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Apar Industries Ltd.

BSE: 532259 Sector: Engineering
NSE: APARINDS ISIN Code: INE372A01015
BSE 10:02 | 25 Jan 356.95 -2.60
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NSE 09:49 | 25 Jan 355.25 -4.10
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OPEN 361.10
PREVIOUS CLOSE 359.55
VOLUME 2351
52-Week high 456.00
52-Week low 235.10
P/E 16.06
Mkt Cap.(Rs cr) 1,366
Buy Price 356.70
Buy Qty 18.00
Sell Price 357.70
Sell Qty 4.00
OPEN 361.10
CLOSE 359.55
VOLUME 2351
52-Week high 456.00
52-Week low 235.10
P/E 16.06
Mkt Cap.(Rs cr) 1,366
Buy Price 356.70
Buy Qty 18.00
Sell Price 357.70
Sell Qty 4.00

Apar Industries Ltd. (APARINDS) - Director Report

Company director report

Dear Shareholders

Your Directors take immense pleasure in presenting the 31st Annual Report of theCompany together with the Audited Annual Financial Statements (Standalone andConsolidated) showing the financial position of the Company for the year ended 31st March2020.

1. FINANCIAL PERFORMANCE

The financial performance of your Company for the year ended 31st March 2020 ishighlighted below:

(Rs. in crore)
Particulars

Company

Consolidated

2019-20 2018-19 % of Increase 2019-20 2018-19 % of Increase
Sales Turnover 7060.09 7586.27 (6.94%) 7461.74 7963.85 (6.30%)
Other income 8.29 14.82 (44.06%) 8.41 15.05 (44.12%)
Profit for the year before finance cost depreciation and tax expenses. 469.90 480.16 (2.14%) 484.18 482.76 0.29%
Deducting therefrom:
- Depreciation / amortisation 79.15 60.13 31.63% 87.12 66.67 30.67%
Finance Costs 219.08 192.28 13.94% 227.65 199.87 13.90%
PROFIT BEFORE TAXATION FOR THE YEAR 171.67 227.75 (24.63%) 169.41 216.22 (21.65%)
Deducting therefrom:
- Tax expenses 32.69 80.66 (59.47%) 34.26 80.16 (57.26%)
NET PROFIT FOR THE YEAR AFTER TAXATION AND BEFORE MINORITY INTEREST 138.98 147.09 (5.51%) 135.15 136.06 (0.67%)
Adjustment of :
Share in Profit (Loss) of JV - - - - - -
NET PROFIT AFTER TAXATION AND ABOVE ADJUSTMENTS 138.98 147.09 (5.51%) 135.15 136.06 (0.67%)
Add: Profit brought forward from previous year 608.44 520.18 16.97% 682.69 605.45 12.76%
Amount available for appropriations :
- Reserves (14.00) (15.00) (6.67%) (14.00) (15.00) (6.67%)
- Dividend (including tax) (87.64) (43.83) 99.95% (87.64) (43.83) 99.95%
Leaving balance of profit carried to balance sheet 645.78 608.44 6.14% 716.20 682.69 4.91%
Earnings per equity share (EPS)
- Basic & Diluted before & after extraordinary items 36.32 38.44 (5.51%) 35.32 35.55 (0.67%)

2. NOTE ON COVID-19

The outbreak of Coronavirus (COVID-19) pandemic globally and in India is causingsignificant disturbance and slowdown of economic activity has had impact on the businessof the Company. Due to the lock down the dispatches have impacted for later part of theMarch'20 and the profitability to that extent for the year 2019-20.

In the initial period of Lock-down the essential services based manufacturingfacilities were under operation observing safety measures with limited manpower.Gradually the other manufacturing facilities were operated based on the state basedpermissions to operate with restricted manpower.

The lock down of COVID-19 is continuing in FY 2020-21 and the Company is continuing itsoperations in all the business units with current lower demand. Management is expectingthat demand for products will improve on stabilization of COVID-19 post removal of lockdown. Management has assessed the potential impact of COVID 19 based on the currentcircumstances and expects no significant impact on the continuity of operations of thebusiness on long term basis/ on useful life of the assets/ on financial position etc.though there may be lower revenues in the near term.

3. INDIAN ACCOUNTING STANDARDS

The Financial Statements for the year ended on 31st March 2020 have been prepared inaccordance with the Companies (Indian Accounting Standard] Rules 2015 prescribed underSection 133 of the Companies Act 2013 (the Act'] and other recognized accountingpractices and policies to the extent applicable.

4. DIVIDEND

Pursuant to the Requirements of Regulation 43A of the SEBI (Listing Obligations &Disclosure Requirements) Regulations 2015 (the Listing Regulations'] the Company hasformulated its Dividend Distribution Policy the details of which are available on theCompany's website at www.apar.com and the copy of the same is annexed as "Annexure- XI".

Your Company has paid an interim dividend @ Rs.9.50 (95.00%) per Equity Share for thefinancial year 2019-2020 on 38268619 Equity Shares of the face value of Rs.10/- eachamounting to Rs.36.35 Crores for the financial year 2019-2020 during the month of March2020.

No final Dividend has been recommended by the Board and accordingly the InterimDividend declared and paid by the Company in the month of March 2020 is to be consideredas Interim-cum-Final Dividend for the financial year 2019-20.

The members are requested to confirm the above interim-cum- final dividend at theensuing Annual General Meeting (AGM) of the Company.

5. TRANSFER TO RESERVES

The Company proposes to transfer an amount of Rs. 14.00 crore to the General reserves.An amount of Rs. 33.51 crore is proposed to be retained in the Consolidated Statement ofProfit and Loss for FY 2019-20.

