Your Directors are pleased to present the 55th Annual Report of the Companytogether with the audited financial statements of the Company for the year ended December31 2017.
| || ||(Rs. in million) |
| ||2017 ||2016 |
|Net Total Income ||19866.5 ||18645.8 |
|Gross Operating Profit (Earnings before depreciation interest tax and prior period adjustments) ||4344.5 ||3651.9 |
|Depreciation / Amortization ||711.2 ||641.0 |
|Interest ||10.2 ||17.6 |
|Profit Before Tax ||3623.1 ||2993.3 |
|Provision for Tax ||1242.9 ||1042.7 |
|Profit After Tax ||2380.2 ||1950.6 |
Financial and Operational Performance
The global economy experienced a broad-based cyclical upturn in 2017 with growthincreasing in more than half of the world's economies. Global growth is expected to besustained over the next couple of years and even accelerate in emerging markets anddeveloping economies.
In India the year 2017 was marked by some major reforms. The transformational Goodsand Services Tax (GST) was introduced from July 2017. This comprehensive tax has replacedthe complex multiple indirect tax structure in India. Furthermore action was taken toaddress the Twin Balance Sheet challenge which remained a constraint on Indian growthprospects. The new Indian Bankruptcy Code has provided a resolution framework. TheGovernment has also announced a large recapitalisation package to strengthen the balancesheets of the public-sector banks. These reforms will support firms to resume spending andbanks to lend especially to the sectors of infrastructure and manufacturing.
In the first half of the year 2017 India's economy reported slower growth while therest of the world economy accelerated. Albeit India remained the second-best performeramongst major countries with strong macroeconomic fundamentals. The slower growth was aresult of a series of developments that pummeled the economy including demonetisation;compliance in the new GST regime; rising real interest rates banking sector stress; andsharp falls in certain food prices that impacted agricultural incomes.
However the second half of the year 2017 witnessed robust signs of revival. Withcorrective actions being implemented economic growth has rebounded. This is alsosupported by the global economic recovery which is advancing exports.
Industrial production as reflected by development of Index of Industrial Production(IIP) has started showing signs of improvements. Core infrastructure industry wellsupported by public sector investment and favourable policy environment showed positivegrowth of 3.8% in year 2017. Mobility sectors and agriculture tractors are on a steadypath of growth supported by the Government's thrust on rural spending infrastructurecreation and irrigation spending.
Performance of the Company and State of Company's Affairs
Your Company's Net Total Income (net of excise duty) was at Rs. 19866.5 million inyear 2017 (Year 2016: Rs. 18645.8 million) representing a growth of 6.5 %. Profit beforetax was placed at Rs. 3623.1 million (Year 2016: Rs. 2993.3 million) representing agrowth of 21.0%. Your Company recorded profit after tax of Rs. 2380.2 million (Year 2016:Rs.1950.6) representing a growth of 22.0%. Better sales mix and operational performancehave resulted in the improvements in the EBT margins.
Your Company's sales to mobility sectors grew in-line with market growth. Sales toIndustry OEM Mobility sectors like Two Wheelers rail power transmission registeredslight growth. Distribution sales showed improving trend. The export business of yourCompany registered positive growth during the year.
Your Directors consider the Company has performed exceedingly well.
Change of name of the Company Schaeffler India Limited
In consonance with the Schaeffler Group's overall corporate philosophy your Companyhas changed its name from FAG Bearings India Limited to Schaeffler India Limited'with effect from July 7 2017.
This change of name has not only increased your Company's visibility globally but hasalso underlined the presence of Schaeffler Group in India.
Strategic Initiative One Schaeffler India Entity
During the year under review your Company has unveiled the strategic initiative ofOne Schaeffler India' entity and has announced merger of two of the Schaeffler Groupentities in India viz. INA Bearings India Private Limited and LuK India Private Limitedwith your Company.
INA Bearings India Private Limited is engaged in manufacture of Needle/linear bearingsengine transmission and chassis precision components for Automotive and Industrialapplications has its manufacturing facility at Talegaon Pune and employs around 663employees.
