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Kinetic Engineering Ltd.

BSE: 500240 Sector: Auto
NSE: KINETICENG ISIN Code: INE266B01017
BSE 00:00 | 03 Oct 114.30 0.80
(0.70%)
OPEN

117.00

HIGH

117.00

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111.05

NSE 05:30 | 01 Jan Kinetic Engineering Ltd
OPEN 117.00
PREVIOUS CLOSE 113.50
VOLUME 4614
52-Week high 153.70
52-Week low 55.65
P/E 1632.86
Mkt Cap.(Rs cr) 217
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 117.00
CLOSE 113.50
VOLUME 4614
52-Week high 153.70
52-Week low 55.65
P/E 1632.86
Mkt Cap.(Rs cr) 217
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Kinetic Engineering Ltd. (KINETICENG) - Director Report

Company director report

(Including Management Discussion & Analysis)

Dear Members

Your Directors present the 50th Annual Report on the business and operationsof Kinetic Engineering Limited and the Audited Financial Statements for thefinancial year ended 31st March 2021.

I. Financial Performance:

Particulars 31st March 2021 31st March 2020
Total Revenue 8703.47 11849.86
Profit/ (Loss) before Interest Depreciation Tax and other 699.14 469.90
Amortizations ("EBIDTA")
Less : Depreciation and Amortization Expenses 677.68 721.26
Finance Cost 644.39 660.38
Tax Expenses – Net - -
Profit/(Loss) for the year (622.93) (911.74)
Other Comprehensive Income 12.20 (30.71)
Total comprehensive income/(loss) for the year (610.73) (942.45)

Dividend:

No dividend is recommended in view of the loss during the year under review.

II. Business:

During the previous financial year your Company has consistently improved itsperformance quarter on quarter culminating in a net profit of Rs 129 lacs in the lastquarter of FY2020-21. The company has made net operating profit after a considerableperiod of time with its ongoing efforts to successfully transform its business into autocomponents and systems; an initiative started about a decade ago. All this was achieveddue to a healthy customer list and 50% export initiative undertaken in spite of anextremely challenging year due to the COVID-19 pandemic. Your company recorded a revenueof Rs 87.03 crores in the Financial year 2020-21 compared to a revenue of Rs 118.5 croresfor the previous year with a recovery seen after the wipe-out of the first quarter andnext due to the nationwide lockdown. Your company however made special efforts torestart the operations as soon as it was allowed and has since been continuously improvingperformance which is evident in the quarter on quarter growth in revenue as well asprofit. We would like to specially recognize the efforts of our team members for the bravefront on this.

The Company's strategy of having a balance of domestic and export business has helpedin faster recovery of its operations once the economy started opening up across the globe.The company is witnessing a steady recovery across its customer base and it expects tomaintain the current momentum. During the lockdown period and reduced activity level thecompany undertook several initiatives to control costs as was the need of survival giventhe uncertain future particularly manpower costs and rationalize operations. This helpedthe company to achieve highest EBDITA over the last 5 years and a net profit for thefourth quarter.

Commodity prices continued to grow this year as per the continued trend in the market.Your company took various actions including in sourcing price increases negotiationsand getting price increases from its customer to maintain to the extent possible itsmaterial cost ratio. These efforts included price increases of products further insourcing of activities and other initiatives.

a) New products and capital expenditure:

The powertrain for the Electric vehicles that were developed by the company in theprevious year has been receiving good response. However due to the overall slowdown dueto COVID-19 the movement has been slow. But given the push by the government the companyexpects good growth potential for these products in the coming years. In view of theexpected growth in the business and to reduce costs the company has invested Rs. 137 L inCNC machines to insource some high volume parts. This is expected to reduce cash outflowof Rs. 10L/month which will be EBDITA positive. The machines have been installed andcommissioned now and the full benefit is expected in the current year.

b) Operations:

The company has maintained its operations with all the precautions as per thegovernment guidelines issued from time to time. The company has undertaken rationalizationof manpower to match the current operation level to maintain margin. The company alsoundertook maintenance activities of major machines during the reduced level of operations.

c) Employee Relations:

The Company has been undertaking regular training modules for its employees throughinternal and external faculties for developing and maintaining a better skilled work forceand it has maintained cordial labor relations throughout the year.