6. MANAGEMENT DISCUSSION AND ANALYSIS (MDA)

Apar Industries posted a steady performance in FY20 a challenging year that startedslow due to general elections and ended with the upheaval caused by the COVID-19 pandemic.Consolidated revenue in FY20 was at Rs.7462 crore compared to Rs.7964 crore in FY19.Your Company posted Rs.484 crore of consolidated EBITDA and Rs.135 crore of consolidatedPAT in FY20 similar to that in FY19. Provision for doubtful debts increased at Rs.29crore versus Rs.5 crore in FY19. EBITDA margin improved to 6.5% in FY20 from 6.1% withincreasing share of higher-value products.

Your Company is a leading global manufacturer of conductors speciality oils andcables serving power and other industries. The three businesses delivered sturdyperformance in the year as shown below.

Conductors Rs.3624 crore revenue 48% share

• Higher-value products share @ 38% of segment revenues up from 25% in FY19.

• New products launches - CTC for transformer industry OPGW.

• Rs.2004 crore order book as on March 31 2020.

• Order inflow of Rs.2617 crore in the year.

• 158104 MT sold in the year.

Specialty Oils Rs.2323 crore revenue 31% share

• 403626 KL sold in FY20 versus 429989 KL in FY19.

• Export revenue share 37% up by 4% YoY.

• Hamriyah capacity utilisation up at 68% in FY20 from 62% in FY19.

• Auto lubes & industrial oils contributed 23% to revenues.

Cables Rs.1601 crore revenue 21% share

• Export revenues up 59% YoY 17% revenue share.

• Power cables' revenue up 4% YoY.

• New product launch - Medium Voltage Covered Conductor (MVCC)

FY20 - A year of pause:

The year started on a slow note due to the applicable Code of Conduct' related to thegeneral elections in May 2019. The re-elected government announced several policyinitiatives such as Rs.102 lakh crore of Infra projects for the next five years. ElevenLetters of Intent (LoIs] were issued in FY20 for TBCB transmission projects. 11664 ckmsof AC transmission lines was added in FY20 (22437 ckms in FY19]. 68230 MVA of substationtransformation capacity was added against targeted 81716 MVA in the previous year.

However progress on continuation of power sector reforms like UDAY 2.0 was slowcoupled with persistent and severe credit challenges in the domestic market. ICRAestimates the discom losses in FY20 to be ~ Rs.30000 crore up from Rs.27000 crore inFY19. The automotive sector also had one of its worst years with domestic sales declining18% YoY. The year ended on a worse note with the unprecedented disruption of both globaland domestic markets due to the COVID-19 pandemic. The government imposed a lockdown inMarch to combat COVID-19 resulting in manufacturing shutdowns. India's economic growthslipped to 3.1% in Q4FY20 and overall 4.2% in FY20 (6.1% in FY19).

Strong medium-term opportunities ahead but FY21 to be challenging:

The ongoing COVID-19 pandemic has severely impacted FY21. ICRA estimates 5% contractionin Indian GDP in FY21. However Power T&D especially from renewables all over theworld and Railways electrification are strong growth drivers for your Company over themedium term. The Indian government is committed to "24*7" power for all. Indiaaims to generate 450 GW of renewable energy by 2030 as part of a stronger climate actionplan that will create significant evacuation demand. To tide over the current COVID-19crisis the government has announced a Rs.90000-crore financial package for stresseddiscoms. As per the 13th Five Year Plan addition of 41185 ckms of AC transmission lines37244 MVA of AC sub-station transformation capacity and 16000 MW of interregionaltransmission capacity is expected. Indian Railways plans to electrify all of its BroadGauge routes by 2024.

Apar is 'Change-ready':

Your Company has quickly adapted to the new normal' working conditions with employeesafety remote working digital communication tools and other preventive measures.

Your Company has a well-diversified and among the most comprehensive portfolio ofproducts catering to power and other industries. Since FY13 we have consciously investedin higher-margin products to broaden our market segments and maximize profitableopportunities. We will keep strong focus on per order profitability giving preference tohigher- value products across segments. Apar has always pursued financialconservativeness maintaining low leverage prudent order-booking and healthy cash levels.Your Company has closed FY20 with Rs.164 crore of cash and cash equivalents providingsome buffer in the current uncertain times. We are increasing our focus on collections andhave adopted cautious order-booking. We had low capex plans to begin with and while wewill undertake work- in-capex in FY21-22 new capex plans will be reviewed in H2FY21. Webelieve our inherent strengths and strong management focus provide us strong resilience toface these unprecedented times.

The opportunities and outlook for your Company are as follows:

Global Scenario

Global GDP growth is forecasted at -4.6% in 2020 impacted by the COVID-19 pandemic and5.1% in 2021. At the start of 2020 global energy investment was on track for growth of~2% but following the COVID-19 crisis global investment is now expected to drop by 20%compared with 2019 according to IEA's World Energy Investment 2020 report. Globalelectricity demand is set to fall by 5% in 2020. Power sector spending is to decrease by10% in 2020. Global investment in electricity networks is expected to decline to $248 bnin 2020 from $273 bn in 2019. Renewable power investments are expected to decline to $281bn in 2020 from $311 bn in 2019. Final investment decisions in Q1 2020 for newutility-scale wind and solar projects fell back to the levels of three years ago. HoweverIEA estimates that the majority of these delayed projects are expected to be online in2021 resulting in a rebound in capacity additions.

