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Cimmco Ltd.

BSE: 505230 Sector: Engineering
NSE: CIMMCO ISIN Code: INE184C01028
BSE 00:00 | 03 Jul 20.55 1.85
(9.89%)
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20.55

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20.55

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NSE 00:00 | 03 Jul 20.25 1.80
(9.76%)
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OPEN 20.55
PREVIOUS CLOSE 18.70
VOLUME 92347
52-Week high 28.00
52-Week low 9.35
P/E 1.49
Mkt Cap.(Rs cr) 56
Buy Price 20.55
Buy Qty 69840.00
Sell Price 18.70
Sell Qty 3.00
OPEN 20.55
CLOSE 18.70
VOLUME 92347
52-Week high 28.00
52-Week low 9.35
P/E 1.49
Mkt Cap.(Rs cr) 56
Buy Price 20.55
Buy Qty 69840.00
Sell Price 18.70
Sell Qty 3.00

Cimmco Ltd. (CIMMCO) - Director Report

Company director report

Dear Shareholders

Your Directors present the 74th Annual Report together with the auditedaccounts of the Company for the financial year ended March 31 2019.

Financial Results

The performance of your Company during the financial year ended the 31st March 2019was as follows.

(Rs. in lacs)

Particulars Year ended 31.03.2019 Year ended 31.03.2018
Turnover 25718.56 13462.01
EBIDTA 2652.70 294.29
Less: Depreciation 374.22 615.79
Less: Finance Cost 2174.50 1434.54
Profit/(Loss) before Extra- ordinary Items & Tax 103.98 (1756.05)
Less/Add: Exceptional Items - 614.12
Profit/(Loss) before Taxation 103.98 (2370.17)
Add/Less: Deferred Tax Credit 2677.04 38.35
Profit/(Loss) after Taxation 2781.02 (2331.82)
Remeasurement Gains/(Losses) (net of tax) 6.24 (0.62)
Profit brought forward from previous year 5404.95 7737.39
Add: Change in Accounting Policy 72.49 -
Balance carried to Balance Sheet 8264.70 5404.95

Company's Performance and outlook

EBIDTA for the financial year ended March 31 2019 increased by about 9 times mainlydue to improvement in sales realization from higher sales.

During the year under review the Company executed about 72% of the order for 1191Wagons placed by the Indian Railways (IR) and the supply of the remaining quantity isexpected to be completed as per schedule. Your Company has a reasonably healthy order bookand the efforts are focused on ensuring more efficient supply chain and optimumutilization of resources and cost control for bringing about improvement in all key areasof operational performance.

The demand for Wagons from Indian Railway as well as private sector customers isexpected to improve in the current financial year and overall the outlook for thefinancial year ending on March 31 2020 is reasonably encouraging.

Post applicability of Goods and Service Tax (GST) w.e.f July 1 2017 revenue fromoperations is disclosed net of GST. However revenue for the period April 1 2017 to June30 2017 is inclusive of excise duty accordingly revenue from operations and totalexpenses for year ended March 31 2019 are not comparable with the corresponding year andperiod presented in the financial statement.

Your Directors had at their meeting held on May 30 2019 approved a draft Scheme ofAmalgamation for merger of your Company with Titagarh Wagons Limited Holding Company (theScheme) to leverage the synergistic advantages rationalization operational and costoptimization etc. subject to necessary approvals including from the Stock Exchanges andthe Hon'ble National Company Law Tribunal. However the Board at its meeting held onAugust 14 2019 decided to review the Scheme and decided to proceed with filing the samewith the Stock Exchanges/Authorities concerned. As per the Scheme the shareholders of theCompany on a Record Date to be determined shall be entitled to 13 (Thirteen) EquityShares of Rs.2/- each fully paid for every 24 (Twenty Four) Equity Shares of Rs.10/- eachfully paid up and held by them in the Company.

Dividend

Your Company had issued 8% Non-Convertible Non-Cumulative Redeemable Preference in 2014aggregating Rs. 4000 Lakhs subscribed to by the promoters/promoter group entity to beredeemed in June/July 2019 however the requisite Capital Redemption Reserve could not becreated due to inadequacy profits available for appropriation. Pursuant to consent of thepreference shareholders and your approval on March 28 2019 the terms of issue ofPreference Shares have been varied to extend the date of redemption by another five yearfrom the due date(s) of redemption and from 8% Non-Cumulative to 11% Cumulative.

