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Panasonic Energy India Company Ltd.

BSE: 504093 Sector: Consumer
NSE: LAKHNNATNL ISIN Code: INE795A01017
BSE 00:00 | 18 Apr 205.20 3.50
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NSE 05:30 | 01 Jan Panasonic Energy India Company Ltd
OPEN 205.55
PREVIOUS CLOSE 201.70
VOLUME 2420
52-Week high 388.00
52-Week low 180.00
P/E 21.49
Mkt Cap.(Rs cr) 154
Buy Price 201.00
Buy Qty 1.00
Sell Price 205.20
Sell Qty 28.00
OPEN 205.55
CLOSE 201.70
VOLUME 2420
52-Week high 388.00
52-Week low 180.00
P/E 21.49
Mkt Cap.(Rs cr) 154
Buy Price 201.00
Buy Qty 1.00
Sell Price 205.20
Sell Qty 28.00

Panasonic Energy India Company Ltd. (LAKHNNATNL) - Director Report

Company director report

Dear Shareholders

Your Directors have great pleasure to report you at the end of another challengingyear and presenting the forty sixth annual report together with the audited financialstatement for the year ended March 31 2018.

  1. Financial Results Summary

(Rs. in Lakhs)

Particulars As at  March 31 2018 As at March 31 2017
Sales Turnover 21083.24 24132.70
Profit/(Loss) before tax 1367.87 990.17
Less: Provision for taxation (Net of deferred tax) 456.72 357.39
Less: Provision for taxation of earlier years (Net of refund/demand) (68.59) 5.63
Profit/(Loss) after tax 979.74 627.15
Add: Profit brought forward from previous year 671.75 676.48
Net available surplus for appropriation 1651.49 1303.63
Appropriations
Dividend paid during the year 412.50 525.00
Dividend Distribution Tax paid 83.98 106.88
Surplus carried to Balance Sheet 1155.01 671.75
1651.49 1303.63

The Company adopted Ind AS from April 01 2017 and accordingly the financial results ofthe previous year have also been restated in accordance with Ind AS 101 - "First-timeAdoption of Indian Accounting Standards" prescribed under Section 133 of theCompanies Act 2013 (the ‘Act') and rules issued thereunder. Refer Note No. 40 for anexplanation of how the transition to Ind AS has affected the previously reported financialposition financial performance and cash flows attached to Financial Statements.

2. Transfer to Reserve

The Company does not propose to transfer any amount to the general reserve out of theamount available for appropriation.

3. Dividend

Keeping in view the current profitability of the Company your Directors are pleased torecommend payment of a dividend of ? 7.00 per equity share (@ 70% at par value of ? 10/-each) (previous year ? 5.50 per equity share) subject to the approval of shareholders atthe forthcoming Annual General Meeting. The dividend when approved will entail paymentto shareholders of ? 525.00 lakhs. It will be tax free income in the hands of recipients.However the Company's outflow towards dividend distribution tax would be to the tune of ?107.92 lakhs.

4. Operational Review

The constitutional amendment for implementation of revolutionary Goods and ServicesTax w.e.f. July 01 2017 created a great deal of confusion in the trade which dentedthe sales in first quarter though the Company recovered quickly to normalize sales duringthe two subsequent quarters.

However GST rates on Dry batteries and torches were reduced from 28% to 18% w.e.f.November 2017 which once again disturbed the trade and largely restricted the sales inthe last quarter as the market witnessed price corrections which prompted the wholesalemarket in particular to reduce their stocking envisaging MRP corrections and downwardsprice points.

Under such adverse challenging situations faced during the year your Companyregistered net sales amount of ? 21083.24 lakhs as against ? 24132.70 lakhs of theprevious year.

The profit before tax in the year stood at ? 1367.87 lakhs registering a growth of 38%as against ? 990.17 lakhs registered in the last year.