The Green Deal proposed by the European Commission provides a roadmap and targets tocountries for achieving environmental sustainability via renewable energy generation andelectric mobility among others. Global renewable capacity has been growing by an averageof 8.6% per year since 2015. The International Renewable Energy Agency (IRENA) believesrenewable electricity should supply 57% of global power by the end of the decade up from26% currently to hit climate targets. In 2019 there were 105 Nationally DeterminedContributions (NDCs) or pledges with set targets for renewables. At least

I. 5 TW of additional renewable power installed capacity would come online globallythrough 2030 as a result of NDC implementation. Of this 249 GW is estimated in Europewhich is a 50% growth from current capacity. Asia is estimated to add 1007 GW up 154%from current capacity. 2019 was a watershed year for clean energy commitments from USA'states and utilities too. 15 states (and Washington D.C. and Puerto Rico) now haveofficial targets to get at least 50% of their electricity from clean sources in the comingdecades. New T&D markets like Australia saw renewable capacity increase by 2.2 GWacross 34 projects while at the end of 2019

II. 1 GW of new generation was under construction or financially committed.

This transformation in the power generation landscape augurs well for our company asnew transmission networks need to be built to evacuate power from the sites into the gridand to customers.

Indian scenario

India is the world's 3rd largest power consumer and producer with 1253 BU generated inFY20. Electricity demand for FY20 increased 1.3% despite the COVID-19 lockdown beginningMarch-end. The 13th National Electricity Plan targets 479 GW of generation capacityincluding 243 GW of thermal and 175 GW of renewable capacity.

Regulatory initiatives: The government has undertaken programs to provide 24*7power to all. As per Year End Review 2019 by the government:

Rural Electricity Infrastructure achievements in April- Nov 2019 (includingadditional infrastructure created for household electrification under DDUGJY &Saubhagya schemes)

• 371985 kms of LT lines and 177676 kms of HT lines (11 KV and 33 KV) erected

Integrated Power Development Scheme (April - Dec 26 2019): 200 newsub-stations added and 280 substations received enhancements/ additional transformers.5143 ckms of HT and 1464 ckms of LT overhead lines were installed. 19050 ckms of ArielBunch/ Underground cables were installed. 10079 distribution transformers were added.

Ujjwal DISCOM Assurance Yojana (UDAY):

ICRA estimates DISCOM losses in FY20 to be around Rs.30000 crore. Lower power demandand logistical constraints in revenue collections due to the COVID-19 lockdown may resultin losses of up to Rs.50000 crore in FY21 up 66% y-o-y.

*FY20 AT&C loss is for 26 states - 18 states have submitted for Q4FY20 rest arefor Q3FY20.

• Budget 2020-2021 allocated Rs.15875 crore to Power Ministry same as in FY20Revised Estimate (R.E.)

• IPDS at Rs.5300 crore down 6%

• DDUGJY at Rs.4500 crore up 11%

• Rs.5753 crore outlay to Ministry of New and Renewable Energy up 48% comparedto FY20 R.E.:

• Green energy corridors at Rs.300 crore versus Rs.53 crore in FY20 R.E.

• Wind Power (grid interactive + off-grid) at Rs.1302 crore up 27%

• Solar power (total) at Rs.2516 crore up 10%

• Rs.90000 crore bailout package for discoms:

Government of India on May 13 2020 decided to make an infusion of liquidity ofRs.90000 crore through Power Finance Corporation (PFC) and Rural ElectrificationCorporation (REC) as part of the Atmanirbhar Bharat Abhiyan to tide over the ongoingCOVID-19 pandemic. CRISIL estimates that with weak power demand and cash losses due to thepandemic Discoms would end up owing lenders a staggering Rs.4.5 lakh crore by the end ofFY21 up 30% YoY. Discom cash losses may double to Rs.58000 crore in FY21.

Power Ministry has issued a draft proposal for amendment of Electricity Act2003:

This move is aimed at ushering in distribution sector reforms financial disciplineand a focus on renewable energy push.

In FY20 India added 11664 ckms of AC transmission lines down 48% YoY. 65230 MVA ofAC substations transformation capacity (down 10% YoY) and 3000 MW of inter-regionaltransmission capacity were added in FY20 (down 76% YoY).

Green Energy to drive T&D demand:

GoI has an ambitious plan to establish a total of 100 GW Solar and 60 GW Windgeneration capacity by 2022. Power transmission projects structured on the tariff-basedcompetitive bidding (TBCB) mechanism and associated with large-scale evacuation ofrenewable energy gained traction in FY20. Eleven Letters of Intent (LoIs) were awarded inthe year and 22 projects were under development under TBCB process as on March 2020.Furthermore renewable projects are smaller and more spread out compared to thermalprojects and hence have higher requirement for T&D products.

Railway Electrification:

Progressed with 16889 Route Kilometers (rkms) electrified in FY16-FY20 which is 345%increase against the previous five years (FY11 to FY15). Indian Railways has electrified39866 rkms which account for about 63% of total rkms of the Railways. It is planned toelectrify all broad gauge routes by 2024. In FY20 2606 rkms have been electrified by theCentral Organisation for Railway Electrification (CORE). In addition sections of 560 rkmswere ready but could not be commissioned due to COVID-19 restrictions.

Domestic automobile sales stood at 21546390 units in FY20 contracting 18% YoYwith decline across all segments. Budget FY21 allocated Rs.693 crore (up 39% compared toFY20 R.E.) to Faster Adoption and Manufacturing of Electric Vehicles (FAME India) toprovide clean mobility solutions. There is a target of 30% share of new vehicles fromelectric vehicles by 2030. 2636 charging stations have been sanctioned in 62 cities underthe FAME India program.

