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Kinetic Engineering Ltd.

BSE: 500240 Sector: Auto
NSE: KINETICENG ISIN Code: INE266B01017
BSE 00:00 | 24 Feb 28.15 0.50
(1.81%)
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27.65

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NSE 05:30 | 01 Jan Kinetic Engineering Ltd
OPEN 27.65
PREVIOUS CLOSE 27.65
VOLUME 6544
52-Week high 49.40
52-Week low 26.20
P/E
Mkt Cap.(Rs cr) 50
Buy Price 27.00
Buy Qty 1.00
Sell Price 28.15
Sell Qty 1000.00
OPEN 27.65
CLOSE 27.65
VOLUME 6544
52-Week high 49.40
52-Week low 26.20
P/E
Mkt Cap.(Rs cr) 50
Buy Price 27.00
Buy Qty 1.00
Sell Price 28.15
Sell Qty 1000.00

Kinetic Engineering Ltd. (KINETICENG) - Director Report

Company director report

DIRECTOR'S REPORT 2017-18

(Including Management Discussion & Analysis)

Dear Members

Your Directors present the 47th Annual Report on the business and operations of KineticEngineering Limited and the Audited Financial Statements for the financial year ended 31stMarch 2018.

I. Financial Performance :-

(Rs. in Lakhs)
Particulars 31st March 2018 31st March 2017
Total Revenue 10847.93 9188.48
Profit/ (Loss) before Interest
Depreciation Tax and other
Amortizations ("EBIDTA") 509.48 8.90
Add : Exceptional (Expenses) / Income - -
Less : Depreciation and Amortization
Expenses 791.31 813.90
Finance Cost 495.50 496.50
Tax Expenses – Net - -
1286.81 1310.40
Profit/(Loss) for the year (777.33) (1301.50)
Other Comprehensive Income - -
(Items that will not be reclassified
subsequently to the statement of
profit and loss)
Remeasurement of post-employment benefit obligations 26.21 (57.04)
Income tax relating to these items - -
Other Comprehensive Income 26.21 (57.04)
Total comprehensive income/(loss) for the year (751.12) (1358.55)

Dividend:

No dividend is recommended in view of the loss during the year and non-availability ofany carry forward surplus.

Conversion of Optionally Convertible Cumulative Preference Shares :

During the year under review the Company has converted 992639 8.5% OptionallyConvertible Cumulative Preference Shares (OCCPs) into 977913 equity shares of Rs. 10/-each at a premium of Rs. 81.01 each and have allotted the same to the promoters on 5thFebruary 2018. The Company is in process of obtaining Listing approval of BSE for thesame.

Adoption of Indian Accounting Standards:

The Company adopted the Indian Accounting Standards ("IndAS") notified underthe Companies

(Indian Accounting Standards) Rules 2015 during the year for preparation andpresentation of these financial statements. Consequently the Financial Statements of theprevious year conform to the provisions of IndAS. The corresponding reconciliation anddescription of the effects of this transition from the provisions of the Companies(Accounting Standards) Rules 2005 has been provided under Note 48 to the FinancialStatements.

II. Business:

The new businesses which had started ramping up last year reached full volumes in thecurrent year. Apart from sustained demand from our other OE customers your Company hasshown significant improvement in the financial performance. The Company has recorded ayear on year growth of 18% and earned a revenue of Rs. 108.48 crores.

The increased turnover has also helped in better absorption of fixed costs and EBIDTAmargin has grown from 0.09% in FY 17 to 4.70% in FY 18. The Company has also achieved acash break even in the current year and earned a cash profit of Rs. 14 lakhs against acash loss of Rs. 4.87 crores in FY 17. The growth momentum is continued in the currentyear as well.

During the financial year under review steel prices have gone up by nearly 20%. Thishas put tremendous pressure on the working capital. In most cases the increase in rawmaterial prices has been passed on to the customers. The Company is in discussion to gettimely settlement of the price increase claims. Price increase claims to the tune of Rs.67.41 Lakhs were to be received from the customers for the supplies made upto 31 st March2018. As against this Rs. 34 Lakhs has already been invoiced till date and will becollected as per the agreed payment terms.

Your Company has continued to invest in appropriate capacity to meet the increaseddemands from existing customers as well as operationalizing new businesses won. YourCompany has invested Rs. 3.76 crores in new plant and equipment for the purpose. TheCompany is also in discussion with bankers to raise further funds to augment the workingcapital and to refinance the capital investments already made and expected to be made inthe ensuing financial year.

The forgings production has now stabilized and the Company has been able to maintainthe material costs in spite of significant increase in raw material prices. The Company isalso exploring the possibility of expanding the forgings capacity in order to meet theincreased demand of the products and also to further reduce material costs.