Batteries and Flashlights

The overall battery industry in the organized sector remained unpredictable from thebeginning of the fiscal year due to implementation of GST. The industry was furtherimpacted due to further reduction in GST in November 2017 keeping the markets sluggishdue to uncertainty in pricing strategies and change in MRP of batteries in line to thegovernment's requirement to pass on the GST benefits to the consumer.

Flash light market continued to be dominated by unorganized players and intrusion ofcheap rechargeable torches which saw the flashlight demand dip southwards by about 8-10%v/s previous year. During the year your Company could achieve the volume sales at 82%v/s. the previous year.

Prospects

Imports of cheap imported batteries in Indian market is a great challenge faced byorganized battery sector. However your Company registered a growth in sales of Drybatteries - General Trade segment Alkaline Lithium coins and Eneloop rechargeablebatteries over the last year. Change in approach and sales/marketing strategies during theyear is likely to enhance the performance going ahead.

5. Change in Nature of Business

There is no material change in the business as was reported last year.

6. Product Profile

The Company with its market share of about 19% in Zinc Carbon batteries has nowincreased its focus into various other product range to leverage its overall salesquantity and turnover viz.; Rechargeable batteries under the brand name of ‘Eneloop'range of Alkaline batteries Lithium coins LED and elite white range of torches.

7. Management Discussion and Analysis Business Overview

The FMCG sector witnessed various headwinds in the first half of the year namelytough macro scenario absence of price hike (deflation in majority of inputs) anaftershock of demonetization and various difficulties pertaining to the implementation ofthe Goods and Service Tax (GST). Demonetization and GST implementation disrupted tradechannels particularly the wholesale channel which is the back bone of the ruraldistribution channel. Further antiprofiteering measures restricted any major benefits tocompanies so far as the benefits of GST rates were to be passed to the consumers.

However this has improved the affordability of a number of daily use products butaffected adversely the margins for Dry batteries due to spiraling rates of zinc and otherkey raw materials consumed in the manufacture of Dry batteries.

Quarter 3 financial year 17-18 witnessed revival: In Quarter 3 the FMCG space reportedbetter performance owing to weak base and partial normally in the wholesale and tradechannels. Further GST rates were cut in November 2017 across various daily use productscategories such as detergents skin care shampoo noodles etc. including Dry batteries.Moreover Companies started signaling some green shoots for the recovery of the ruralmarket in the quarter.

Companies with higher wholesale and rural exposure were hit the most. HoweverCompanies with better distribution still managed to sail through and recover at a muchfaster pace than others.

Sector to be back on trade soon: After witnessing a challenging time so far in theyear we expect demand revival in the coming quarters driven by;

a) expected rural recovery

b) improving consumer sentiment

c) supportive base

d) improved affordability post GST rate revision and

e) normally in trade channels.

Further the focus of your Company on improving its direct reach and promotion strategywould be a major supporter of its recovery.

Zinc carbon batteries

Zinc carbon share of organized manufacturers is estimated to have remained same. TheGST related market apprehensions dented the purchase and sales which lead to reduction inits production quantity due to its impact on secondary sales to some extent in the lastquarter.

Your Company has successfully maintained its market share. Significant factor which hasaffected the sales turnover is the shift in consumer preference from high value D sizebatteries towards low priced AA / AAA size batteries due to change in usage pattern invarious appliances. Maintaining its trend in financial year 2017-18 also D size sharecontinues to drop AA size continues to dominate the volume share and AAA size continuesto be fast-growing segment.

46th Annual Report 2017-18

Alkaline batteries

Battery industry in India is dominated by zinc carbon batteries unlike in other partsof the world which is dominated by Alkaline battery market. Alkaline is a category forfuture growth.

In India Alkaline batteries contribute only 4-5% of the total battery demand in thecountry. However its contribution to value amounts to be in double digits. Consideringthis your Company is aggressively concentrating its activities towards improvement ofsales in this category.

In the financial year 2017-18 your Company has successfully clinched orders ofAlkaline AA for the Electronic Voting Machine (EVM) which have been successfully executed.Your Company also envisages a sizeable business in the forthcoming year in this segment.