Government is readying the next phase of Bharat Net-the project that aims toprovide rural broadband connectivity. Budget FY21 has allocated Rs.8000 crore (up 167%vs. FY20 R.E.) to BharatNet.

Overall Business Performance

In Rs.Cr FY16 FY17 FY18 FY19 FY20
Revenue* (net of excise) 5078 4832 5819 7964 7462
ebitda 373 433 419 483 484
pat 122 177 145 136 135
Cash Profit 160 222 201 203 222
roe 15% 19% 13% 12% 11%
d/e 0.1 0.1 0.2 0.1 0.2

*Numbers are as per Ind AS from FY 2015-16 onwards.

Your Company posted strong and sustained financial performance in FY20 with awell-diversified revenue base and focus on new and higher-value products in a challengingmarket. Consolidated revenues grew at 10% FY16-FY20 CAGR and EBITDA grew at 7% FY16-FY20CAGR. Your Company delivered average ROE of 14% over FY16-FY20 and low D/E of 0.19 as onMarch 2020. The provisions and write-offs for doubtful debts were increased significantlyto Rs.29 crore in FY20 from Rs.5 crore in FY19 seeing the credit situation in the marketduring the ongoing pandemic. Consolidated EBITDA margin was 6.5% versus 6.1% in FY19.

BUSINESS SEGMENTS

Ul CONDUCTORS: ADJ. EBITDA/MT UP 20% YOY

In Rs.Crore FY20 FY19 Growth (%)
Order Book 2004 3020 -34%
Turnover (Net of Excise) 3624 3915 -7%
Segment Profit/(Loss) 158 151 5%
Volume (MT) 158104 182977 -14%

Higher-value products revenue share up to 38%: In FY20 revenue from the segmentdeclined 34% to reach Rs. 3624 crore with slowdown and credit tightness in domesticmarkets throughout the year and COVID-19 shutdown impacting March volumes.

• Higher Value products (HEC + Copper Conductors] contribution up to 38% from 25%in FY19.

• HEC revenue up 96% YoY with good execution contribution to revenues at 18%compared to 9% in FY19.

• Copper conductor for Railways revenue up 26% YoY contributed 20% to revenuesversus 16% in FY19.

• New products - CTC for Transformers industry and Optical Ground Wire (OPGW)launched.

• Exports contributed 40% to revenues versus 39% in FY19.

EBITDA grows strongly:

EBITDA per MT post forex adjustment was Rs. 10790 up 20% YoY with improvedproduct/order-mix. Your Company is targeting an EBITDA of Rs.12000 per MT in the next 2-3years.

Strategic investments yield benefits:

Your Company has invested Rs. 367 crore since FY14 leading to new profitability levers:

• New product capacities achieved good utilization.

• Jharsuguda plant (80000MT] brings logistics and cost benefits.

• Long-term agreement with Hindalco to source molten metal results in savings.

Outlook

• In FY21 the focus would be on collections cautious order booking with eye oncustomer's credit worthiness and per order profitability. Expect slower order inflow H1FY21 due to postponement of tenders in lockdown and lower execution at customers.

• Strong T&D demand expected from the renewable projects under construction/bidding and government's commitment to higher share of clean energy. Similarly Railwayselectrification electric vehicle charging infrastructure to see increased demand aseconomy recovers post COVID-19.

• Focus on higher-value products such as HEC Copper Conductors Copper TransposeConductors and OPGW to help profitability.

Risks and Concerns:

Additional shutdowns due to higher COVID-19 spread in India and other major markets mayimpact operations and demand. Profitability may be impacted in the larger TBCB projectswhere your Company is a vendor due to the fixed-price contracts at the pre-bidding stageand lag between actual ordering. Increasing competition in the domestic market with fixedprice contracts may put pressure on the profitability of the Company. Delays in ordersfrom state discoms may impact performance. The cyclical nature of the power business hasan obvious impact on our performance. Project delays from the customers' side may impact.Regional political instability and changes in the external environment in certain exportmarkets may affect execution.

SPECIALITY OILS - EXPORTS UP 4% YOY

In Rs.Crore FY20 FY19 Growth (%)
Turnover (Net of Excise) 2323 2630 -12%
Segment Profit/(Loss) 121 119 2%
Volume (KL] 403626 429989 6%

Multi-country presence with base in UAE helps during COVID-19 crisis: In FY20speciality oils declined 12% to reach Rs.2323 crore impacted by subdued domestic demandand loss of year-end sales due to COVID-19 shutdowns especially in transformer oils andautomobile retail sales.

• Exports of transformer oils and white oils to over 95 countries. Successfulmanufacturing and distribution tie-ups in South Africa Australia and Turkey. Base inHamriyah helped shifting of customer orders during shutdown in India.

• Hamriyah plant operated at 68% utilization in FY20 up from 62% in FY19.

• Exports contribution up to 37% vs. 33% in FY19.

• Automotive oils and industrial oils contributed 23% to revenues compared to 21%in FY19.

Profitability sustained despite increased provisions:

EBITDA per KL after forex adjustment in FY20 was at Rs.2990 versus Rs.2998 in FY19.There was an Rs.18-crore provision for bad debts/ written off debts in the year. In FY20itself your Company has prudently provided for estimated loss of collections from clientswho have visible financial stress. Your Company does not foresee significant write-offs inFY21.