Management Discussion and Analysis:

The year under review was an extra ordinary year wherein the world over all activityhad to be curtailed to prevent the COVID-19 pandemic. In India the recovery post unlockinghas been quite remarkable. The GDP which crashed by 24.4% in the first quarter beforerecovering to a growth of 1.7% in the last quarter with GDP contraction of 7.3% for thefull year 2020-21. The recovery was led partly by the pent up demand coming back stronglyacross sectors and helped by the initiatives of the government.

The sale of passenger vehicles in the domestic market has shown a marginal decline of2.5% in FY20-21 compared to FY19-20. The number of passenger vehicles sold in the domesticmarket declined to 2711457 in FY20-21 as against 2773519 in FY19-20. However theexport of passenger vehicles declined significantly by nearly 40% from 662118 to 404400.

The Commercial Vehicles however which had already suffered a 30% decline in theprevious year got severely impacted with a further 20% decline to 558569 nos as against717593 nos in FY19-20. Even the exports of commercial vehicles declined nearly 20% from60379 to 50374 nos.

The result of the massive declines in passenger vehicles and commercial vehicles had asevere impact on the domestic revenue of the company. However since the company has beenexporting its products to countries such as Mexico Chile Brazil and US directly orindirectly the company was able to offset some of the loss through increased exports dieto buoyant demand in these countries.

The tractor segment has maintained its momentum.

The tractor market which is also a major segment to which the company supplies itsproducts actually showed a growth of about 26.5% from a level of 781065 nos in theFY19-20 to 988308 nos in FY20-21. This helped the company start the operations quicklyand also partly make up for the lost revenue.

The economic recovery being witnessed since fourth quarter of FY20-21 is seen tocontinue in the current financial year as well barring a small impact during April andMay due to the second wave of COVID-19 and the company is seeing consistently good orderposition in the months ahead.

Risks and Opportunities:

Market Risks:

The COVID-19 situation continues to be worrisome in some pockets of the country and asevere third wave may impact operations of some of our customers. However the calibratedactions by different local government authorities are expected not to impact businessoperations though demand for some of the products may reduce in the short term.

Currently it appears that the pandemic has created greater awareness of havingpersonal mobility which is helping create demand for cars two wheelers three wheelersetc. However there is a possibility that the current demand is pent up demand and thegrowth may slow in the coming quarters once the pent up demand is reduced. Thesemi-conductor shortages worldwide caused by the shift in production may impact overallautomobile production which will affect our customers as well.

The government's push for electric mobility is witnessing a strong response whereseveral new EV products are being launched in the market. The company is investing in newproducts in the emerging segment of electric mobility which will help the company to beat the forefront of the growth cycle.

Raw Material Risks:

The commodity prices have once again started going up driven by increased demandacross sectors. Several countries have initiated or initiating infrastructure projectswhich is likely to lead to a multi-year commodity price increase cycle. This has also ledto shortages particularly for castings and prices are unlikely to reduce anytime soon.This is expected to put increasing pressure on the working capital.

The company is in continuous discussion with steel suppliers and also adding newsuppliers to ensure smooth supplies of steel and also customers to get price increases dueto commodity price increase.

Government Policy Risks:

There have been several policy initiatives from the government which are expected togive a boost to the demand for the company's customers. Policy of vehicle scrappingannounced last year is expected to give a boost to automotive sector. Also variousincentives being announced by central as well as state governments for electric vehiclesis likely to lead to a greater demand for electric vehicles. Governments' push forinfrastructure projects as announced in the budget is expected to drive demand acrosssectors. However the ground implementation of various announcements by the governmentwill be key in deriving the expected benefits.