Flashlights

Flashlight market is shared equally by organized and unorganized sectors. Coupled withweak monsoon and cash liquidity crunch faced by consumers and traders in rural marketsflashlight segment is estimated to have de- grown by approximately 8-10% in the organizedsector.

Rechargeable batteries

Rechargeable battery market is stagnant and contributes around 1% to total batterydemand. This segment is dominated by imported low priced rechargeable batteries.

Your Company has successfully marked its presence in marketing and sales of highquality "eneloop" brand of rechargeable batteries and chargers.

Dealers and consumers appreciate the quality and superiority of our rechargeablebatteries. Your Company registered a good growth of about 127% in terms of quantum.

Industry Structure and Development

Organized battery industry continues to witness slowdown of R20 and R14 segment inabsence of new applications / appliances consuming this segment of products.

However the Company foresees positive impacts due to implementation of GST and steadyshift towards Alkalization of Indian market. The Company also witnessed growing trend ofother categories of rechargeable cylindrical and lithium coin batteries.

Your Company continued sales of Zinc Carbon batteries in the neighboring countryNepal. Your Company shall continue its efforts in this direction to enhance exports.

Marketing and Distribution

The Company has also taken many steps to enhance its customer reach and widen itspenetration for expanding the distribution and coverage. It was also a good year for theCompany in the modern trade segment which is expanding year on year and your Company ismaximizing on this channel by introducing it products on various wholesale and retailoutlets.

Your Company is also pleased to inform of having extensive promotional activitiesthrough television commercials cinema advertisements as well as e-media endorsed byOlympic Silver Medalist Badminton player Ms. R V. Sindhu for promoting Panasonic brandof Alkaline batteries in the financial year 2017-18 and are likely to continue thiscampaign in financial year 2018-19.

Your Company has been continuously making efforts not only to strengthen itsdistribution network but simultaneously also concentrating on improving the productivityof each and every member of its sales team through training and educational programs.

Opportunities and threats

Opportunities

Presently per capita consumption of batteries in India continues to remain quite lowas compared to other developed countries. It indicates potential for higher future growth.Batteries are the cheapest source of portable power and its consumption is always expectedto grow as it is a product of recurring use. Changing usage patterns arrival of newappliances shift towards miniaturization of appliances growing income levels andchanging life style promises growth especially in AA / AAA size of batteries.

Threats

Import of huge quantity of low performance cheap Chinese batteries poses a big threatto the organized sector of the Industry. It not only exerts more pressure on the pricingof economy range of batteries but also augments price competition giving lower operatingmargins which leaves less scope for any enhancement.

Board's Report

Risks and Concerns

During financial year 2017-18 the average prices of major materials have remainedupward. However the substantial cost impact was seen from zinc metal mainly on account ofstrong zinc LME market. The average rates of zinc metal have remained higher around 135%v/s. financial year 2016-17.

The average prices of other key materials viz. NMD EMD ACB tin plates metalcomponents resin zinc chloride have continued to stay higher from around 103% to 120%v/s. financial year 2016-17 which have not only displayed larger influence on the directmaterials cost but also severely disrupted estimates on profits.

Outlook

The current trend of battery usage pattern in India is gradually moving in line withglobal trend. It is a positive sign and first step towards moving up with the global percapita consumption which at present is much higher than the per capita consumption inIndia. We also hope that the Indian consumers shall gradually move toward higher end ofbatteries such as Alkaline and Rechargeable batteries which shall generate additionalrevenues for your Company and strengthen its revenues in the coming years.

Further the reduction of GST during November 2017 is likely to simulate and boostrural income which will also have positive impact on consumer purchasing power in ruralIndian markets.

Internal Financial Controls

The Company has an internal control system commensurate with the size and scale of itsoperations. The internal financial controls are adequate and operating effectively so asto ensure orderly and efficient conduct of business operations.