Recovery expected in H2 FY21

• Q1 FY21 sales to be -50% of the usual. Pricing pressures and higher-pricedinventory to impact margins. Your Company expects economic recovery and hence demandrecovery by H2 FY21.

• The state-of-the-art speciality oils blending unit in Hamriyah (Sharjah] has100000KL capacity and targets key export markets. Your Company has achieved key approvalsin the year to target local demand. Your Company targets increased utilization of over 70%in next 2-3 years from this plant.

• The key automotive segment of tractors that your Company's products cater to areexpected to benefit from regular monsoon higher rural income and the Government's crisispackages in FY21.

• The domestic T&D equipment market is expected to continue to benefit fromvarious regulatory initiatives leading to both new and replacement demand for transformeroils.

Risks and Concerns:

Your Company is exposed to volatility in the prices of raw materials and foreignexchange rates. Competition in both the transformer oils and auto lubricants sub-segmentsmay impact performance. However in order to mitigate risks your Company continues toexercise prudence in inventory control and hedging strategies. Also additional globalrefining capacities have resulted in a mismatch in demand and supply which has had aneffect on base oil prices. The prices of long-term buy contracts take time to correct incase of fluctuations in crude prices as formula prices are always backward looking. YourCompany had to implement strict credit controls to limit exposure to customers facingcash-flow issues. Rapid commoditization taking place at the lower end especially attechnical grade white oils may have an impact on margins. Geopolitical uncertainties mayimpact global oil supply causing volatility in base oil prices and may impact yourCompany's performance.

a-t-CABLES SEGMENT - EXPORTS REVENUES UP 59% YOY

In Rs.Crore FY20 FY19 Growth (%)
Turnover (Net of Excise) 1601 1684 -5%
Segment Profit/(Loss) 155 173 -11%
Segment Profit margin 9.7% 10.3%

Focus on exports during low domestic demand: Cables segment revenues declined 5%YoY to reach Rs.1601 crore with low demand from telecom and renewables sectors:

• Export revenues up 59% YoY contribution at 17% versus 10% in FY19.

• Power cables revenue up 4% YoY in a highly competitive market led by exports.Good demand from Railways EPC & Utilities.

• Elastomeric & E-beam cables revenue down 2% YoY mainly due to lower sales ofsolar cables. Higher demand from Railways and Defence businesses.

• Telecom cables/OFC revenue declines by 52% due to no orders from two majorcustomers - BSNL & Reliance Jio.

New products:

Medium Voltage Covered Conductor (MVCC) launched. Execution started for Railway harnessbusiness.

EBITDA margin sustained:

EBITDA margin post forex adjustments at 11.1% versus 11.3% in FY19 mainly withincreased traction in Copper Cables and Exports.

Outlook looks encouraging with demand growing for all our product lines

• Expect lower sales in FY21 but will focus on export markets.

• Stronger demand expected for OFC with new normal' remote working conditions andBharatNet II execution reviving demand.

• Targeting new opportunities in auto additional Railway products MVCCsignalling cables etc.

Risks and Concerns: The excess capacity in the power cables segment impactspricing. Collection periods can get extended and delivery schedules can get delayed due tolack of financial arrangements by key customers in the renewable energy sector and by EPCcontractors. In optical fibre cables low or zero ordering by major telecom companies mayimpact performance. The cyclical nature of their tendering too has a bearing on theorder situation in the industry. Any volatility in fibre prices may impact performance.

General risks and concerns

Continued pandemic and additional shutdowns may impact performance. Our performance maybe impacted by fluctuating commodity prices technological changes exchange ratefluctuations and due to any impact in the general macro-economic outlook. Anygeopolitical or economic upheavals at the local regional or global levels may adverselyimpact demand or create input cost volatility that may impact performance. Your Company isexposed to risk of volatility in LIBOR rates that may increase our interest costs andimpact performance. Debtors' collection period can increase on account of stressedfinancial condition of customers.

Key Financial Ratios with details of significant changes

The company has identified the following as key financial ratios:

Consolidated ratios FY20 FY19 % Change
EBITDA Margin 6.5% 6.1% 7.0%
PAT Margin 1.8% 1.7% 6.0%
ROE 11.4% 11.8% -3.1%
Debtor Days 99 89 11.8%
Inventory Days 74 65 13.9%
Debt/ Equity 0.19 0.14 39.0%
Interest Coverage 1.7 2.1 -16.2%
Net Fixed Asset Turnover 8.5 10.8 -20.8%

Among the key financial ratios there was a significant change (over 25% versus FY19)in the Debt/Equity ratio. The Company has borrowed External Commercial Borrowing (ECB)during the year to finance its capex which is incurred in increasing/up-gradation of itsfacilities. The reserve has reduced on account of mark-to-market (MTM) of commodity andforex derivative taken to hedge the variation in commodity and foreign exchange ratesthis MTM is notional in nature. Further the Company has paid interim dividend during theyear.

Operations of Subsidiaries

(i) Petroleum Specialities Pte. Ltd Singapore (PSPL) a Wholly- Owned Subsidiary(WOS): In FY20 total income of PSPL stood at US$ 0.05 million against US$ 0.18million in the previous year and net loss at US$ 0.05 million against profit after tax US$0.06 million in the previous year.

(ii) Petroleum Specialties FZE Hamriyah Sharjah UAE (PSF) - 100% subsidiary ofPSPL: In FY20 net sales of PSF stood at US$ 57.66 million against US$ 55.38 millionin the previous year and net loss at US$ 0.91 million against US$ 2.24 million in theprevious year.

