Your Directors have pleasure in presenting to you the performance of the Company forthe year ended 31 March 2020.
1. Business Environment
The FY 2019-20 was a challenging business year. The business environment during theyear was competitive in the first half year the demand for products remained sluggishduring the second half year and the year ended with COVID- 19 pandemic resulted inlockdowns.
The COVID-19 pandemic is inflicting high and rising human costs worldwide and thenecessary protection measures are severely impacting the economic activity. The GreatLockdown as one might call it is projected to shrink global growth dramatically. As aresult of the pandemic the global economy is projected to contract sharply by 3% in 2020much worse than during the 2008-09 financial crisis. In a baseline scenario which assumesthat the pandemic fades in the second half of 2020 and containment efforts can begradually unwoundthe global economy is projected to grow by 5.8 % in 2021 aseconomic activity normalizes helped by policy support.
On Indian Economy
According to IMF the Indian economy's growth at 4.2% in FY20 and estimated as 1.9% FY21. However it expects economy to bounce back strongly in fiscal 2021-22.
There are tentative signs of bottoming out of slowdown in manufacturing activity andglobal trade which will have a positive impact on growth in the next fiscal. On a netassessment it appears that the upside risks should prevail particularly when thegovernment with a strong mandate has the capacity to deliver expeditiously on reforms.Manufacturing is expected to advance by only 2% sharply slowing from a 6.9% growth in theprevious financial year as trade tensions and global economic slowdown hit activity.However various economic package and reliefs are being announced by GOI RBI othergovernment bodies to spur growth and to build a 'self-reliant India'. The self-reliantIndia mission to be achieved by meeting global demands by usage of local manufacturinglocal market and local supply chains.
On the Gear Industry
The industrial gear market is categorized into stationary wind and mobility. Gearboxesfor Stationary applications exist along with high torque products. Gearboxes for MobileApplications show good opportunity. The technology trends indicate the focus on alternatematerials macro/micro gear geometry application specific & measurement-based loaddesign process optimization and reduction of Total Cost of Ownership.
India's industrial output contracted in March 2020 as the spread of the COVID-19pandemic began to disrupt economic activity from the middle of the month. All three keysectors mining manufacturing and electricity saw a contraction in manufacturing duringMar-20.
|Industry ||Growth Drivers |
|Steel ||India's finished steel consumption grew at a CAGR of 7.5 per cent during FY08-FY19 to reach 97.54 MT. India's crude steel and finished steel production increased to 106.56 MT and 131.57 MT in 201819 respectively. In FY20 (till February 2020) crude steel and finished steel production stood at 100.78 MT and 94.01 MT respectively. Exports and imports of finished steel stood at 7.78 MT and 6.39 MT respectively in FY20 (upto February 2020). |
|Cement ||Cement production has reached 337.32 million tonnes in 2018-19 and stood at 278.79 million tonnes from April 2019-January 2020. Capacity addition of 20 million tonnes per annum (MTPA) is expected in FY19-FY21. |
|Railways ||Indian Railways' revenues increased at a CAGR of 6.20 per cent during FY08-FY19 to US$ 27.13 billion in FY19. India's exports of railways have grown at a CAGR of 31.51 per cent during 20102018 to US$ 507.90 million. Exports of railways in 2019E stood at US$ 635 million. Union Budget 2020-21 Ministry of Railways have been allocated Rs 72216 crore (US$ 10.33 billion). |
|Mining ||India is the third largest producer of coal. Coal production in the country stood at 688.8 million tonnes in FY18. India's coal production in FY19 reached 739.36 million tonnes. |
|Roads ||The Ministry of Road Transport & Highways is expected to award road projects with a total length of around 4500 km worth Rs 50000 crore (US$ 7.15 billion) in 2020. Under the Union Budget 2020-21 the Government of India has allocated Rs 91823 crore (US$ 13.14 billion) under the Ministry of Road Transport and Highways. |
2. Company Performance
|Particulars ||Year ended 31.03.2020 ||Year ended 31.03.2019 |
|Revenue from operations (Net) ||242.29 ||241.68 |
|Earnings Before Interest Tax Depreciation & Amortisation ||41.08 ||53.08 |
|Depreciation and Amortisation expense ||8.39 ||10.62 |
|Profit Before Tax ||32.69 ||42.46 |
|Less: Tax expense ||7.50 ||9.11 |
|Profit After Tax ||25.19 ||33.35 |
|Add: Surplus brought forward ||18.78 ||34.69 |
|Appropriations: || || |
|Final dividend paid during the year ||7.67 ||- |
|Tax on Final dividend paid during the year ||1.58 ||- |
|Interim dividend paid during the year ||15.34 ||40.86 |
|Tax on Interim dividend paid during the year ||3.15 ||8.40 |
|Balance carried to Balance Sheet ||16.23 ||18.78 |
3. Review of Operations
During the year the business had a flat topline of Rs 242.3 Crs (PY: Rs 241.7 Crs) onaccount of sluggish demands in Q3 & Q4 and COVID-19 lockdown in Mar-20 the profitafter tax was at Rs 25.19 Crs (PY: Rs 33.4 Crs).