Operations:

The Company continues to improve its operations through various initiatives. TheCompany has now been certified for the stringent IATF Quality Standard. Your Company wasone of the first few companies to be certified for the IATF Quality Standard.

Continuous improvements use of various Quality Tools for analysis training practiceshave resulted in continued improvement of quality of the products manufactured. TheDirectors are pleased to inform that your Company was awarded the "Best SupplierAward" for Quality Performance by Renault Nissan.

The businesses which were ramping up during the last year have now stabilized at thefull volumes. The Company has also successfully won a new business from American Axleduring the year and successfully submitted PPAPs which are under final approval. The newbusiness is expected to ramp up in the next financial year. The Company has also doubledits production of Gear Boxes being supplied to Mahindra Trucks and Buses Ltd and AshokLeyland Ltd.

Employee Relations:

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 labor relations throughout the year.

MANAGEMENT DISCUSSION AND ANALYSIS:

According to the International Monetary Fund’s World Economic Outlook in April2018 the global economic output has increased by 3.80% in 2017. In fact the generalrecovery has now become more broad based and robust and stronger. Advanced economies suchas USA Germany Japan and Korea have witnessed strong growth and the other developingeconomies in Latin America and Asia have posted good growth.

Domestic economy has grown by 7.10% in FY 17 overcoming the dip due to demonetizationin FY 17 and GST implementation in FY 18. In fact the third quarter of FY 18 recorded agrowth of 7.20% based on which the growth for FY 18 is expected to be 6.70%. The WorldBank has projected a growth of 7.30% for FY 18 and 7.50% in the next two years. Smoothtransition to the GST regime and satisfactory forecast of the monsoon augurs well for thegrowth projection especially for the industries that your Company operates in.

a) Industry Structure:

The Passenger Vehicles segment has grown by 3.30% in FY18 whereas utility vehicles andvans grew by 20.97% and 5.78% respectively. Though the exports of passenger vehiclesshowed a decline of 1.51% over FY 17 our customers continued to grow in the exportmarkets.

The Medium and Heavy Commercial Vehicles grew by 12.48% and Light Commercial Vehiclesgrew by 25.42% in FY 18 compared to FY 17.

Tractors segment has grown a robust 33% over FY 17 and has crossed 711400 nos.

Government’s keenness to increase farmer’s incomes developing ruralinfrastructure and investment in large scale infrastructure projects is expected totranslate into continued robust demand for medium and heavy commercial vehicles andtractors in the short term as well as the near term.

b) Outlook:

The Company is mainly supplying assemblies and components for the Medium & HeavyCommercial Vehicles Automotive and Tractor industry. Over the years the Company itselfhas transformed into an Automotive Components supplier providing components for diverseapplications.

c) Risks and Opportunities:

Market Risks:

Increasing talks about Trade war and import tariffs for import from various countriesinto the US is a matter of concern as it may adversely impact the companies export bothdirect as well as indirect. However a large proportion of the companies export goes toMexico and through the Mexican subsidiary of the customer to the US. Hence the companybelieves that this will not impact the company’s revenues. Export of products toLatin America is expected to go up through another customer offsetting any adverseimpact.

Raw Material Risks:

Over the last year commodity prices have gone up significantly. The Company purchasesnearly 400-500 T of steel to produce various components. The Steel prices have gone upnearly 20% over the last one year. Due to shortage of steel in the market credit termsare also squeezed by the major suppliers of steel. This is putting tremendous pressure onthe working capital especially since the company is also growing at more than 25%requiring even higher quantity of steel. Lack of timely availability of steel is alsoimpacting our in-house production as well as our key suppliers.

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.

Inflationary Risks:

Due to increased inflationary pressure higher oil prices due to global politicalsituation domestic political and economic situation interest rates are likely to beincreasing. This may have an adverse impact on the demand for products manufactured by thecompany’s customers.

d) Opportunities:

The Company is increasingly focusing on emerging as a gear box supplier and isexploring new businesses in that domain. The company has been in discussion with a largeEngine Manufacturer for development of gear boxes for their export requirement. Thebusiness potential of the said business is Rs. 15 crores p.a.

The Company is also in discussion for a long term contract for additional volumes forcomponents being presently supplied to Renault which will result in additional revenue ofRs. 5 crores p.a.

The new project for which PPAPs have now been approved is expected to ramp up in FY 19which will add Rs. 30 crores p.a. at full ramp expected by the fourth quarter of FY 19.