In order to maintain and help the economic recovery and growth interest rates areexpected to be maintained at least during the current financial year. However consistenthigher inflation may lead to rate increase in the later part of the financial year. Thiswill have a negative impact on the company's net margin.

Opportunities:

The company has finalized new business with leading tractor manufacturer. It is also indiscussion for several new parts for the same customer. The overall business potential forthe business finalized is expected to be Rs. 10 crores at full volume.

The company is also in discussions with a leading automotive component manufacturerpart of a global car manufacturer for new business to supply parts to its Indianoperations as well as exports.

Additional business from Renault which was finalized is also starting to ramp up andthe company expects to achieve full volume by 2nd quarter of the currentfinancial year.

New business from American Axle which was ramped up in the last quarter of FY19 isalso likely to demand higher quantities in the current year. This will benefit the companyto generate additional export revenue.

The company has also started marketing the powertrain models developed for electric 3wheelers. The response has been good though due to the pandemic the growth has beenslow. The company is continuing to focus on generating volumes for these and expects tohave a good business in the coming months.

Given the current market outlook and opportunities opening up and the initiatives takenby the management the company is hopeful of continued profitable growth and a brightfuture in the coming years.

III. Corporate Governance

A Report on Corporate Governance along with a Certificate from the Statutory Auditorsof the Company regarding compliance with the conditions of Corporate Governance asstipulated under the provision of Listing Regulations 2015 forms part of the AnnualReport.

Board of Directors

Board's Composition and Independence

As on 31st March 2021 our Board comprised of nine members headed by aNon- Executive Chairman one Executive Director and eight Non-Executive Directors where infive are Independent Directors. Two out of nine members are women directors. Thecomposition of Board is in accordance with the requirements of Listing Regulations 2015& Companies Act 2013.

The Company has received necessary declarations from the Independent Directors statingthat they meet the prescribed criteria for independence.

Directors and Key Managerial Personnel (KMP)

Directors

During the year under review Mr. Rajiv Ishwarlal Ranka (DIN: 00392438) resigned fromthe position of the "Non-Executive Independent Director" of the Company witheffect from 07th September 2020 due to his increase in his professionalpre-occupancies. He further confirmed that there is no other material reason behind hisresignation.

Further the Board at its meeting held on 20th October 2020 has inductedMr. Jinendra Hirachand Munot (DIN: 00049838) as an Independent Director on the Board ofthe Company for a term of 5 years effective from 20th October 2020. Also theBoard at its meeting held on 10th February 2021 has inducted Mr. VenkataiahMadipalli (DIN - 00041420) as an Independent Director on the Board of the Company for aterm of 5 years effective from 10th February 2021.

Ms. Sulajja Firodia Motwani (DIN: - 00052851) Director of the Company retires byrotation at the ensuing Annual General Meeting and being eligible offers herself forre-appointment.

Key Managerial Personnel (KMP)

During the year under review following change occurred in the Key Managerial Personnelof the Company:

Name of the KMP Nature of Change Date Category
Mr. Chaitanya Koranne Appointment 20th October 2020 Chief Executive Officer

Board Meetings

The Board met seven (7) times during the financial year 2020-21 viz. 30thJune 2020 14th September 2020; 20th October 2020 10thNovember 2020;23rd December 2020 10th February 2021 and 30thMarch 2021.

Audit Committee

All the Committee members are Non-Executive Independent Directors. All the Members ofthe Committee possess sufficient accounting and financial management knowledge. TheCompany Secretary of the Company is the Secretary of the Committees also. Therecommendations of the Audit Committee during the year were accepted by the Board.

Board Evaluation

Pursuant to the provisions of the Companies Act 2013 and Listing Regulations 2015Independent Directors at their discussion without the participation of theNon-Independent Directors and Management evaluated the Boards' performance Performanceof the Chairman and other Non-Independent Directors.