(iii) Apar Transmission & Distribution Projects Private Limited (ATDPPL): InFY20 net sales of ATDPPL stood at Rs. 47.63 crore versus Rs. 10.07 crore in FY19. Profitafter Tax of Rs. 3.96 crore versus net Loss of Rs. 1.60 crore in FY19.

(iv) Apar Distribution & Logistics Private Limited: Wholly Owned Subsidiaryof the Company incorporated on 2nd March 2020. Net Loss for the period is Rs. (0.15)lacs.

Development of human resources: The Company promotes an open and transparentworking environment to enhance teamwork and build business focus. The Company equallygives importance to the development of human resource (HR). It updates its HR policy inline with the changing HR culture in the industry as a whole. In order to fosterexcellence and reward those employees who perform well the Company practices performance/ production linked incentive schemes and introduced Employees Stock Option Scheme. TheCompany also takes adequate steps for in-house training of employees and maintaining asafe and healthy environment.

Cautionary statement: The statements made in the Management Discussion &Analysis section describing the Company's goals expectations and predictions amongothers do contain some forward looking views of the management. The actual performance ofthe Company is dependent on several external factors many of which are beyond the controlof the management viz. growth of Indian economy continuation of industrial reformsfluctuations in value of Rupee in the foreign exchange market volatility in commodityprices applicable laws/regulations tax structure domestic/international industryscenario movement in international prices of raw materials and economic developmentswithin the country among others.

7. SUBSIDIARY AND JOINT VENTURE COMPANIES

Your Company has the following subsidiaries as at 31st March 2020:

1. Petroleum Specialities Pte. Ltd. Singapore (PSPL) - Wholly Owned Subsidiary of theCompany

2. Petroleum Specialities FZE Sharjah (PSF) - Wholly Owned Subsidiary of PSPL

3. Apar Transmission & Distribution Projects Private Limited (ATDPPL) - WhollyOwned Subsidiary of the Company and

4. Apar Distribution & Logistics Private Limited - Wholly Owned Subsidiary of theCompany incorporated on 2nd March 2020.

The Company has not attached the Balance Sheet Statement of Profit & Loss Accountsand other documents of its four subsidiaries. As per the provisions of Section 129(3) readwith Section 136 of the Companies Act 2013 a statement containing brief financialdetails of the subsidiaries for the year ended March 31 2020 in Form AOC - 1 isincluded in the annual report and shall form part of this report as "AnnexureIX". The annual accounts of the said subsidiaries and the related informationwill be made available to any member of the Company seeking such information at any pointof time and are also available for inspection by any member of the Company at theregistered office of the Company.

Further pursuant to provisions of Section 136 of the Act the financial statementsincluding Consolidated Financial Statements of the Company along with relevant documentsand separate audited accounts in respect of subsidiaries are available on the website ofthe Company.

8. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant and material orders passed during the year by the regulatorsor courts or tribunals impacting the going concern status and operations of the Company infuture.

9. CORPORATE GOVERNANCE

Your Company believes in conducting its affairs in a fair transparent and professionalmanner and maintaining the good ethical standards transparency and accountability in itsdealings with all its constituents. As required under the Listing Regulations a detailedreport on Corporate Governance along with the Auditors' Certificate thereon forms part ofthis report as "Annexure - VI".

10. BUSINESS RESPONSIBILITY REPORT

Business Responsibility Report as stipulated under Regulation 34 of the ListingRegulations is annexed herewith as "Annexure - VII" forms a part of thisAnnual Report.

11. DIRECTORS AND KEY MANAGERIAL PERSONNEL

Re-appointments

At the 31st Annual General Meeting (AGM) Mr. Chaitanya N. Desai Director shall retireby rotation and being eligible offers himself for re- appointment.

The Board of Directors on recommendation of the Nomination andCompensation-cum-Remuneration Committee has recommended re-appointment of Mr. Chaitanya N.Desai..

Key Managerial Personnel:

Mr. Kushal N. Desai Managing Director and Chief Executive Officer Mr. Chaitanya N.Desai Managing Director Mr. V. C. Diwadkar Chief Financial Officer and Mr. SanjayaKunder Company Secretary are the Key Managerial Personnel of the Company as on 31stMarch 2020.

12. MEETINGS

During the year five Board Meetings and four Audit Committee Meetings were convenedand held. The intervening gap between the Meetings was within the period prescribed underthe Act. The details of these Meetings with regard to their dates and attendance of eachof the Directors thereat have been set out in the Report on Corporate Governance.

13. DECLARATION BY INDEPENDENT DIRECTORS

Mr. F. B. Virani Mr. Rajesh Sehgal and Mrs. Nina Kapasi were the Independent Directorsof the Company as on 31st March 2020.

The Company has received declarations from all the Independent Directors of the Companyconfirming that they meet the criteria of independence prescribed under the Act and theListing Regulations.

14. BOARD EVALUATION

Pursuant to the provisions of the Act and the Listing Regulations the Board hascarried out an annual performance evaluation of its own performance the directorsindividually as well as the evaluation of the working of its Audit Committee Nominationand Compensation-cum- Remuneration Committee Corporate Social Responsibility (CSR)Committee Risk Management Committee and Share Transfer and ShareholdersGrievance-cum-Stakeholders Relationship Committee. The manner in which the evaluation hasbeen carried out has been explained in the Corporate Governance Report.