The Company is also working with its sister concern Kinetic Green for the developmentof gear box for electric three-wheeler application. The Company sees a very good potentialin offering this electric power train solution to other electric vehicle manufacturers.Prototypes of this new gear box have already been proven and the Company expects toproductionize the same during FY19.

Given the market outlook and the initiatives taken by the management the company istoday at a cusp of sustained rapid profitable growth with a good order position andfuture outlook.

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 2018 our Board comprised of eight members headed by an ExecutiveChairman two Executive Directors and five Non-Executive Directors where in four areIndependent Directors. Two out of eight members are women directors. The composition ofBoard is in accordance with the requirements of Listing Regulations 2015 & CompaniesAct 2013.

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

Board Meetings

The Board met Nine times during the financial year 2017-18 viz. 8th April 2017; 29thMay 2017; 31st August 2017; 29th September 2017; 27th October 2017 21st

November 2017 11th December 2017; 5th February 2018 & 12th February 2018. Themaximum interval between any two meetings did not exceed 120 days.

Directors and Key Managerial Personnel (KMP)

Directors

During the year under review Dr. K. H. Sancheti had resigned from the office ofdirectorship on 26th May 2017. The Board places its gratitude for the services renderedby him during his tenure.

Further Dr. Jayashree Arun Firodia was inducted as an additional director of theCompany from 27th October 2017. In accordance with Section 161 of Companies Act 2013the Company has received notice proposing her candidature for appointment as regulardirector. Your directors have placed the same for approval of members in the ensuingAnnual General Meeting.

Ms. Sulajja Firodia Motwani Director of the Company retires by rotation at theforthcoming Annual General Meeting and being eligible offers herself for reappointment.

Key Managerial Personnel (KMP)

The following have been designated as the Key Managerial Personnel of the Companypursuant to Section 2(51) and 203 of the Companies Act 2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014:

a) Mr. Ajinkya A. Firodia – Managing Director & CFO (DIN:00332204)

b) Mrs. Deepal Shah – Company Secretary (CS)*

*Mr. Sourav Chowdhury Company Secretary of the Company resigned during the year. Inhis place Mrs. Deepal Shah was appointed as Company Secretary of the Company on 14thSeptember 2017.

Appointment of Chief Executive officer (CEO)

Mr. Chaitanya Koranne was appointed as the Chief Executive officer of the Company witheffect from 21st November 2017.

Audit Committee

This Committee comprises of the following Directors viz. Mr. Shirish R. Kotecha(Chairman of the Committee) Mr. Jinendra H. Munot and Mr. Ramesh J. Kabra. All theMembers are Independent Directors. All the Members of the Committee possess strongaccounting and financial management knowledge. The Company Secretary of the Company is theSecretary of the Committee. All the recommendations of the Audit Committee were acceptedby the Board.

Board Evaluation

Pursuant to the provisions of the Companies Act 2013 and Listing Regulations 2015Independent Directors at their meeting without the participation of the Non-independentDirectors and Management evaluated the Boards’ performance Performance of theChairman 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

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’sWhistle Blower Policy to enable the Directors and employees of the Company to reportgenuine concerns to provide for adequate safeguards against victimization of persons whouse such mechanism and make provision for direct access to the Chairman of the AuditCommittee.

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. Wherever required prior approval of the AuditCommittee is obtained on an omnibus basis for continual transactions. The correspondingactual transactions then become a subject of review by the Committee at subsequentmeetings.

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 31st March2018 the applicable accounting standards have been followed along with proper explanationrelating 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 2018 and of the Loss of the Company for the year ended on thatdate;

(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 2018;

(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 2018.

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 the Corporate GovernanceReport forming part of the Annual Report.

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 AndAssociates (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 perrecently amended 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 JainAnd Associates Statutory Auditors in their report for the financial year ended 31stMarch 2018.

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

Mr. Devendra Deshpande partner of DVD & Associates Practicing Company Secretarieswas appointed by the Board to conduct the audit of the Company’s Secretarial Recordsin respect of the financial year 2017-18.

The report of the Secretarial Audit appears as Annexure

– II to this Report. There are no qualifications in the Report.

Secretarial Auditor

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 2018-19.

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:

During the year under review the Company had conducted two Postal Ballot activitieswhich were conducted in accordance with the provisions of Section 110 of Companies Act2013 read with Rule 22 of Companies (Management and Administration) Rules 2014. Thedetails are provided in Corporate Governance Report.

Deposits:

During the year under review your Company had not accepted any deposits within themeaning of provisions of Chapter V of the Companies 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 2018 in Form No. MGT-9 is attached herewith as Annexure-IV andforms part of this Report.

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
(DIN : 00057324)
Date: 10th August 2018.
Place: Pune.