LuK India Private Limited is engaged in manufacture of Clutch and transmissioncomponents and systems for Automotive applications has its manufacturing facility atHosur in Tamilnadu and employs around 757 employees.
With the strengths of the two entities being clubbed with the leadership position ofthe Company in the Ball Roller and other special bearings the merged entity OneSchaeffler India entity will become a major manufacturer and supplier of some of the mostimportant products for the Automotive as well as Industrial Sector as under:
1. Wheel Modules Transmission Bearings and Axial Bearings by your Company;
2. Engine and Transmission components by INA Bearings; and
3. Components for clutch and Transmission Systems by LuK
The synergies of the proposed merger are envisaged in following major areas:
1. Bundling Opportunity Enhanced content / car on next generation platforms
2. Distribution Network Expanded geographical coverage enhanced portfolio
3. Warehousing and Freight Movement Economies of scale
4. Efficiency improvements Internal Sales force reorganisation
5. Functional cost efficiencies in various service functions
6. Reduced complexities of Compliances
The proposed merger will help your Company to contribute comprehensively to theScheffler Group's strategy of "Mobility for Tomorrow". The "Mobility forTomorrow" strategy has four focus areas namely Eco-friendly drives urban mobilityInter-urban mobility and Energy- chain. Schaeffler's strategic approach combines long-termthinking with proven success factors of Quality Technology and Innovation to form robustand systematic organisational orientation towards the future.
In conclusion your Company is set to become leading Automotive and Industrial componentsupplier with a diversified and high-growth product offering which will create value forall stakeholders.
GDP growth in FY 2018 is expected to be around 7.3%. The impacts of Goods and ServicesTax (GST) implementation in 2017 seems to have been absorbed by the economy.
Overall your Company is positive about its short term and medium term business outlook.We will continue to pursue growth strategy in customised as well as high volume productbusiness. Leveraging our customer and application expertise we will provide added valueto our customers. At the same time we will accelerate implementation of our operationalexcellence strategy to systematically build on long term competitive advantage in thebusiness.
Dividend and Transfer to General Reserve
Your Company has a steady dividend payment history and in line with the financialperformance of the year 2017 your Directors recommend dividend for the year endedDecember 31 2017 at the rate of Rs. 17/- (2016: Rs. 12/-) per equity share amounting toRs. 282.5 million (2016: Rs. 199.4 million). The Company will pay the tax on dividend asper the provisions of the Income Tax Act 1961. It is not proposed to transfer any amountto General Reserve for the year under review.
Management Discussion and Analysis
Pursuant to Regulation 34 read with Schedule V of the Securities and Exchange Board ofIndia (Listing Obligations and Disclosure Requirements) Regulations 2015 ("ListingRegulations") Management Discussion & Analysis Report is annexed to this report.(Annexure - A)
A separate section on Corporate Governance is included in the Annual Report and thecertificate from M/s. Samdani Kabra & Associates Company Secretaries Vadodara(Guj.) the Company's Secretarial Auditors confirming the compliance of conditions onCorporate Governance is annexed thereto. (Annexure - B)
In accordance with the provisions of Section 152 of the Companies Act 2013 Mr.Dietmar Heinrich [DIN: 00928243] will retire by rotation at the ensuing Annual GeneralMeeting (AGM'). Although he is eligible for reappointment Mr. Heinrich hasexpressed his unwillingness to be reappointed at the AGM.
Your Directors express their gratitude for the contribution made by Mr. Heinrich duringhis tenure as Director of the Company. Further your Directors have decided not to fill upthe vacancy that will be caused by retirement of Mr. Heinrich.
Mr. Frank Huber [DIN: 00689169] resigned from the directorship of the Company witheffect from June 30 2017. Board wishes to place on record its appreciation of servicesrendered by him during his tenure as the Director of the Company.
Mr. Marcus Eisenhuth [DIN: 07904850] has been appointed as an Additional Director witheffect from August 10 2017. Your Company has received a notice together with a deposit ofRs. 100000/- for his candidature for the Office of Director under section 160 of theCompanies Act 2013. Your Directors recommend his appointment as a Director of theCompany.
