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Kernex Microsystems (India) Ltd.

BSE: 532686 Sector: Engineering
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OPEN 21.45
CLOSE 21.15
52-Week high 66.35
52-Week low 18.80
Mkt Cap.(Rs cr) 26
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Kernex Microsystems (India) Ltd. (KERNEX) - Director Report

Company director report


The Members

Kernex Microsystems (India) Limited.

Your Directors have pleasure in presenting the Twenty Six Annual Report together withthe audited statement of accounts of your company for the year ending 31st March 2018.

Financial Results (Standalone)

Rs in Lakhs

2017-18 2016-17
Sales and Other Income 1402.41 1414.94
Profit/Loss before Depreciation
Finance Cost and Tax (2042.68) (3074.59)
Less:- Finance Cost 319.34 331.14
Less:- Depreciation 224.62 255.72
Less: Exceptional items - 521.31
Add : Extra ordinary items - 2874.98
Profit/Loss after Depreciation
Interest and before tax (1498.70) (134.06)
Tax expense (56.41) 216.66
Profit / Loss after Tax (1442.29) (390.77
Add: Balance brought forward from previous year (960.85) (610.13)
Less: Adjustments consequent to revision of useful life of certain assets pursuant to Schedule II of Companies Act2013 -
Balance carried forward to Balance sheet (2403.15) (960.85)
Profit available for appropriation
Earnings Per Share (Rs.)
- Basic (11.54) (2.81)
- Diluted (11.54) (2.81)
Transfer to General Reserve - -
Proposed Dividend - -
Income Tax on proposed Dividend - -
Balance carried to the Balance sheet (2403.15) (960.85))

1. Economy Industry and the Company's working during the year


The GDP of Indian economy though during the year under review decreased marginally overthe previous year continued to be highest among major economies. It was a remarkableachievement that the growth was achieved with lower inflation improved current accountbalance and reduction of fiscal deficit. Besides implementation of GST resolution of nonperforming assets and liberalization of Foreign Direct Investment and other reformscontinued. The protectionist policies of major economies trade war increase in oilprices Domestic savings and Investments are a concern


Your Company‘s main business activity is related to Railways. The Indian Railwaysis among the world's largest rail networks with route length spread over 115000 km with12617 passenger trains and 7421 freight trains each day from 7349 stations plying 23million travelers and 3 million tones (MT) of freight daily. The Government of India'sfocused area now is to improve infrastructure for freight and high speed trains. TheIndian rail projects are attracting not only several domestic but also foreign Companies

Your Company is operating in the Rail Safety equipment manufacturing and supply ofPrevention of Rail Collision Devices Train Protection warning systems Electronic InterLocking and providing necessary hard ware and software.

2. Future outlook

The Indian Rail Network is expected to grow at a healthy rate of 10% over the next fiveyears and the Government has a safety first policy of the Railways and is planning toinvest considerable amount to adopt European Train Control Systems (ETCS) which isexpected in developing infrastructural facilities. The proposed National Rail Planenvisages integration of all rail networks with other modes of transport and provides Railsafety besides eliminating unmanned level crossings up gradation of rolling stockaccelerating track renewal and most important of all particularly to your Company isimplementation of TCAS/TPWS technology across high density network in the coming threeyears.

It is very encouraging news for your company that railways of many countries in theworld are upgrading their infrastructure by deploying or considering to deploy TrainControl / Train Protection Solutions and Level Crossing Protection Systems both of whichare the areas of strength for your company.

Your company is pursuing opportunities for providing protection at railway levelcrossings from India and also many countries around the world like Egypt Sri Lanka SouthAfrica Botswana etc. and expects to win a few projects in this year Traincontrol/protection systems the area of focus of your company was under full gaze at thehighest level in India – the Ministry of Railways of the Government of India. Thatthis topic is taking the top priority is evident from the fact that the Minister ofRailways himself has been reviewing plans and options for implementation of trainprotection systems in Indian Railways in a big way in the next few years. After initiallystudying a few foreign solutions for implementation the Minister reviewed Train CollisionAvoidance System (TCAS) also with the industry and the Railway body and gave a favorableview of TCAS. The Minister has even suggested some new features for TCAS so that theproduct becomes truly world class.