The Board subsequently evaluated its own performance the working of its Committees(Audit Nomination and Remuneration and Stakeholders Relationship Committee) andIndependent Directors (without participation of the relevant Director).

The criteria for performance evaluation have been detailed in the Corporate GovernanceReport which forms part of the Annual Report.

Remuneration Policy of the Company

The Remuneration policy of the Company comprising of the appointment and remunerationof the Directors Key Managerial Personnel and Senior Executives of the Company includingcriteria for determining qualifications positive attributes independence of theDirectors and other related matters has been framed by Nomination and RemunerationCommittee and has been briefed in Annexure-III to this Report.

Vigil Mechanism

The Vigil Mechanism as envisaged in the Companies Act 2013 the Rules prescribedthereunder and the Listing Regulations 2015 is implemented through the Company's WhistleBlower Policy to enable the Directors and employees of the Company to report genuineconcerns to provide for adequate safeguards against victimization of persons who use suchmechanism and make provision for direct access to the Chairman of the Audit Committee.

Whistle Blower Policy of the Company is available on the Company's website atwww.kineticindia.com/investors.

Information required under Sexual Harassment of Women at Work place

The Company has in place the requisite Internal Committee as envisaged in the SexualHarassment of Women at Workplace (Prevention Prohibition and Redressal) Act 2013. Nocomplaints on the issues covered by the above Act were received during the year.

Contracts or Arrangements with Related Parties

As required under the Listing Regulations 2015 Related party transactions are placedbefore the Audit Committee for approval. At the beginning of the financial year priorapproval of the Audit Committee is obtained on an omnibus basis for continualtransactions. The corresponding actual transactions then become a subject of review by theCommittee at subsequent meetings.

All related party transactions/arrangements entered into by the Company during theyear were on an arm's length basis and in ordinary course of business.

There were no materially significant related party transactions entered into by theCompany with the Promoters Directors Key Managerial Personnel or other designatedpersons which could conflict with the interest of the Company as a whole. Consequentlydisclosures in form AOC-2 pursuant to Rule 8 (2) of the Companies (Accounts) Rules 2014are not required.

The policy on Related Party Transactions as approved by the Board is available on theCompany's website at www.kineticindia.com/investors.

Particulars of Loans Guarantees or Investments under Section 186 of the Companies Act2013

Details of Loans Guarantees and Investments covered under the provisions of Section186 of the Companies Act 2013 are given in Note 4 & 5 of Notes to the FinancialStatements.

Directors' Responsibility Statement

Pursuant to Section 134(5) of the Companies Act 2013 your Directors based on therepresentations received from the Operating Management and after due enquiry confirmthat:

(a) In the preparation of the annual accounts for the Financial Year ended 31stMarch 2021 the applicable accounting standards have been followed along with properexplanation relating to material departures;

(b) The Directors had in consultation with Statutory Auditors selected accountingpolicies and applied them consistently and made judgments and estimates that arereasonable and prudent so as to give a true and fair view of the state of affairs of theCompany as at 31st March 2021 and of the Loss of the Company for the yearended on that date;

(c) The Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud andirregularities;

(d) The Directors have prepared the annual accounts on a going concern basis;

(e) The Directors have laid down adequate Internal Financial Controls to be followed bythe Company and such Internal Financial Controls were operating effectively during theFinancial Year ended 31st March 2021;

(f) The Directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectivelythroughout the Financial Year ended 31st March 2021.

Particulars of Employees and related disclosures:

In terms of the provisions of Section 197(12) of the Companies Act 2013 read withRules 5(2) and 5(3) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 there are no employees drawing remuneration in excess of thelimits set out in the said Rules.

Disclosures pertaining to remuneration and other details as required under Section197(12) of the Companies Act 2013 read with Rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 are provided in Annexure V of the AnnualReport.