Mr. Avinash Gandhi [DIN: 00161107] has given a declaration that he meets therequirements for appointment as an Independent Director. Accordingly upon therecommendation of the Nomination and Remuneration Committee the Board of Directors ofyour Company at its Meeting held on February 7 2018 has appointed Mr. Avinash Gandhi[DIN: 00161107] subject to approval of the Shareholders at the ensuing Annual GeneralMeeting as an Independent Director to hold Office for a term of five consecutive yearscommencing from February 7 2018.
Brief profiles of the Directors seeking appointment or reappointment are givenseparately under the Notice convening 55th Annual General Meeting of theCompany.
Key Managerial Personnel (KMP)
Pursuant to provisions of Sections 2(51) and 203 of Companies Act 2013 read with Rule8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014following persons are acting as Key Managerial Personnel of the Company:
1. Managing Director & Chief Executive Officer: Mr. Dharmesh Arora
2. Chief Financial Officer: Mr. Satish Patel
3. Company Secretary*: Mr. Chirag K. Shukla
*Mr. Raj Sarraf resigned as the Company Secretary of the Company w.e.f. November 132017. Mr. Chirag K. Shukla has been appointed as the Company Secretary of the Companyw.e.f. February 7 2018.
Meetings of Board of Directors
During the year under review seven meetings of the Board of Directors were held onFebruary 14 2017 March 6 2017 April 21 2017 June 26 2017 July 25 2017 August 302017 and November 9 2017. The details of attendance of each Director at these meetingsare provided in the Corporate Governance Report.
Independent Directors' Declaration
Your Company has received the declarations in the prescribed format from eachIndependent Director confirming that they meet the criteria of independence as envisagedin the provisions of Section 149 of the Companies Act 2013 read with Regulation 16 ofthe Listing Regulations.
Policy on Nomination and Remuneration
The Company's Policy on Nomination and Remuneration is framed with objectives as under:
1. To formulate criteria and advise the Board in matters of determining qualificationscompetencies positive attributes and independence of Directors and policies relating totheir appointment and removal
2. To review corporate goals and objectives to set norms of performance evaluation andto lay out remuneration principles for Directors KMP and Senior Management linked totheir effort performance and contribution towards achievement of organisational goals
3. To evaluate performance and give recommendations to the Board on remunerationpayable to the Directors KMP and Senior Management and
4. To review and recommend to the Board measures to retain and motivate talentincluding KMP and Senior Management Personnel with a view to ensuring long termsustainability and competitiveness of the organisation.
Criteria and Qualification for Nomination and
A person to be appointed as Director KMP or at Senior Management level should possessadequate relevant qualification expertise and experience for the position that he / sheis being considered for. The Nomination and Remuneration Committee (NRC) evaluates whetherqualification expertise and experience possessed by a person is sufficient / satisfactoryfor the concerned position and the NRC then makes appropriate recommendations to the Boardof Directors.
Policy on Remuneration
1. The remuneration (including revisions) to Directors is recommended by NRC to theBoard for approval. The remuneration (including increments) to the Directors sorecommended by NRC to the Board should be within the limits under the Companies Act 2013read with the Rules thereunder and as approved by the shareholders of the Company.
2. None of the Directors (including Independent Directors) shall be entitled to anystock option of the Company.
3. Non-executive Directors who are in whole-time employment with other AssociateCompanies of the Schaeffler Group will not be entitled to any remuneration profitrelated commission or sitting fees.
4. While determining remuneration to KMP Senior Management Personnel and otherEmployees the Company encourages and rewards merit and superior performance. Theobjective is to set the total remuneration at levels to attract motivate and retainhigh-calibre and high potential personnel in a competitive global market.
Formal Annual Evaluation
Your Company believes that systematic evaluation contributes significantly to improvedperformance at three levels; Organisational Board and Individual Board Member. Itencourages the leadership teamwork accountability decision-making communication andefficiency of the Board. Evaluation also ensures teamwork by creating better understatingof Board dynamics board-management relations and thinking as a group within the board.