Operations during the year International RBCT RYCAS – South Africa

Your company has completed the project including warranty maintenance to thesatisfaction of the customer and is presently discussing with customer for maintenancecontract for one or two years. Your company is also exploring more business opportunitieswith the customer

Egyptian National Railways (ENR) Cairo

Having supplied all the 136 gates earlier your company has completed installation of105 gates and handed over 102 gates to the customer. An order for supply of spares wasreceived and this has been executed by your company


During the year 17-18 your company has closed in further on completing the TrainControl Avoidance System project. Completion of the project was delayed due to certainchanges at the Independent Safety Assessor's end. Significant progress has been achievedwith the ISA subsequently and your company has advanced to the final acceptance testing byRDSO and commencement of passenger trials. With very few tasks now pending your companyexpects to receive the approval by end Sep' 2018 and also receive a contract fordeployment of TCAS over a 500-Km area by March 2019.

Research & Development and Addition of New Products

Development activity has commenced on the Universal Brake Interface Unit and the DriverMachine Interface Unit. These are advanced versions and allow us to address a larger chunkof the TCAS project.

Your company is in discussions with a Spanish company (Ingenieria Y Control Ferroviario- ICF in short) specializing in railway products to market their products and solutions inIndia and neighboring markets on exclusive basis. Since some of these products haveimmense potential in Indian Railways your company plans to get these products approved byIndian Railways so that we are in a position to sell them in the year 2019-2020 onwards.

3. Subsidiary Details with consolidated financial statement

Your Company has one 100% wholly owned subsidiary Avant Garde Infosystems Inc In USAand there were no joint ventures or associate Companies as of 31st March 2018. There hasbeen no change in the nature of business of subsidiary during the year under review. Inaccordance with section 129(3) of the Companies Act 2013 the Company has preparedConsolidated financial statement of the Company and the subsidiary in the form and manneras that of its own in compliance with the accounting standards and the listing regulationsof the stock exchanges which forms part of the Annual Report for laying before the AnnualGeneral Meeting.

A report on the information about the subsidiary is annexed as Annexure–Ato this report

4. Material changes and commitments affecting the financial position of thecompany

There have been no material changes and commitments affecting the financial position ofyour Company which have occurred between the end of the financial year of the Company towhich the financial statements relate and the date of the Report.

5. Share Capital

There is no change in Share Capital of your Company during the year.

The Company has obtained the shareholders' approval for preferential issue of 1870057equity shares of Rs. 10/- each at a premium calculated in terms of SEBI ICDR Regulationsand obtained the in principle approval of the National Stock Exchange. The BSE approval isrequired to be sought. The promoters and others to whom an offer of preferential issue ofequity shares was made after seeking an approval of the shareholders on 16th February2018 have conveyed their unwillingness to subscribe the shares of the company.

6. Dividend and Reserves

Your company in the absence of distributable profits has not declared any dividendduring the year. And no amount was transferred to reserves also.

7. Directors and Key Managerial Personnel

In accordance with the provisions of Section 152 of the Companies Act 2013 Mr. AnjiRaju Manthena and Mr. Vinta Janardhan Reddy Directors of the company retires by rotationand being eligible offer themselves for reappointment.

Mr. K Krishnam Raju Director has vacated office effective 29th September'2017. Mr. MGopalakrishna Independent director resigned from the Board effective 10th February'2018.

The Board on 20th November'2017 has appointed Mr. K Krishnam Raju as Chief ExecutiveOfficer Ms. Sree Lakshmi Manthena and Mr. Badari Narayana Raju Manthena as additionalDirectors. Further the Board of Directors of the Company has appointed Mr. BadariNarayana Raju Manthena as a whole Time Director on the same day by changing hisdesignation.

The Board also appointed CA TVSN Raju as Independent Director effective from 10thFebruary'2018 and Sri. Ashok Gopal Rao Kalmankar as Independent Director from 12thAugust'2018.