15. DIRECTORS' RESPONSIBILITY STATEMENT

To the best of their knowledge and belief and according to the information andexplanations obtained by them your Directors make the following statements in terms ofSection 134(3)(c] of the Act:

i. that in the preparation of the annual Financial Statements for the financial yearended March 31 2020 the applicable accounting standards have been followed along withproper explanation relating to material departures if any.

ii. that such accounting policies as mentioned in Note 1 of the Notes to the FinancialStatements have been selected and applied consistently and judgments and estimates havebeen made that are reasonable and prudent so as to give a true and fair view of the stateof affairs of the Company as at 31st March 2020 and of the profit of the Company for theperiod ended on that date.

iii. that proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities.

iv. that the annual accounts have been prepared on a going concern basis.

v. that proper internal financial controls were in place and that the financialcontrols were adequate and were operating effectively.

vi. that systems to ensure compliance with the provisions of all applicable laws weredevised and in place and were adequate and operating effectively.

16. REMUNERATION POLICY

The Board has on the recommendation of Nomination and Compensation-cum-RemunerationCommittee framed a policy for selection and appointment of Directors Senior Managementand their remuneration. The Remuneration Policy is stated in the Corporate GovernanceReport.

Particulars of Information as per Section 197 of the Act read with Rule 5(2] of TheCompanies (Appointment and Remuneration of Managerial Personnel] Rules 2014 - a Statementshowing the names and other particulars of the Employees drawing remuneration in excess ofthe limits set in the Rules and Disclosures pertaining to remuneration and other detailsas required under Section 197 (12) of the Act read with Rule 5 (1) of the Companies(Appointment and Remuneration of Managerial Personnel] Rules 2014 is provided as "Annexure- III" forming part of this Report.

17. RISK ASSESSMENT & MINIMISATION PROCEDURES

The Board of Directors has constituted a Risk Management Committee. Your Company hasimplemented a mechanism for risk management and formulated a Risk Management

Policy. The policy provides for identification of risks and formulating mitigationplans. The Risk Management and Audit Committee and the Board of Directors review the riskassessment and minimization procedures on regular basis.

18. EXTRACT OF ANNUAL RETURN

The extracts of Annual Return in Form MGT-9 as required under Section 92(3] ofthe Act read with Rule 12 of the Companies (Management and Administration] Rules 2014forms part of this Report as "Annexure - V".

In compliance with Section 134(3](a] of the Act Annual Return is uploaded on Companieswebsite and can be accessed at http://www.apar.com.

19. RELATED PARTY TRANSACTIONS

All related party transactions that were entered into during the financial year were onan arm's length basis and were in the ordinary course of business. There are no materiallysignificant related party transactions made by the Company with Promoters Directors KeyManagerial Personnel or other designated persons which may have a potential conflict withthe interest of the Company at large. Form AOC-2 relating to Disclosure ofParticulars of Contracts/ arrangements entered into by the Company with related parties isannexed as "Annexure - X" and forming part of Directors' Report.

All Related PartyTransactions are placed before the Audit Committee as also the Boardfor approval. A statement giving details of all related party transactions is placedbefore the Audit Committee and the Board of Directors for their approval on a quarterlybasis.

The policy on Related Party Transactions as approved by the Board has been uploaded onthe Company's website.

There were no materially significant Related Party transactions.

20. AUDIT COMMITTEE

The Company has an Audit Committee pursuant to the requirements of the Act read withthe rules framed thereunder and Listing Regulations. The details relating to the same aregiven in the report on Corporate Governance forming part of this Report.

During the year under review the Board has accepted all recommendations of AuditCommittee and accordingly no disclosure is required to be made in respect of non-acceptance of any recommendation of the Audit Committee by the Board.

21. REPORTING OF FRAUDS

There have been no instances of fraud reported by the Auditors under Section 143(12] ofthe Act and rules framed thereunder either to the Company or to the Central Government.

22. MATERIAL CHANGES AND COMMITMENTS IF ANY AFFECTING THE FINANCIAL POSITION OF THECOMPANY WHICH HAVE OCCURRED FROM THE END OF THE FINANCIAL YEAR TILL THE DATE OF THE REPORTPlease refer para 2 on COVID 19 and Para 6 on MDA.

23. DEPOSITS

The Company has not accepted deposits within the meaning of Section 73 and 74 of theAct read with the Companies (Acceptance of Deposits) Rules 2014 during the year and hencethere were no outstanding deposits and no amount remaining unclaimed with the Company ason 31st March 2020.

24. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

Details of Loans Guarantees and Investments covered under the provisions of Section186 of the Act are given in the notes to the Financial Statements.

25. STATUTORY AUDITORS

The observations made by the auditors in their report read with the relevant notes asgiven in the notes to the financial statement for the year ended on 31st March 2020 areselfexplanatory and are devoid of any reservation qualification or adverse remarks.

The present Auditors M/s. Sharp & Tannan LLP were appointed at the 26th AnnualGeneral Meeting of the Company held on 7th August 2015 for a second consecutive term of 5years so as to hold office upto the 31st Annual General Meeting of the Company to be heldin the current year 2020.

The Board of Directors of the Company on the recommendation of the Audit Committee hasappointed M/s. C N K & Associates LLP Chartered Accountants Mumbai as StatutoryAuditors of the Company at its Meeting held on 25th June 2020 subject to the approval ofthe members of the company at ensuing AGM.

Suitable Resolution is being incorporated in the Notice convening the 31st AnnualGeneral Meeting at Item No. 4 seeking the appointment of M/s. C N K & Associates LLPChartered Accountants (Firm Registration No. 101961W/ W100036) M umbai as StatutoryAuditors of the Company for a period of five years from the conclusion of this AnnualGeneral Meeting until the conclusion of 36th Annual General Meeting of the Company. TheBoard recommends the appointment of M/s. C N K & Associates LLP CharteredAccountants Mumbai as Statutory Auditors of the Company.