Having regard to the provisions of Section 136(1) read with its relevant provision ofthe Companies Act 2013 the Annual Report excluding the aforesaid information is beingsent to the members of the Company. The said information is available for inspection atthe Registered Office of the Company during working hours and any member interested inobtaining such information may write to the Company Secretary and the same will befurnished without any fee.

IV. Audit and Internal Financial Control

Statutory Auditor

The members of the Company had approved the appointment of M/s Pawan Jain &Associates (FRN: 0107867W) Chartered Accountants Pune to hold office for five years untilthe conclusion of Annual General Meeting to be held in the calendar year 2022 inaccordance with the provisions of Section 139 of the Companies Act 2013. However as peramended Companies (Audit and Auditors) Amendment Rules 2018 the requirement ofratification of appointment of auditors in subsequent general meetings has been done awaywith.

Auditors' Report

There are no qualifications reservations or adverse remarks made by M/s Pawan Jain& Associates Statutory Auditors in their report for the financial year ended 31stMarch 2021.

Pursuant to the provisions of Section 143(12) of the Companies Act 2013 the statutoryauditors have not reported any incident of fraud to the Audit Committee during the yearunder review.

Secretarial Audit – FY 2020-21

Mr. Dinesh Birla proprietor of Dinesh Birla and Associates Practicing CompanySecretaries was appointed by the Board to conduct the audit of the Company's SecretarialRecords in respect of the financial year 2020-21.

The report of the Secretarial Audit appears as Annexure – IV to this Report. Thereare no qualifications in the Report.

Secretarial Auditor – FY 2021-22

Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hasappointed Mr. Dinesh Birla Practicing Company Secretary (Certificate of Practice No.:13029) to undertake the Secretarial Audit of the Company for the financial year 2021-22.

Internal Control System and their adequacy

The Company has adequate internal control system commensurate with its size and natureof business for ensuring efficiency of operations adherence to management policies andprotection of company's assets. The Company's Audit Committee periodically reviews theinternal control systems and compliance with Company's policies procedures and laws.

V. Other Disclosures

Postal Ballot:

There was a Postal Ballot conducted during the financial year under review.

Deposits:

During the year under review your Company had not accepted any deposits within themeaning of provisions of Chapter V – Acceptance of Deposits by Companies of theCompanies Act 2013 read with the Companies (Acceptance of Deposits) Rules 2014.

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 Act 2013read with Rule 8(3) of the Companies (Accounts) Rules 2014 is furnished as Annexure I tothis Report.

Extract of Annual Return:

Pursuant to section 134 and section 92 of the Companies Act 2013 read with Rule 12 (1)of the Companies (Management and Administration) Rules 2014 an extract of the AnnualReturn as on 31st March 2021 in Form No. MGT- 9 is attached herewith asAnnexure II and forms part of this Report. It is also available on the website of theCompany at www.kineticindia.com.

Material changes and commitments between the end of the financial year and date ofreport:

There have been no material changes and commitments affecting the financial position ofthe Company between the end of financial year and the date of the Report.

Cautionary Statement

The report contains estimates and expectations which could be 'forward looking'.Actual results however might differ from estimates and expectations expressed or impliedin this report as the same are affected by many other uncertainties including rawmaterial availability & prices changes in Government regulations tax regimeseconomic developments and other incidental factors.

Significant and Material Orders Passed by the Regulators or Courts or Tribunalsimpacting the going concern status of the Company

There are no significant and material orders passed by the Regulators or Courts orTribunals which would impact the going concern status of the Company.

Acknowledgement

The Directors' express their sincere thanks to Central & State GovernmentsFinancial Institutions banks who have extended their support in form of CreditFacilities suppliers and stakeholders for the support extended to the Company and alsowish to place on record their appreciation of the dedicated services rendered by theemployees of the Company.

On behalf of the Board of Directors
For Kinetic Engineering Limited
A. H. Firodia
Chairman
Date: 12th August 2021 (DIN : 00057324)
Place: Pune.

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