The Directors recommend dividend of Rs.1.10 per share for the year under review to thepreference shareholders of the Company for the period March 28 to March 31 2019. Thepreference shareholders have consented to waiver of the dividend @8% for the period priorto the date from which the aforesaid variation in the terms was approved i.e. till March27 2019.

With a view to conserving resources the Directors do not recommend any dividend onequity shares.

Reserves

Your Directors do not propose to transfer any amount to the General Reserve of theCompany.

MANAGEMENT DISCUSSION AND ANALYSIS

OVERALL REVIEW

The overall performance of the Company during the financial year ended March 31 2019improved substantially owing to the orders for Wagons received from both the privatesector customers and Indian Railway.

BUSINESS SEGMENTS

Wagons & Engineering Products

a) Segment Review and Analysis:

Unit March 31 2019 March 31 2018 % Change
Sales No. 860 717 19.95%
Segment Revenue Rs in lacs 25691.35 13197.51 94.67%
Segment Results Rs in lacs 2707.66 243.75 1010.83%

The Wagons & Engineering Products segment recorded a commendable increase of 94.67%in turnover for FY 2018-19 as compared to the previous year basically due to increase insale of wagons to the private customers and sale of Locomotive. The sale of wagons to theIndian Railways (IR) saw an increase of 12.92% as compared to previous year.

The segment saw a substantial increase in the order book. The year under review endedwith an order book of Rs. 475 crores an increase of 20% as compared to the order book asat 31st March 2018. The above increase in the order book is attributed to overallimprovement in the wagon procurement from the Indian Railways (IR). Further the demandfrom the private sector showed a favourable movement with some orders flowing from theprivate customers.

b) Industry Outlook: Wagons industry had during the past few years prior to theprevious financial year witnessed irregular and decremental Wagons procurement orders byIndian Railways. However the placement by the Government of India for procurement of bulkquantity of 22000 Wagons and commitment to expedite completion of dedicated freightcorridors augurs well for the industry.

c) Opportunities: Rail is expected to be the preferred mode of movement of cargo beingan effective and more economical mode of carrying goods across the country. TheGovernment's plans to expand the railway network and the project of dedicated freightcorridors if implemented in right earnest Wagon industry offers substantial opportunitywhich can be seized particularly by the established units to fullest extent.

d) Challenges: Uncertainty in timely placement of wagons procurement orders by IndianRailways availability of large working capital and challenging supply chain managementcoupled with the stressed margins due to unhealthy competition in the industry besidesrising cost of inputs are major challenges for Wagons Industry in India. The dependence onone customer i.e. Indian Railways is a serious concern in as much as any change in theGovernment policy stands to directly impact the industry.

The comparison of various key financial ratios of the performance of the Companyvis--vis the previous year is given hereunder:

Sl. No. PARTICULARS March 31 2019 March 31 2018 Change %
PROFIT AND LOSS RATIOS
1. EBIDTA % (including other income) 9.7% 2.2% 340.91%
2. Return on Equity % 0.5% -14.7% 103.40%
3. Return on Net Worth % 0.5% -14.7% 103.40%
4. Return on Capital Employed % 0.5% -14.7% 103.40%
5. Return on Fixed Asset % 0.4% -9.0% 104.44%
6. Debt Service Coverage Ratio 1.22 0.21 494.70%
7. Interest Coverage ratio 1.22 0.21 494.70%
BALANCE SHEET RATIOS
1. Current Ratio 1.10 0.99 24.80%
2. Debt Equity Ratio 0.80 0.68 23.70%
3. Inventory Turnover (No. of days) 139.12 111.53 21.80%
4. Debtors Turnover (No. of days) 49.33 46.79 3.60%
5. Sales / Capital (times) 1.33 0.85 70.30%
6. Sales / Fixed Assets (times) 1.01 0.52 100.00%
7. Debt / Tangible Net Worth 0.80 0.68 23.70%

Notes on significant changes on the aforesaid Profit and Loss ratios where change is> 25% (S. No. 1 to 7): The ratios have improved on account of better profitability ofthe Company during the financial year 2018-19.

Notes on significant changes on the aforesaid Balance Sheet ratios where change is >25% (S. No. 5 and 6): The ratios have improved due to increase in Sales during thefinancial year 2018-19.

Material Changes and commitments after the Balance Sheet date

No material changes and commitments have occurred from the date of close of theFinancial Year to which the financial statement relates till the date of this reportwhich might affect the financial position of the Company.

