MANAGEMENT DISCUSSION & ANALYSIS
Your Directors present the 49th Annual Report on the business and operationsof Kinetic Engineering Limited and the Audited Financial Statements for thefinancial year ended 31st March 2020.
I. Financial Performance:
(INR in Lakhs)
|Particulars ||31st March 2020 ||31st March 2019 |
|Total Revenue Profit/ (Loss) before Interest Depreciation Tax and other ||11849.86 ||12376.69 |
|Amortizations ("EBIDTA") ||469.90 ||516.27 |
|Less : Depreciation and Amortization Expenses ||721.26 ||734.41 |
|Finance Cost ||660.38 ||598.22 |
|Tax Expenses Net ||- ||- |
|Profit/(Loss) for the year ||(911.74) ||(816.36) |
|Other Comprehensive Income ||(30.71) ||(64.83) |
|Total Comprehensive Income/(loss) for the year ||(942.45) ||(881.29) |
No dividend is recommended in view of the loss during the period under review.
Your Company has recorded a nearly flat revenue of INR 118.5 Crores in the FY 2019 20 compared to a revenue of INR 120.5 Crores for the previous year. The company hadcontinued to grow compared to last year as was evident by the revenue of INR 92 Croresclocked by the company for the first 3 quarters ended in December 2019 compared to INR 82Crores for the corresponding three quarters ended December 2018 a growth of nearly 10%.The growth was unfortunately abruptly halted due to loss of last 9 days due to thenationwide and worldwide lockdown due to the CoVID 19 Pandemic and the governmentregulations thereof. Due to this lockdown the sales in the last year were marginallylower at INR 118.5 Crores as against an expectation of INR 130 Crores.
The recorded growth rate was despite of slowdown of economic growth across sectors inthe automobile market and led by our strategy to focus on exports with stable largevolume growing businesses. The new businesses also stabilized and continued the steadydemand throughout the year. The value of exports as a proportion to the total revenueincreased to 50% from 45% in the previous year.
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 others to reduce material cost by 2% despite the same. However due to the lockdownimposed in the last 9 days of the year the EBDITA margin dropped slightly to 3.97% from4.28% the previous year due to lost contribution.
We are hopeful of a recovery in the market in the coming months and years once thetide impact and severity of the virus has reduced.
New products and Capital expenditure:
The company believes that the electric vehicle segment shall grow in times to come ata rapid pace. In order to prepare for the green future your Company has strategicallydeveloped and entered into manufacture of powertrain for the Electric vehicles during theyear under review. The powertrain includes complete axle with gearbox with a rangespanning from 1 1.2 3 to 5 kw sets for electric rickshaws and e-autos. These productswill be 100% Made in India and shall cater to the largest market in the electric segmentas a complete kit for the current OEMs. The development of these kits are successfullycompleted. The Company continues its focus and investment in R&D and upgradation ofmachinery as required to meet the high quality demands of customers and innovation thatlies in our DNA.
The company continued its growth plan in the coming year until the CoVID 19 pandemicand sudden halt. It also made efforts for reduction in manpower and other costs in orderto achieve profitability. The current year has witnessed a slowdown in the domesticAutomotive and Commercial Vehicles business. As a result the domestic sale for thecompany's products was nearly 25% lower compared to the previous year. However the exportsale increased from INR 40 Crores to INR 53.5 Crores helping the company to maintain itsrevenue in spite of very tough domestic situation.
The Company has implemented regular training modules for its employees through internaland external faculties for developing and maintaining a better skilled work force and ithas maintained cordial labour relations throughout the year.
Management Discussion and Analysis:
The Company is mainly supplying assemblies and components for the Medium & HeavyCommercial Vehicles Automotive and Tractor industry. The company is also exporting nearly50% of its products either directly or indirectly (through its customers in
India). Therefore global economic scenario as well as domestic economic policiesimpacts the business. Domestic economy has grown by 4.2% in FY20 which has been one ofthe lowest in the current series. The GDP growth quarter on quarter has been low despitereasonably good monsoon. Automotive and Commercial vehicle sectors have been some of themost affected sectors in the year under review compared to the previous year.
The sale of passenger vehicles in the domestic market has shown a decline of nearly 20%in FY2019-20 compared to FY2018-19. However the export of passenger vehicles remainedstagnant as per the data published by SIAM.
The Commercial Vehicles however has reported a massive decline of 30% in the domesticmarket and nearly 40% in the export market. This was in line with the overall slowdown inthe economic activity in the economy. The tractor segment has maintained its momentum.
The tractor market which is also a major segment to which the company supplies itsproducts declined by about 12% from a level of 878476 nos. during FY2018-19 to 781065nos. in the FY2019-20. The CoVID-19 situation in the current financial year hassignificantly affected the outlook in the domestic market though signs of recovery owingto good monsoon and beginning of festive season are now clearly visible. With furtheropening up of the economic activities the company expects that it will reach the level ofnormal activity only by the fourth quarter of the current financial year.