The brief profile of the Directors who are to be appointed/re-appointed have beenfurnished in the notice convening AGM.

8. Declaration by Independent Directors

All the Independent Directors have submitted their disclosures to the Board that theyfulfill all the requirements as stipulated in Section 149 (6) of the Companies Act 2013 soas to qualify themselves to be appointed as Independent Directors under the provisions ofthe Companies Act 2013 and the rules framed there under.

9. Nomination and Remuneration Policy of Directors Key Managerial Personnel andother Employees

In terms of section 178 (1) of the Companies Act 2013 the Board on the recommendationof the Nomination and remuneration committee approved the criteria and policy forselection and appointment of directors key managerial persons and their remuneration. Theremuneration policy forms part of the report on corporate governance.

10. Board Evaluation

Pursuant to the provisions contained in the Companies Act 2013 and listing regulationsthe Board has carried out annual performance evaluation of its own members The chairmanof the Board individual directors as well as the evaluation of the working of the AuditNomination and Remuneration committee and other committees. The evaluation was based onthe attendance contribution independence of judgment and preparedness for the meetings

11. Number of Meetings of the Board of Directors

During the financial year 2017-18 the Board of Directors of the Company met 6 times on09/05/2017 10/08/2017 08/09/2017 20/11/2017 17/01/2018 & 10/02/2018. A separatemeeting of the Independent Directors of the Company could not be held during the year asrequired under Section 149 (8) Schedule IV (VII) of the Companies Act 2013 and clause 25(3) of Securities Exchange Board of India (Listing obligations and disclosurerequirements) Regulations 2015. as the Company is in the process of identifying andinducting further number of them so as to meet the requirements stipulated.

12. Public Deposits

During the year your Company has not accepted any deposits within the meaning ofSection 73 of the Companies Act 2013 read with Companies (Acceptance of Deposits) Rules2014. No amount on account of principal or interest on deposits from public wasoutstanding as on Balance Sheet date.

13. Regulatory / Court Orders

No significant and material orders were passed by the regulators or courts or tribunalsimpacting the going concern status of the Company and its future operations.

14. Disclosure under the sexual harassment of women at workplace (preventionprohibition and redressal) Act 2013

Your Company has put in place a Policy for prevention of Sexual Harassment of Women atthe Workplace in line with the requirements of the Sexual Harassment of Women at theWorkplace (Prevention Prohibition & Redressal) Act 2013. Internal ComplaintsCommittee (ICC) of the Company has been constituted to redress complaints regarding sexualharassment.

15. Directors' Responsibility Statement

Pursuant to section 134 (3) (c) of the Companies Act 2013 the Directors to the best oftheir knowledge hereby state and confirm that

a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures

b) the Directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe loss of the Company for that period

c) the Directors had taken proper and sufficient care 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

d) the Directors had prepared the annual accounts on a going concern basis and

e) the internal financial controls to be followed by the Company were laid down andsuch financial controls were adequate and were operating effectively

f) the Directors had devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and were operating effectively

16. Internal Financial Controls

The Company has laid down policies and procedures to be adopted for ensuring theorderly and efficient conduct of its business including adherence to company's policiessafeguarding of its assets prevention and detection of frauds and errors accuracy andcompleteness of the accounting records and timely preparation of reliable financialinformation. An independent audit committee of the Board reviews the adequacy of internalcontrols

17. Particulars of Loans Guarantees and


The details of Loans Guarantees and Investments covered under the provisions ofSection 186 of the Companies Act 2013 are given in notes forming part of the financialstatements.

18. Committees of the Board

The Board of Directors has the following Committees:

1. Audit Committee

2. Nomination and Remuneration Committee

3. Stakeholders' Relationship Committee

4. Risk Management Committee

The details of the Committees along with their composition number of meetings andattendance at the meetings are provided in the Corporate Governance section of thisReport.