Internal Financial Controls

Appropriate policies and procedures have been adopted by the Board to ensure effectivefinancial controls accuracy and completeness of the accounting records risk assessmentand mitigation measures the prevention and detection of frauds and errors and orderly andefficient conduct of the company's business. The internal financial controls (IFC) havebeen documented and adequacy of IFC has been evaluated by an external firm of experts andcertified by the Statutory Auditors.

The Audit Committee periodically reviews the internal control system to ensure that itremains effective and aligned with the business requirements.

Based on the aforesaid the Board has concluded that during the year IFC were operatingeffectively.

Risks and Concerns/Mitigation Measures

The Company has laid down a risk management mechanism which is reviewed periodically. ARisk Management Policy to identify and assess the key risk areas monitor mitigationmeasures and report compliance has been adopted. Based on the review the following keyrisks have been identified:

Dependence on the Indian Railways

The Company is engaged in the business of manufacturing wagons which is entirelydependent upon the policies of Indian Railways and any change in the policies whetherpositive or negative directly impacts the business of the Company.

Increase in the cost of raw materials and other inputs

The major raw materials required by the Company include steel specialized componentsincluding bogies coupler sets air brakes etc. which are exposed to volatility in pricesand availability in required specifications.

Risk of performance guarantee product warranty and liquidated damages

The contracts involve performance guarantee based on contract value and warrantyperiods within which if any defect is detected in the products the Company may have toincur expenditure for correcting the defects or even replacing the products. Delay inscheduled delivery may attract liquidated damages in the range of 5-10%.

Subsidiary Companies / Joint Venture / Associate Company

The Company does not have any Subsidiary or Joint Venture or Associate Company.

Extract of Annual Return

The details forming part of the extract of the annual return in the Form MGT-9 areannexed as Annexure DR-1 and also available on the website of the Company atwww.cimmco.in.

Number of Board Meetings

The Board of Directors met six (6) times during the financial year ended 31st March2019 as per the details provided in the Corporate Governance Report forming part of theAnnual Report.

Loans Guarantees and Investments

Particulars of loans guarantees and investments made by the Company pursuant to theSection 186 of the Act are furnished under notes to financial statements of the Company.

Significant and material orders

There were no material/significant orders passed by any regulator tribunal impactingthe going concern status and the Company's operations in future.

Composition of Audit Committee

The Board has constituted the Audit Committee comprising Shri J K Shukla as theChairman Shri Anil Kumar Agarwal Shri K S B Sanyal and Shri MJZ Mowla as the members andthe details are provided in the Corporate Governance Report annexed hereto. Shri MJZ Mowlawas inducted as a member on 14/08/2019. Shri Nandan Bhattacharya ceased to be a memberupon sad demise on 9th June 2019. During the year under review allrecommendations of the Audit Committee were accepted by the Board.

Pursuant to various requirements of the Act and the Listing Regulations the Board ofDirectors has also constituted Nomination & Remuneration Committee and theStakeholders Relationship Committee. The details of composition terms of reference etc.pertaining to these committees are mentioned in the Corporate Governance Report.

Related Party Transactions

All Related Party Transactions (RPTs) are entered in compliance with the applicableprovisions of the Companies Act 2013 and also in accordance with the policy on thesubject adopted by the Board. All such contracts or arrangements were on arm's lengthbasis and in the ordinary course of business. Audit Committee reviews and approves all theRPTs as stipulated by the Listing Regulations and based thereon final approval of theBoard is obtained. All the RPTs as approved by the Board during the financial year 2019are furnished in the form AOC-2 annexed hereto and marked as Annexure DR-2.

Changes in share Capital

There was no change in the share capital of the Company during the year under review.

Corporate Governance Report

The Company has complied with the corporate governance requirements under the Act andSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. A separatesection on corporate governance under Listing Regulations along with a certificate from aCompany Secretary in practice confirming the compliance is annexed to and forms part ofthe Annual Report.

Management Discussion and Analysis Report

The Management Discussion and Analysis Report is annexed to and forms part of theAnnual Report in compliance of the Regulation 34 of SEBI (LODR) Regulations 2015.

Internal Control System

The Company has system of internal controls and necessary checks and balances which arebeing strengthened so as to ensure

a. that its assets are safeguarded

b. that transactions are authorised recorded and reported properly; and

c. that the accounting records are properly maintained and its financial statements arereliable.

The Company has appointed external firm of Chartered Accountants to conduct internalaudit whose periodic reports are reviewed by the Audit Committee and management forbringing about desired improvement wherever necessary.

Vigil Mechanism

A fraud free and corruption free environment as part of work culture of the Companycannot be over emphasized and with that objective a Vigil Mechanism policy has beenadopted by the Board and is uploaded on the web site of the Company at www.cimmco.in. Nocomplaint of this nature was received by the Audit Committee during the year.