Risks and Opportunities: Market Risks:
The CoVID-19 situation continues to impact operations of many of our customers. Secondwave of the pandemic may significantly impact the fragile recovery. Increasinggeopolitical tensions between the largest economies in the world and India's neighboursmay affect plans of our customers thereby affecting demand for our products. On thecontrary pent up demand and good monsoon seems to be driving quick economic recovery. Webelieve this trend will continue in the coming quarters.
The company is investing in new products in the emerging segment of electric mobilitywhich will help the company to reduce such impact in the years to come.
Raw Material Risks:
Even though the commodity prices have been stable for most of the last year and tillnow with increasing demand steel suppliers may again resort to price increases in acollective manner to offset the losses incurred.
The company is in continuous discussion with steel suppliers and also adding newsuppliers to ensure smooth supplies of steel.
Government Policy Risks:
The Government has been evaluating relaxing the maximum load carrying limit forcommercial vehicles along with maximum life requirement. In the short term it may impactthe demand for commercial vehicles. However the company supplies products to a nichesegment of School Buses which is unlikely to get impacted due to the policy change.
With increasing geopolitical tensions between the largest economies of the world thereis likely to be a shift in the supply chain. This will open up good opportunities forresourcing of components from India. The company will benefit hugely due to this as thecompany already has a presence in the global supply chains of major automotive companies.The company is also in discussions with a large Tier 1 manufacturer for export ofcomponents to the parent company. The Government is also considering scrappage policy forolder vehicles as announced by the Honourable Minister for Road and Surface TransportShri. Nitin Gadkari. This is expected to give a big boost to automobile as well asCommercial vehicles which will greatly benefit the company. The company is fullygeared-up to exploit the opportunities arising from the above.
The company has already finalized a contract for additional volumes for componentsbeing presently supplied to Renault which will result in additional revenue of INR 5Crores p.a. However the business will materialize once the situation starts to return tonormal post COVID.
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 already developed three different versions of powertrain for electricthree wheelers and started supplying the same to its sister company Kinetic Green. Thecompany is also in discussion with a large and reputed motor and controller manufacturerfor a joint marketing of each other's products as a complete solution giving better valueto the potential customers. Several samples have already been given to various customersand the company expects good volumes to materialize. Given the push by the Government toMake-In-India and to Electric Mobility the company sees a very good opportunity todevelop and sell products in the Electric Mobility space.
Given the current market outlook and opportunities opening up and the initiatives takenby the Management the Company is hopeful of a bright future 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 2020 our Board comprised of eight members headed by aNon- Executive Chairman two Executive Directors and five Non-Executive Directors where infour are Independent Directors. Two out of eight members are Women Directors. Thecomposition of the Board is in accordance with the requirements of the ListingRegulations 2015 & the Companies Act 2013. The Company has received necessarydeclarations from the Independent Directors stating that they meet the prescribed criteriafor independence.
Directors and Key Managerial Personnel (KMP) Directors
Mr. Rajiv Ishwarlal Ranka (DIN: 00392438) resigned from the position of the"Non-Executive Independent Director" of the Company with effect from 07thSeptember 2020 due to increase in his professional pre-occupancies. He further confirmedthat there is no other material reason behind his resignation. Further to fill thevacancy caused due to resignation of Mr. Rajiv Ishwarlal Ranka the Board at its meetingheld on 20th October 2020 has inducted M r. Jinendra Hirachand Munot (DIN:00049838) as an Additional Director in the capacity of Independent Director on the Boardof the Company for a term of 5 years effective from 20th October 2 020 to 19thOctober 2025 subject to shareholders' approval at the ensuing Annual General Meeting. Inaccordance with Section 160 of the Companies Act 2013 the Company has received noticeproposing his candidature for the office of Independent Director. Dr. Jayashree ArunFirodia Director of the Company retires by rotation at the ensuing Annual GeneralMeeting and being eligible offers herself for re-appointment.
Key Managerial Personnel (KMP)
During the year under review following changes occurred in the Key ManagerialPersonnel of the Company:
|Sr. No. ||Name of the KMP ||Nature of Change ||Date ||Category |
|1 ||Ms. Deepal Shah ||Ceased due to resignation ||03rd June 2019 ||Company Secretary |
|2 ||Mr. Nikhil Deshpande ||Appointment ||15th November 2019 ||Company Secretary |
The Board met Five times during the financial year 2019-20 i.e. 29th May2019; 17th July 2019; 14th August 2019; 14th November2019; and 13th February 2020. The maximum interval between any two meetingsdid not exceed 120 days.
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.
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).
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.
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 was 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 2020 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 2020 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 2020;
(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 2020.
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 (FRN0107867W) 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.
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 2020.
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 2019-20
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 2019-20.
The report of the Secretarial Audit appears as Annexure IV to this Report. Thereare no qualifications in the Report.
Secretarial Auditor FY 2020-21
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 2020-21.
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 no Postal Ballot conducted during the financial year under review.
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 2020 in Form No. MGT- 9 is attached herewith as Annexure II andforms part of this Report. It is also available on the website of the Company atwww.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.
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.
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: 20th October 2020 ||(DIN : 00057324) |
|Place: Pune. || |