The internal staff monitors and evaluates the adequacy of internal control system inthe Company its compliances with operating systems accounting procedures and policies atall locations of the Company. Based on the Reports the Company undertakes correctiveactions thereby strengthening the controls. Significant observations and correctiveactions thereon are presented to the Audit Committee of the Board for their review.

Development in Human Resource and Industrial Relation

Your Directors wish to place on record their appreciation to all its employees fortheir sustained efforts and valuable contribution. Your Company is very much concerned ofthe employees to provide them safe and accident free environment with a motto "SafetyFirst" at the working place. The total employee strength of the Company as on March31 2018 stood at 817.

Research & Development

As a part of continual improvement this year your Company had introduced one morevariety of product in R03 category. Besides this the performance of existing R03NDGPanasonic GOLD PLUS has also been upgraded as per the need and usage pattern in currentscenario of gadgets by our valued customers. During the year performance of R6 & R03product was improved by usage of new ingredient.

During the financial year your Company introduced all varieties of zinc carbonproducts with eco-friendly features by removal of heavy metal lead and thereby contributedto society to improve the environment. In addition the Company had also installedsophisticated testing equipment for testing and removal of heavy metal and improve all rawmaterial and components.

8. Corporate Governance

As per requirement of SEBI (LODR) Regulations 2015 a separate section on corporategovernance practices followed by the Company together with a certificate from the CompanySecretary in Practice confirming compliances forms an integral part of this Report.

9. Extractof Annual Return

The details forming part of the extract of the Annual Return in Form MGT- 9 are annexedherewith. (Ref. "Annexure-A")

10. Board Meetings

Schedules of Board and Committee meetings are prepared and circulated in advance to theDirectors. During the year four Board Meetings and four Audit Committee meetings wereconvened and held. The details of which are given in the corporate governance report. Theintervening gap between the meetings was within the period prescribed under the CompaniesAct 2013.

11. Directors' Responsibility Statement

To the best of their knowledge and belief and according to the information andexplanations obtained by them your Directors make the following statements in terms ofSection 134(3)(c) of the Companies Act 2013.

(a) that in the preparation of the annual accounts for the year ended March 31 2018the applicable accounting standards have been followed along with proper explanationrelating to material departures; if any;

(b) that the Directors had selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company as at March 31 2018 andof the profit and loss of the Company for the year ended on that date;

(c) that the Directors had taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act 2013for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;

(d) that the Directors had prepared the annual accounts on a going concern basis;

(e) that the Directors in the case of a listed Company had laid down internalfinancial controls to be followed by the Company and that such internal financial controlsare adequate and were operating effectively; and

(f) that the Directors had devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate and operatingeffectively.

12. Declaration by Independent Directors

The Company had received declarations from all Independent Directors that they meet thecriteria of independence as laid down under Section 149(6) of the Companies Act 2013 andrequirements of SEBI (LODR) Regulations 2015.

13. Auditor's Report

No qualifications or adverse remarks have been made by any of the Auditors in theirreport.

14. Contracts and Arrangements with Related Parties

All contracts / arrangements entered by the Company during the financial year withrelated parties were in the ordinary course of business and on an arm's length basis.During the year the Company did not enter into any contract / arrangement / transactionwith related parties which could be considered as material.

The Policy on materiality of related party transactions and dealing with related partytransactions as approved by the Board is available on the Company's website: www.panasonicenerqyindia.in

Your Directors draw attention of the members to Note No. 38 to the financial statementwhich sets out related party disclosures. The particulars of contracts or arrangementswith related parties given in Form AOC- 2 are annexed herewith. (Ref."Annexure-B")

15. Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo

The details of conservation of energy technology absorption foreign exchange earningsand outgo are annexed herewith. (Ref. "Annexure-C")