The process includes multi-layered evaluation based on well-defined criteria consistingof relevant parameters.
For the year 2017 the Board has carried out an annual performance evaluation of itsown and that of its Committees and individual Directors.
Performance evaluation criteria for the Board its Committees the Directors and theChairman of the Company were circulated to and filled up by the Directors. The feedbacksof directors were scaled and measured on defined ratings. The Nomination and RemunerationCommittee has further carried out evaluation of all the Directors including IndependentDirectors. The Board of Directors have carried out the evaluation of its own performanceits committees and that of individual Directors. The report of performance evaluation soarrived at was then noted and discussed by the Nomination and Remuneration Committee andthe Board of Directors.
Corporate Social Responsibility (CSR)
Being a responsible Indian Corporate Citizen we are equally motivated by the Indianethos of Dharma as a key for organisational self-realisation. Guided by the prevailingregulatory requirements the Company has constituted a Corporate SocialResponsibility (CSR) Committee' and framed a Policy on CSR summary of which together withdetails of CSR activities undertaken by the Company during the year 2017 have beencovered in Separate report on CSR annexed to this report. (Annexure - C)
Contracts and arrangements with Related Parties
The transactions with the related parties are governed by prevailing regulatoryrequirements and Company's policy on dealing with such transactions. During the year alltransactions with the Related Parties have been carried out in normal course of businessand based upon well set principles of arm's length.
A separate report containing details of Material Related Party Transactions'carried out during the year is annexed to this report. (Annexure - D)
Particulars of Employees and Related Disclosures
In terms of the provisions of Section 197(12) of the Companies Act 2013 read with Rule5(2) and 5(3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 the names of the top ten employees in terms of remuneration drawn and employeesdrawing remuneration in excess of the limits set out in the said rules forming part ofthis report is given as an Annexure to this report. However pursuant to provisions ofSection 136(1) of the Companies Act 2013 all reports and accounts are sent to all theshareholders of the Company except this annexure. Any shareholder interested ininspecting this report can write to the Company Secretary for a copy of it. TheDisclosures pertaining to remuneration and other details as required under Section 197(12)of the Companies Act 2013 read with Rule 5(1) of Companies (Appointment and Remunerationof Managerial Personnel) Rules 2014 have been annexed to this Report. (Annexure - E)
Extract of Annual Return
As per regulatory requirements Extract of Annual Return' is provided in aseparate report annexed to this Report. (Annexure - F)
The Statutory Auditors M/s. B S R & Co. LLP Chartered Accountants Mumbai (FirmRegistration Number: 101248 W / W-100022) were appointed as Statutory Auditors of theCompany in 52nd Annual General Meeting ("AGM") of the Company held onApril 24 2015 for a period of five consecutive years subject to ratification by membersevery year in AGM. Based upon the declaration on their eligibility consent and terms ofengagement your Directors recommend ratification of their appointment in 55thAnnual General Meeting until conclusion of 56th Annual General Meeting of theCompany.
M/s. Samdani Kabra & Associates Company Secretaries were appointed asSecretarial Auditors' to carry out Secretarial Audit of the Company for the year2017. In terms of provisions of section 204 of the Companies Act 2013 the SecretarialAudit Report has been annexed to this Report. (Annexure - G)
M/s Y. S. Thakar & Co. Cost Accountants as Cost Auditors had conducted the auditof the cost records of the Company for the Financial Year ended December 31 2017. Basedupon the declaration on their eligibility consent and terms of engagement your Directorshave made their appointment for the year 2018.
Explanation or Comments on disqualifications reservations adverse remarks ordisclaimers in the auditor's reports:
With regard to the remarks of the Secretarial Auditors in their Audit report ontransfer of Equity Shares to Investor Education and Protection Fund (IEPF) pursuant to theprovisions of section 124 (6) of the Companies Act 2013 and rules made thereunder wehave to state that the Company has already commenced the process of transfer of the EquityShares on which the dividend amounts have not be paid/claimed for the last sevenconsecutive years and it is expected that the said process shall be completed in themonth of April 2018.