Focus on Servicing and Replacement segment in power transmission helped in sustainingthe competitive advantage. During the year Company has launched ShanthiRe-build for promoting service of gearbox and inaugurated Shanthi Re-build servicecentres in select areas in the country to enhance reach. The business continued to buildrelationships through high levels of customer engagement during the year.
Conscious effort on cash generation helped us to sustain the reduced net workingcapital levels of previous year.
Specific attention is given to development of alternate materials and processes todrive value addition and cost reduction. Capital investments were made wherevertechnological upgradation was required.
The Company remains debt free and invests its surplus funds judiciously balancingsafety and returns.
The Company has declared an interim dividend of Rs 2/- per equity share of Face ValueRs 1/- in February 2020 and paid during March 2020. The Board has not recommended anyfinal dividend for the financial year 2019-20 and the interim dividend already declaredand paid will be considered as the Dividend for the financial year 2019-20.
5. Share Capital
The Company has completed the Buyback of 5000000 equity shares of Rs 1/- eachinitiated during the FY 2018-19 on 9 April 2019. The paid up Equity Share Capital as on 31March 2020 was Rs 7.67 Crores.
The Company has not accepted any fixed deposits under Chapter V of the Companies Act2013 and as such no amount of principal and interest was outstanding as on 31 March 2020.
7. Particulars of Loans Guarantees
During the year under review the Company has not given any loans or guarantees underthe provisions of Section 186 of the Companies Act 2013. As part of treasury managementthe Company deploys short-term surplus in units of mutual funds the details relating towhich form part of the Notes to the financial statements provided in this Annual Report.
Mr. Vellayan Subbiah will retire by rotation at the ensuing Annual General Meetingunder Section 152 of the Companies Act 2013 and being eligible he offers himself forre-appointment.
Ms. Soundara Kumar was appointed as an Independent Director. She holds office up to thedate of the ensuing Annual General Meeting. The Board recommends her re-appointment as anIndependent Director under Section 149 of the Act for further term of five years viz.from the date of 47th Annual General Meeting (2020) till the date of the 52ndAnnual General Meeting (2025). Notice has been received from a Member proposing thecandidature of Ms. Soundara Kumar as Independent Director of the Company. The Board takespleasure in recommending the appointment of Mr.Vellayan Subbiah as Director and Ms.Soundara Kumar as Independent Director of the Company at the forthcoming Annual GeneralMeeting.
All the Independent Directors of the Company have furnished necessary declaration interms of Section 149(6) of the Act affirming that they meet the criteria of independenceas stipulated under the Act. In the opinion of the Board all the Independent Directorsfulfill the conditions specified in the Companies Act 2013 and Rules made thereunder andSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and areindependent of the Management.