Internal Complaints Committee

As per the requirement of Section 4 of The Sexual Harassment of Women At Workplace(Prevention Prohibition and Redressal) Act 2013 an Internal Complaints Committee hasbeen formed by the Company the details of which are given in the Corporate GovernanceReport. No complaint has been lodged with the Committee during the year.

Directors and Key Managerial Personnel

Redesignation

Shri Anil Kumar Agarwal was redesignated from Whole-time Director to Managing Director& CEO by the Board in its meeting held on November 10 2018. The Board has recommendedto the members to pass the necessary resolution at the ensuing 74th AnnualGeneral Meeting for the redesignation of Shri Anil Kumar Agarwal as Managing Director& CEO.

Demise of a Director

Your Directors are saddened to report that Shri Nandan Bhattacharya IndependentDirector on the Board of your Company since February 28 2015 breathed his last on June 92019. The loss caused by his sad demise is irreparable and it is prayed that the almightywould extend the strength to his family members to bear the same.

Retirement by rotation

Shri Anil Kumar Agarwal Managing Director & CEO (DIN: 01501767) retires byrotation pursuant to the provisions of Section 152 of the Act and is eligible forre-appointment.

Re-Appointment

Shri J K Shukla Shri G B Rao Shri K S B Sanyal and Shri M J Z Mowla were re-appointedas Independent Directors of the Company w.e.f. 1st April 2019 for a term offive years upto 31st March 2024 pursuant to the decision of Nomination &Remuneration Committee and the Board at its meeting held on 10th August 2018followed by approval of the shareholders obtained at the 73rd Annual GeneralMeeting held on 29th September 2018.

Cessation

Shri Ram Narayan Tiwari ceased to be a Director and Key Managerial Personnel of theCompany w.e.f. 25th February 2019 upon termination of his Service Agreement.

The composition of the Board of the Company after the resignation of Shri R.N. Tiwariand sad demise of Shri Nandan Bhattacharya on June 9 2019 is in compliance with theapplicable requirements of the Companies Act 2013 and the SEBI (LODR) Regulations 2015.

Evaluation of the Board's performance Committee and Individual Directors

In compliance with the Act and Regulation 17 of SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 the performance evaluation of the BoardCommittees and Individual Directors was carried out during the year under review as perthe details given in Corporate Governance Report.

Declaration by Independent Directors

Declarations pursuant to the Sections 164 and 149(6) of the Act and Listing Regulationsand affirmation of compliance with the Code of Conduct as well as the Code for Regulationof Insider Trading adopted by the Board by all the Independent Directors of the Companyhave been made.

Separate Meeting of Independent Directors

Details of the separate meeting of Independent Directors held in terms of Schedule IVof the Act and Regulation 25(3) of the Listing Regulations are given in the CorporateGovernance Report.

Remuneration Policy and remuneration

A policy approved by the Nomination and Remuneration Committee and the Board isfollowed by the Company on remuneration of Directors and Senior Management Employees asper the details provided in the Corporate Governance Report.

Particulars of Remuneration of Directors/KMP/Employees

The disclosure stipulated by Section 197(12) of the Companies Act 2013 read with Rules5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 is annexed.

Disclosure pertaining to Remuneration and other details as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 is annexed and marked as Annexure DR-3.

Directors' Responsibility Statement u/s 134(5) of the Companies Act 2013

The Directors state that:

• Appropriate Accounting Standards as are applicable to the Annual Statement ofAccounts for the financial year ended March 31 2019 have been followed in preparation ofthe said accounts and there were no material departures therefrom requiring anyexplanation;

• The Directors have selected and followed the accounting policies as described inthe Notes on Accounts and applied them consistently and made judgments and estimates thatare reasonable and prudent so as to give true and fair view of the state of affairs of theCompany at the end of financial year and of the profit of the Company for that period;

• Proper and sufficient care has been taken for maintaining adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of theCompany and for preventing and detecting fraud and other irregularities;

• The Annual Accounts have been prepared on a going concern basis; and

• The Directors have laid down Internal Financial Controls (IFC) to be followed bythe Company and that such IFC are adequate and operating effectively.

• The Directors had devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate and operatingeffectively.

Statutory Auditors

Price Waterhouse & Co Chartered Accountants LLP Statutory Auditors of theCompany were appointed at the 72nd Annual General Meeting (AGM) to hold officefor a period of five years until the conclusion of 77th AGM.