There have been no other qualifications reservations adverse remarks or disclaimersin the auditor's reports requiring explanation or comments by the Board.
The Audit Committee consists of four Directors with Mrs. Renu Challu as the Chairpersonof the Committee. The other members of the Audit Committee are Mr. Avinash Gandhi Dr.Sanak Mishra and Mr. Rakesh Jinsi. The terms of reference of the Audit Committee detailsof meetings held during the year and attendance of members are disclosed in the Report onCorporate Governance.
Whistle Blower Policy / Vigil Mechanism
Your Company has well defined Whistle Blower Policy' and established VigilMechanism to provide for adequate safeguard against victimisation of Directors andemployees who follow such mechanism and also make provisions for direct access to thechairperson of Audit Committee in appropriate cases.
Whistle Blower Policy of the Company is available on the Company's website at theweb-link: https://www.Schaeffler.co.in/remotemedien/media/_shared_media/03_worldwide/02_websites_worldwide/india_2/company/fag_india/ir/codes_policies/03._Vigil_Mechanism_ or_Whistle_Blower_Policy.pdf
Your Company has established comprehensive Risk Management System to ensure that therisks to the Company's continued existence as a going concern and to its development areidentified and addressed on timely basis.
Particulars of Loans given Investments made Guarantees given and Securities provided
The particulars of loans have been disclosed in notes to the Financial Statements.
During the year the Company has not accepted any deposits under the Companies Act2013.
Disclosure under the Sexual Harassment of Women at workplace (Prevention Prohibitionand Redressal) Act 2013
The Company has in place a Policy against Sexual Harassment at workplace in line withthe requirement of Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013. Internal Complaints Committee (ICC) has been set-up to redresscomplaints received regarding sexual harassment. All employees (permanent contractualtemporary and trainees) are covered under this policy. No complaints were received by theCommittee during the year.
Orders passed by The Regulators or The Courts or The Tribunals
There are no significant and material orders passed by the Regulators or Courts orTribunals impacting the going concern status of the Company and its operations.
Directors' Responsibility Statement:
Pursuant to the requirement under Section 134(3)(c) of the Companies Act 2013 yourdirectors hereby state that:
a) In the preparation of the annual accounts the applicable accounting standards havebeen followed and there are no material departures from the same;
b) The accounting policies have been selected and these have been applied consistentlyand judgments and estimates made thereon are reasonable and prudent so as to give a trueand fair view of the state of affairs of the Company as at December 31 2017 and of theprofit of the Company for that period;
c) Proper and sufficient care has been taken for the maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act 2013 for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;
d) Annual accounts of the Company have been prepared on a going concern' basis;
e) Internal financial controls have been laid down and being followed by the Companyand that such internal financial controls are adequate and were operating effectively; and
f) Proper systems to ensure compliance with the provisions of all applicable laws havebeen devised and that such systems are adequate and were operating effectively.
Adequacy of Internal Financial Controls
Based on the framework of internal financial controls and compliance systemsestablished and maintained by the Company work performed by the internal statutory andsecretarial auditors and external consultants and the reviews performed by management andthe Audit Committee the Board is of the opinion that the Company's internal financialcontrols were adequate and effective during the financial year ended December 31 2017.
Material changes and commitments and change in Nature of Business
There have been no material changes and commitments affecting the financial positionof the company from the end of the Year 2017 upto the date of this report. Further therehas been no change in the nature of business carried on by the Company.
Conservation of Energy Technology Absorption and Foreign Exchange Earnings and Outgo
The particulars as prescribed under section 134(3)(m) of the Companies Act 2013 readwith rule 8 of the Companies (Accounts) Rules 2014 have been annexed to this report(Annexure - H).
Your Directors express their gratitude for the cooperation and support extended byShareholders Schaeffler Group Customers Suppliers Stockists & Importers BanksGovernment & Regulatory Authorities and all Employees of the Company for theirefforts.
| ||For and on behalf of the Board |
| ||Avinash Gandhi |
| ||Chairman |
|New Delhi: February 7 2018 ||DIN: 00161107 |