9. Key Managerial Personnel
Mr. M Karunakaran Chief Executive Officer Mr. B Balamurugan Chief Financial Officerand Mr. C Subramaniam Company Secretary are the Key Managerial Personnel (KMP) of theCompany as per Section 203 of the Companies Act 2013.
10. Internal Control System and their Adequacy
The Company has an Internal Control System Commensurating with its size scale andcomplexity of its operations. Audit Committee reviews internal audit reports and overseesthe internal control system of the Company.
11.Internal Financial Control Systems with reference to financial statements
The Company has a formal system of internal financial control to ensure the reliabilityof financial and operational information regulatory and statutory compliances. TheCompany's business processes are enabled by an Enterprise-wide Resource Platform (ERP) formonitoring and reporting processes resulting financial discipline and accountability.
12. Enterprise Risk Analysis And Management
The Company has constituted a Risk Management Committee aligned with the requirementsof the Companies Act 2013 and Listing Regulations. The details of the Committee and itsterms of reference are set out in the Corporate Governance Report forming part of thisReport.
The Company operates across various product platforms built over the years. Relativeadvantages and disadvantages of such product verticals are studied and advances aretracked. The Company seeks to address technology gaps through continuous benchmarking ofexisting manufacturing processes with developments in the industry and in this connectionhas made arrangements with technology consultants.
Sub-par utilization of capacities may lead to inadequate leverage benefits. The Companyis ramping up its marketing efforts towards successful product establishment and marketacceptance of its products exploring development of alternate products and establishing arange of applications.
13. Corporate Governance
Your Company is committed to maintaining high standards of Corporate Governance. Areport on Corporate Governance along with a certificate from the Statutory Auditors oncompliance with Corporate Governance norms forms part of this report as Annexure - G.
14. Corporate Social Responsibility (CSR)
As a corporate citizen your Company is committed to the conduct of its business in asocially responsible manner. The Company contributed a portion of its profit for thepromotion of worthy causes like education healthcare scientific research etc. As a partof Corporate Social Responsibility program the Company has undertaken projects in thearea of Education Scientific Research etc. List of CSR Activities Composition of CSRCommittee and CSR Policy is annexed herewith as Annexure-A
15. Annual Return
The details forming part of the extract of the Annual Return in form MGT 9 is annexedherewith as Annexure-C. The same is also available on the website of the Company at thefollowing link http://www.shanthigears.com/annual-reports/
16. Directors Responsibility Statement
Pursuant to Section 134 (5) of the Companies Act 2013 the Board of Directors to thebest of their knowledge and belief confirm that:
a) in the preparation of the annual accounts applicable Accounting Standards have beenfollowed and that there were no material departures therefrom;
b) they have in the selection of the accounting policies consulted the statutoryauditors and have applied their recommendations consistently and made judgments andestimates that are reasonable and prudent so as to give a true and fair view of the stateof affairs of the Company as at 31 March 2020 and of the profit of the Company for theyear ended on that date;
c) they 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 and otherirregularities;
d) they have prepared the annual accounts on a going concern basis;
e) they have laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and were operating effectively duringthe year ended 31 March 2020; and
f) proper system has been devised to ensure compliances with the provisions of allapplicable laws and that such systems were adequate and operating effectively during thefinancial year ended 31 March 2020.
17. Policy on Appointment and Remuneration of Directors
Pursuant to Section 178 (3) of the Companies Act 2013 the Nomination and RemunerationCommittee of the Board of the Company has formulated the criteria for Board nominations aswell as policy on remuneration for Directors and employees of the Company.
The Remuneration policy provides the framework for remunerating the members of theBoard Key Managerial Personnel and other employees of the Company. This policy is guidedby the principles and objectives enumerated in Section 178 (4) of the Companies Act 2013and reflects the remuneration philosophy and principles of the Murugappa Group to ensurereasonableness and sufficiency of remuneration to attract retain and motivate competentresources a clear relationship of remuneration to performance and a balance betweenrewarding short and long-term performance of the Company. The policy lays down broadguidelines for payment of remuneration to Executive and Non-Executive Directors within thelimits approved by the shareholders.