19. Corporate Social Responsibility (CSR)

The Company having regard to the net profit/turnover/ net worth is not covered underthe provisions of Section 135 of the Companies Act 2013 to constitute a committee andspend the amount towards CSR activities

20. Related Party Transactions

All the related party transactions by the Company during the year 2017-18 were on anarms length basis and were in the ordinary course of business and as such the provisionsof section 188 are not attracted. There are no materially significant Related PartyTransactions with Promoters Directors Key Managerial Persons or other designated personsduring the year. The details of the related party transactions entered by the companyduring the year under the provisions of section 188 of the Companies Act 2013 in FormAOC-2 is annexed as Annexure-B to this report.

21. Vigil Mechanism

Your Company in compliance with the provisions of Section 177(9) of the Companies Act2013 framed a whistle Blower Policy/Vigil Mechanism for reporting illegal or unethicalbehavior. The employees are free to report violations of applicable laws and regulationsand the Code of Conduct. The Audit Committee reviews reports received from the employeeswho may also report to the Chairman of the Audit Committee. During the year under reviewno employee was denied access to the Audit Committee. The Directors and senior managementstaff are to maintain confidentiality of the reporting and ensure that the whistle blowersare not subjected to any kind of discrimination.

22. Familiarization Programmes for Independent Directors

The Company familiarizes all the independent directors about their roles rights andresponsibilities in the Company nature of Industry Risk Management Board evaluationprocess and procedures financial controls and management Board effectiveness strategicdirection etc. The Directors also were explained in detail the compliances required fromthem under the Companies Act SEBI (LODR) Regulations 2015 and other relevant regulationsand their affirmation taken with respect to the same. With a view to familiarize with theCompany's operations the Directors also were given detailed presentations giving theorganizational set up of the Company the functioning of various divisions / departmentsthe Company's market share and the markets in which it operates governance and internalcontrol processes and other relevant information pertaining to the Company's business. TheWhole time Director/ CEO also has personal discussions from time to time with theIndependent Directors. The above initiatives help the Directors to understand the Companyits business and the regulatory framework in which the Company operates and equips them toeffectively fulfill their role as Independent Directors of the Company.

23. Extract of Annual Return

The extract of the Annual Return in Form No MGT-9 as required under section 92 of thecompanies Act 2013 for the financial year ending March 31 2018 is annexed hereto as Annexure–C and forms part of the this report.

24. Risk Management

Your Company has in place a mechanism to identify assess monitor and mitigate variousrisks to key business objectives. Major risks identified by the businesses and functionsare systematically addressed through mitigating actions on a continuing basis. These arealso discussed at the meetings of the Audit Committee and the Board Your Company has putin place internal control systems and processes to optimize the risk mitigation measuresfor review by the audit Committee and approval by the Board. The executive management isguided from time to time by the Board to improve the risk mitigation measures and initiatetimely action

25. Transfer of unclaimed dividend

There is no unclaimed dividend for the financial year 2009-10 to be transferred to IEPF(Investor Education and Protection Fund) and the sum for the financial year 2010-11 is duefor transfer.

26. Auditors

Statutory Auditors

M/s PRSV & Co. LLP Chartered Accountants are the statutory auditors of yourCompany and they hold office until the conclusion of the thirtieth AGM to be held in theyear 2022.

Reply to the Comments made in the Audit Report

1. Non Re-conciliation confirmation of receivables and provisions.

The Company's major customers are Indian Railways and Egyptian National Railways whichrecognize the invoices on payment basis. The company could not obtain the confirmation andreconciliation of balance from both the parties. The company intends to file arbitrationproceedings against KRCL for Rs.5.18 crores hence no provision was made in the books ofaccounts.

2. Non-provision for slow and non moving stock.

The slow and non moving stocks significantly constitute electronic components which canbe used by the company in future expected domestic and international orders henceprovision was not made.

Secretarial Audit

In terms of section 204 of the Companies Act2013 and the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 the Company has appointed M/s A. J.Sharma & Associates Company Secretaries to conduct Secretarial Audit for the year2017-18 and their report is annexed as Annexure–D to this report

Reply to the Comments made in the Secretarial Audit Report

Belatedly filing of Annual returns and forms

The company was facing severe financial constraints since some time due to which KeyManagerial Personnel could not be put in position to look after the compliances undervarious applicable legislations from time to time. As such there was delay in submissionof returns and forms.

