutory Auditors of the Company at its 31st Annual General Meeting for a period offive years subject to ratification by the Members of the Company at every subsequent AGM.Such ratification for the financial year 2017-18 is being sought from the Members at theforthcoming AGM.
As per the provisions of Section 139(1) of the Companies Act 2013 the Company hasreceived a written consent from B S R & Associates LLP Chartered Accountants forcontinuation of its appointment and a Certificate to the effect that its appointment ifcontinued would be in accordance with the Companies Act 2013 and the Rules framedthereunder and that they satisfy the criteria provided in Section 141 of the CompaniesAct 2013.
The Auditors' Report to the shareholders for the year under review does not contain anyqualification.
CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO
The required information on conservation of energy technology absorption and foreignexchange earnings and outgo as stipulated in the Companies Act 2013 is attached as AnnexureF.
Your Directors express their grateful appreciation for the co-operation received fromthe concerned Government departments banks dealers and other business constituentsduring the year under review. Your Directors also wish to place on record their deep senseof appreciation for the committed services of the employees of the Company at all levels.
| ||FOR AND ON BEHALF OF THE BOARD OF DIRECTORS |
| ||S.K. TUTEJA ||EIICHI SETO |
|Dated : 10th August 2017 ||Chairman ||Managing Director & CEO |