Pursuant to Section 40 of the Companies (Amendment Act) 2017 notified w.e.f. the 7thMay 2018 the Company has dispensed with the requirement of ratification of appointment ofPrice Waterhouse & Co Chartered Accountants LLP as the Statutory Auditors of theCompany pursuant to the resolution passed by the members at its 73rd AnnualGeneral Meeting held on 29th September 2018.

As regards the qualified opinion expressed by the Statutory Auditors the MinimumPublic Shareholding (MPS) has been achieved on June 7 2019 upon the conclusion of thethird Offer for Sale (OFS) made by the Promoter and the said qualified opinion standsaddressed. The Note No. 45 to the Financial Statements has dealt with the matter in detailand MPS having been achieved no further clarification is required from your Directors.

Change in Accounting Policy

Rs. 72.49 (Net of Tax) has been credited to Retained Earnings during the year underreview on account of adjustment arising out of implementation of IND AS 115.

Cost Auditors

M.R. Vyas & Associates. Cost Accountants have been appointed as Cost Auditors toconduct cost audit of the accounts maintained by the Company in respect of the productsmanufactured by the Company for the Financial Year 2019-20 subject to ratification oftheir remuneration by the shareholders in accordance with the provisions of Section 148 ofthe Companies Act 2013 and the Companies (Cost Records and Audit) Rules 2014. The CostAudit Report for the previous financial year ended 31st March 2019 has been filed asstipulated by the applicable provisions of law.

Secretarial Auditor

Pursuant to the provisions of the Companies Act 2013 and the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 secretarial Audit has beenconducted by Sumantra Sinha & Associates Practicing Company Secretaries appointed bythe Board and their report is annexed hereto and marked as Annexure DR-4.

Deposits

The Company did not accept any deposits during the financial year ended March 31 2019in terms of the Companies (Acceptance of Deposits) Rules 2014.

Personnel Human Resources

A. Empowering the employees

The Company considers its organizational structure to be evolving consistently overtime while continuing with its efforts to follow good HR practices. Adequate efforts ofthe staff and management personnel are directed on imparting continuous training toimprove the management practices.

B. Industrial Relations

Industrial relations at all sites of the Company remained cordial.

C. No. of Employees: Manpower employed as at March 31 2019 was 136.

Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo

A statement pursuant to Section 134(3) (m) of the Act read with Rule 8 of the Companies(Accounts) Rules 2014 on conservation of energy technology absorption foreign exchangeearnings and outgo is annexed to and marked as

Annexure DR-5.

Listing with Stock Exchanges

The equity shares of the Company are listed at The National Stock Exchange of IndiaLimited (NSE) BSE Limited and Listing fees for the financial year ending the 31st March2020 have been duly paid. Whereas the Delhi Stock Exchange Limited (DSE) and the MadhyaPradesh Stock Exchange Limited (MPSE) have been de-recognised the Company has made anapplication for voluntary delisting from The Calcutta Stock Exchange Limited (CSE) whichis under process.

Discussion on Financial Performance with respect to Operational Performance

To mitigate the risk factors referred to hereinabove impacting the operations bettermanufacturing processes improved productivity and focus on optimization of resourcedeployment are undertaken for a reasonable performance viewed in the backdrop of thetrends witnessed in the industries in which the Company operates.

Corporate Social Responsibility

Your Company continues its endeavours to voluntarily contribute suitably to the societyby being involved in a series of Community Welfare Programs directly or throughphilanthropic organizations. Bharatpur plant is located close to the Bharatpur BirdSanctuary amidst vast green area and all care is taken to preserve the environment toallow the nature's expanse to remain green and grow healthily.

Compliance with Secretarial Standards

The Company is in compliance with the applicable Secretarial Standards issued by theInstitute of Company Secretaries of India and approved by the Central Government underSection 118(10) of the Act.

Forward Looking Statement

The statements in this report describing the Company's policy strategy projectionsestimation and expectations may appear forward looking statements within the meaning ofapplicable securities laws or regulations. These statements are based on certainassumptions and expectations of future events and the actual results could materiallydiffer from those expressly mentioned in this Report or implied for various factorsincluding those mentioned in the paragraph "Risks and Concerns" herein above andsubsequent developments information or events.

Acknowledgements

Your Directors wish to place on record their appreciation for the cooperation andsupport of the Banks and local and central Governments and administration/other GovernmentDepartments; and appreciation for the contribution of other stakeholders and employees.

For and on behalf of the Board
J P Chowdhary
Chairman
Kolkata the 14th day of August 2019 DIN: 00313685