Penalties imposed by BSE/NSE for delay in compliance under SEBI (Listing Obligationsand disclosure requirements) Regulations 2015

These penalties are pertaining to earlier years. There were no major penalties imposedduring the year 2017-18.

The Company is required to authorize one or more KMP in terms of Regulation 30(5) ofLODR Regulations 2015.

The Company Secretary and Chief Financial Officer is designated under Regulation 30(5)of SEBI (LODR) Regulations 2015 for identifying material events and necessary disclosures.

No Independent directors meeting was held during the year

The Company is in the process of identifying and inducting further Independentdirectors so as to comply with Regulation 17 of SEBI (Listing obligations and disclosurerequirements) Regulations 2015

Updation of Website

The company has appointed a qualified Company Secretary for adhering to all thecompliances including updating of Company's website.

Delay in payments of Statutory Dues

The company was facing severe financial constraints since some time as such there wasdelay in submission of returns and payment of statutory dues.


The Board of Directors based on the recommendation of the Audit Committee hasre-appointed M/s. SRH & Co. Chartered Accountants Hyderabad as the InternalAuditors of your Company. The Internal Auditors are submitting their reports on quarterlybasis.

27. Conservation of Energy Technology

Absorption and Foreign Exchange Earnings and outgo:

The information pertaining to conservation of energy technology absorption foreignexchange earnings and outgo as required under section 134 (3) (m) of the Companies Act2013 read with Rule 8 (3) of the Companies (Accounts) Rules 2014 is furnished and annexedas Annexure–E to this report

28. Particulars Relating to Remuneration of Directors/Key Managerial Personnel andEmployees.

Disclosures pertaining to remuneration and other details as required under Section197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 are provided separately and annexed as Annexure–Fto this report.

In terms of Rule 5(2) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 the Company does not have any employee who is employed throughoutthe financial year and in receipt of remuneration of Rs.102 Lakhs or more or employeeswho are employed for part of the year and in receipt of Rs. 8.50 Lakhs or more per month.

The Company does not have any employee who is employed throughout financial year orpart thereof who was in receipt of remuneration in financial year under review which inaggregate or as the case may be at a rate which in the aggregate is in excess of thatdrawn by the Managing Director or Whole time director and holds by himself or along withhis spouse and dependent children not less than 2% of the equity shares of the Company.

29. Other General Disclosures

No disclosure or reporting is required of the following as:-

a. No equity shares with differential rights as to dividend voting or otherwise wereissued

b. No sweat equity shares were issued

c. No remuneration or commission was received by the Managing Director/Whole-timeDirector of the Company from subsidiary Company.

d. No significant or material orders were passed by the Regulators or Courts orTribunals which impact the going concern status and Company's operations in future.

30. Corporate Governance Report

Your Company is committed to adhere to the corporate governance requirements. Thereport on Corporate Governance as stipulated under Schedule V of the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 is given separately and annexedas Annexure-G to this report.

The requisite certificate from the Practicing Company Secretary confirming compliancewith the conditions of corporate governance is attached.

31. Management Discussion & Analysis (MDA)

Management's Discussion and Analysis Report for the year under review as stipulatedunder Regulation 34(2) (e) of the Listing Regulations is presented in a separate sectionforming part of the this report and annexed as Annexure-H.

32. Acknowledgements:

Your Directors would like to express their sincere appreciation for the guidanceassistance and co-operation received from the Indian Railways RDSO Egyptian RailwaysState Bank of India Government authorities and members during the year under review. YourDirectors also wish to place on record their deep sense of appreciation for thecommendable and dedicated contribution of all employees.

By Order of the Board
Manthena Badari Narayana Raju Raju Narasa Mantena
Whole-Time Director Chairman & Director
(DIN: 07993925) (DIN 02666074)
Palce : Hyderabad
Date : 12th August 2018