16. Corporate Social Responsibility

During the year under review as part of its initiatives under Corporate SocialResponsibility (CSR) the Company has expanded its activities and participated in theprojects in the areas of health hygiene medical and education undertaken by various NGOsand trusts. These projects are in accordance with Schedule VII of the Companies Act 2013.The Annual Report on CSR activities is annexed herewith. (Ref. "Annexure-D")

17. Disclosure under the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013

The Company has been employing about 20 women employees in various cadres within thefactory premises. The Company has constituted an Anti-harassment Policy in line with therequirements of the Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013. An Internal Complaint Committee has also been set up to redresscomplaints received regularly. All female employees are covered under the policy. Nocomplaints are received from any employee during the financial year 2017-18 and hence nocomplaints are outstanding as on March 31 2018 for redressal.

18. Annual Evaluation by the Board

Pursuant to the amendments in Companies Act 2013 and Schedule IV of SEBI (LODR)Regulations 2015 the Board has amended the Nomination and Remuneration Policy astructured questionnaire was prepared after taking into consideration the various aspectsof the Board's functioning composition of the Board and its committees. The Board hascarried out an annual performance evaluation of its own performance the Directorsindividually as well as the evaluation of the working of its Committees. The Board ofDirectors expressed their satisfaction with the evaluation process.

19. Vigil Mechanism / Whistle Blower Policy

The Company has established a Vigil mechanism for Directors and employees and the samehas been communicated to the Directors and employees of the Company and the same is alsoposted on the website of the Company.

20. Directors

Mr. Motoaki Shimamura and Mr. Toshihiro Nakamura had been inducted on the Board asNon-Executive Directors w.e.f. February 13 2018.

Mr. Hosoya Vice President Sales and Marketing have also been inducted on the Boardand have been appointed as the Executive Director of the Company with effect fromSeptember 01 2018.

As per the provisions of the Companies Act 2013 Mr. Kazuo Tadanobu and Mr. MikioMorikawa retire by rotation and being eligible offer themselves for re-appointment.Moreover the retirement of Mr. Morikawa by rotation and his subsequent re-appointmentshall not tantamount to termination of his agreement with the Company as Chairman &Managing Director.

As required by Regulation 36(3) of SEBI (LODR) Regulations 2015 the relevant detailsin respect of the Directors proposed to be appointed / re-appointed are set out in thecorporate governance report forming part of the Board's Report. The Board recommends allthe resolutions placed before the members relating to appointment / re-appointment ofDirectors for their approval.

21. Statutory Auditors

In accordance with the provisions of Companies Act 2013 at the 45th AnnualGeneral Meeting held on August 10 2017 the shareholders had appointed M/s B S R &Associates LLP as Statutory Auditors of the Company for a period of 5 years i.e. up tothe conclusion of 50th Annual General Meeting to be held for the adoption ofaccounts for the financial year ending March 312022. As Companies (Amendment) Act 2017has done away with the requirement of ratification at every Annual General Meeting noratification for the appointment is required. There is no qualification or adverse remarkin Auditors' report.

22. Cost Auditor and Cost Audit Report

M/s. Diwanji & Co. Cost Accountants have been reappointed as the Cost Auditor forthe financial year 2018-19. In terms of the provisions of Section 148(3) of the CompaniesAct 2013 read with the Companies (Audit and Auditors) Rules 2014 the remunerationpayable to the Cost Auditors has to be ratified by the Members of the Company.Accordingly the Board seeks ratification at the ensuing Annual General Meeting of theremuneration payable to the Cost Auditors for the financial year 2018-19.

23. 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 M/s. J. J. Gandhi & Co. Practising Company Secretaries to undertake theSecretarial Audit of the Company for financial year 2018-19. There is no qualification oradverse remark in their report. The Report of the Secretarial Auditor is annexed herewithas "Annexure- E".

24. Subsidiaries

Your Company does not have any subsidiary / subsidiaries within the meaning of theCompanies Act 2013.

25. Deposits

The Company has not accepted any fixed deposits and accordingly no amount wasoutstanding as on the date of the Balance Sheet.