26. COST AUDITORS

Pursuant to Section 148 of the Act read with the Companies (Cost Records and Audit)Amendment Rules 2014 the cost audit records maintained by the Company in respect ofConductors Oils and Cables Divisions of the Company are required to be audited by aqualified Cost Accountant.

The Board of Directors of the Company on the recommendation of the Audit Committeehas appointed M/s. Rahul Ganesh Dugal and Co. a Proprietary Firm who are in Whole TimePractice as Cost Accountant having Firm Registration no. 103425 and Membership no. 36459as the Cost Auditor to conduct the audit of the cost records of the Company for thefinancial year ending

31st March 2021 (2020-21) on a remuneration not exceeding Rs. 120000/- p.a.

A Resolution seeking members' ratification of remuneration payable to M/s. Rahul GaneshDugal and Co. Cost Auditor is included at Item No. 5 of the Notice convening the AGM andBoard recommends the said Resolution.

27. SECRETARIAL AUDITORS

Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 the Company has appointed Mr. Hemang M.Mehta Proprietor of M/s. H. M. Mehta & Associates Company Secretary in Practice toundertake the Secretarial Audit of the Company for the financial year 2019-20. TheSecretarial Audit Report is annexed herewith as "Annexure - I". TheSecretarial Audit Report does not contain any qualification reservation or adverseremarks.

28. VIGIL MECHANISM

As per the provisions of Section 177 (9) of the Act read with Regulation 22(1) of theListing Regulations the Company is required to establish an effective vigil mechanism fordirectors and employees to report genuine concerns. The Company has introduced WhistleBlower Policy (Apar's OMBUDSMEN Policy) effective from 1st March 2014 by setting a vigilmechanism in place the details of the whistleblower policy are provided in the report oncorporate governance forming part of this report.

29. INTERNAL CONTROL SYSTEMS (ICS) AND THEIR ADEQUACY

The Company has established adequate ICS in respect of all the divisions of theCompany. The ICS are aimed at promoting operational efficiencies and achieving savings incost and overheads in all business operations. The System Application and Product (SAP) aworld class business process integration software solution which was implemented by theCompany at all business units has been operating successfully. The Company has appointedM/s. Deloitte Touche Tohmatsu India LLP as its Internal Auditors. The system cum internalaudit reports of the Internal Auditors are discussed at the Audit Committee meetings andappropriate corrective steps have been taken. Further all business segment prepare theirannual budget which are reviewed along with performance at regular intervals.

30. OTHER INFORMATION

a. Green Initiative :

To support the "Green Initiative" undertaken by the Ministry of CorporateAffairs (MCA) to contribute towards a greener environment the Company has alreadyinitiated/implemented the same since 2010-11. As permitted delivery of notices/documentsand annual reports etc. are being sent to the shareholders by electronic mode.

Further the Company has started using recyclable steel drums in place of woodenpallets in its Conductors Divisions in order to protect the environment and reduce costsfor the Company.

b. Corporate Social Responsibility (CSR)

The Corporate Social Responsibility (CSR) Committee constituted by the Board ofDirectors in terms of the provisions of Section 135(1) of the Act reviews and restates theCompany's CSR policy in order to make it more comprehensive and aligned with theactivities specified in Schedule VII of the Act.

With the strong belief in the principle of Trusteeship Apar Group continues to servethe community through a focus on healthcare and upliftment of weaker sections of societyEducation and Medical Environmental sustainability and Rural Development Mid-day Mealprogram Welfare of under privilege and destitute children and Health and Welfare ofSenior Citizens.

The Annual Report on CSR activities is annexed herewith as "Annexure -II".

c. Employee Stock Options:

Members approval was obtained at the Annual General Meeting held on August 9 2007 forintroduction of Employee Stock Option Scheme to issue and grant upto 1616802 options andit was implemented by the Company. Out of the above options 175150 Options have beengranted in 2008 of which 26338 Options were exercised upto May 2015 and balance optionswere lapsed. Please refer "Annexure - VIII" forming part of this Report.

d. Particulars relating to conservation of energy technology absorption research& development and foreign exchange earnings and outgo in accordance with Section134(3)(m) of the Act read with the Companies (Accounts) Rules 2014 is annexed hereto as "Annexure- IV" forms a part of this Annual Report.

31. GENERAL

The Company has complied with all the applicable provisions of Secretarial Standards 1and 2 issued by the Institute of Company Secretaries of India.

No disclosure or reporting is required in respect of the following items as there wereno transactions on these items during the year under review:

1) Issue of equity shares with differential rights as to dividend voting or otherwise.

2) Issue of shares (including sweat equity shares) to employees of the Company underany scheme save and except ESOP referred to in this Report.

3) No Managing Director of the Company receives any remuneration or commission from anyof its subsidiaries.

4) The Company has in place the Policy on Prevention of Sexual Harassment at Workplace(POSH) in line with the requirements of Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013. There were no complaints during theyear under review.

32. ACKNOWLEDGEMENT

Your Directors wish to place on record their sincere appreciation for continuouscooperation support and assistance provided by stakeholders financial institutionsbanks government bodies technical collaborators customers dealers and suppliers of theCompany. Your Directors also wish to place on record their appreciation for the dedicatedservices rendered by the loyal employees of the Company.

For and on behalf of the Board
Kushal N. Desai
Place : Mumbai Chairman & Managing Director
Date : June 25 2020. DIN - 00008084

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