26. Particulars of Loans Guarantees or Investments made under Section 186 of theCompanies Act 2013

There are no loans guarantees or investments covered under the provisions of Section186 of the Companies Act 2013.

27. Transfer to Investor Education and Protection Fund (IEPF)

As per Section 124(6) of the Act read with the IEPF Rules as amended all the shares inrespect of which dividend has remained unpaid / unclaimed for seven consecutive years ormore have been transferred to the IEPF Account.

28. Disclosure under Rule 5 of Companies (Appointment & Remuneration) Rules 2014

Disclosures required under Section 197 of the Companies Act 2013 read with Rule 5 ofCompanies (Appointment & Remuneration) Rules 2014 have been annexed herewith. (Ref."Annexure-F")

29. Nomination & Remuneration Policy

The Board has on the recommendation of the Nomination and Remuneration Committeerevised a policy for selection and appointment of Directors senior management and theirremuneration. The remuneration paid to the Directors is in accordance with the Nominationand Remuneration policy. The Nomination and Remuneration policy is annexed herewith. (Ref."Annexure-G")

30. Compliance with all the applicable laws of Secretarial Standards

During the year the Company has complied with all the applicable SecretarialStandards.

31. Significant and Material Orders passed by the Regulators or Courts

The Competition Commission of India (CCI) issued an order on April 19 2018 in a matterwherein Panasonic Energy India Co. Ltd. (PECIN / Company) was a party. The matterpertained to collusion to fix prices of zinc-carbon dry cell battery in India by EvereadyIndustries India Ltd. (Eveready) Indo National Ltd. (Nippo) the Company and theirAssociation of Indian Dry Cell Manufacturers (AIDCM).

The case was taken-up by the CCI based on the disclosure by the Company under Section46 of the Competition Act 2002 (Act) read with the Competition Commission of India(Lesser Penalty) Regulations 2009 (Lesser Penalty Regulations). Pursuant to theDirections of the CCI the Office of the Director General Competition Commission of India(DG) commenced its investigation. During the investigation in exercise of the powersvested with it under Section 41(3) of the Act DG carried-out simultaneous search andseizure operations at the premises of Eveready Nippo and the Company on August 23 2016.Subsequently while the investigation was in progress and report from the DG was pendingEveready and Nippo approached CCI as lesser penalty applicants.

From the evidence collected in the case CCI concluded that Eveready Nippo and theCompany facilitated by AIDCM had indulged in anticompetitive conduct of pricecoordination limiting production / supply as well as market allocation in contraventionof the provisions of Section 3(3)(a) 3(3)(b) and 3(3)(c) read with Section 3(1) of theAct. It was observed that the conduct was continuing from 2008 which is prior to May 202009 the date on which Section 3 of the Act became enforceable and up till August 232016.

Considering contravention of provisions of the Act an amount of X 245.07 crore X52.82 crore and X 74.68 crore was computed as leviable penalty on three batterymanufacturers i.e. Eveready Nippo and the Company respectively in terms of proviso toSection 27(b) of the Act. Also penalty of X 1.85 Lakh was levied on AIDCM at the rate of10 percent of average of its receipts for preceding three years. Additionally consideringtotality of facts and circumstances of the case penalty leviable on individual official's/ office bearers of the three battery manufacturers and AIDCM was computed at the rate of10 percent of the average of their income for preceding three years.

Keeping in view the stage at which the lesser penalty application was filedco-operation extended in conjunction with the value addition provided in establishing theexistence of cartel CCI granted the Company and its individuals 100 percent reduction inthe penalty and no penalty was imposed on the Company.

32. Acknowledgment

Your Directors wish to place on record their appreciation of the contribution made byemployees at all levels to the continued growth and prosperity of your Company. YourDirectors also wish to place on record their appreciation to the shareholders dealersdistributors consumers and banks for their continued support.

For and on behalf of the Board

Vadodara Mikio Morikawa
May 28 2018 Chairman & Managing Director