The Board Nomination criteria and the Remuneration policy are available on the websiteof the Company at http://www.shanthigears.com/wp-content/uploads/2019/05/SGL-Remuneration-Policy-Mar-2019.pdf
18. Related Party Transactions
All related party transactions that were entered during the year under review were onan arm's length basis and were in ordinary course of business. There are no materiallysignificant related party transactions during the year which may have a potential conflictwith the interest of the Company at large. Necessary disclosures as required underAccounting Standard (Ind AS 24) have been made in the notes to the Financial Statements.The Policy on Related Party Transactions as approved by the Board is uploaded and isavailable on the Company's websitehttp://www.shanthigears.com/wp-content/uploads/2019/05/SGL-RPT-Policy-Mar- 2019.pdf
None of the Directors had any pecuniary relationships or transactions vis-a-vis theCompany.
19. Board Evaluation
The manner in which the evaluation has been carried out has been explained in theCorporate Governance Report.
20. Vigil Mechanism/ Whistle Blower Policy
The details of vigil mechanism/Whistle Blower policy is given in the CorporateGovernance Report.
21. Business Responsibility Reporting
As required under the SEBI Listing Regulations which mandate the inclusion of aBusiness Responsibility Report as part of the Annual Report for the top 1000 listedentities based on market capitalisation the Business Responsibility Report forms part ofthe Annual Report as Annexure-F. The Business Responsibility Policy of the Company isdisplayed in the Company's website at the following linkhttp://www.shanthigears.com/wp-content/uploads/2020/06/SGL-BRR-Policy-Mav-2020.pdf
During the year under review:
- there were no material changes and commitments affecting the financial position ofthe Company which have occurred between the end of the financial year of the Company towhich the financial statements relate viz. 31 March 2020 and the date of this Report;&
- there were no significant material orders passed by the regulators or courts ortribunals impacting the Company's going concern status and its operations in future.
23. Human Resources
The HR strategy and initiatives of your Company are designed to effectively partner thebusiness in the achievement of its ambitious growth plans and to build a strong leadershippipeline for the present and several years into the future. Industrial Relations continuedto be cordial.
Senior leaders have been investing a lot of time and efforts in identifying anddeveloping succession pipeline for critical positions in the organization. The transitionmanagement programmes viz. FTF and LEAD have been successful and as part of theprogramme implementation of Individual Development Plans (IDPs) for talent poolidentified through these programmes is being facilitated. The IDPs are being reviewedregularly and On-the-Job projects job enlargement /job rotation mentoring support to thetarget group are being provided. Coaching & mentoring was done for select talentacross the organization with an intent of developing future leaders. Internal employeeshave been given opportunities to take up higher roles and grow in the system.
The Company had 523 permanent employees on its rolls as on 31 March 2020.
The disclosure with respect to remuneration as required under Section 197 of theCompanies Act 2013 read with Rule 5 of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 is attached and forms part of this Report as Annexure-B.
The information relating to employees and other particulars required under Section 197of the Companies Act 2013 read with Rule 5 of the Companies (Appointment and Remunerationof Managerial Personnel) Rules 2014 will be provided upon request. In terms of Section136 of the Companies Act 2013 the Report and Accounts are being sent to the Membersexcluding the information on employees particulars of which are available for inspectionby the Members at the Registered Office of the Company during business hours on allworking days of the Company up to the date of the forthcoming Annual General Meeting. Ifany Member is interested in obtaining a copy thereof such member may write to the CompanySecretary in the said regard.
24. Conservation of Energy Technology Absorption and Foreign Exchange Earnings andOutgo
Conservation of energy technology absorption and foreign exchange earnings and outgois annexed herewith as Annexure-D.
25. Disclosure under the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013
The Company has in place an anti-sexual harassment policy in line with the requirementof the Sexual Harassment of Women at Workplace (Prevention Prohibition and Redressal)Act 2013. Internal Compliance Committee (ICC) has been set up to redress complaintsreceived regarding sexual harassment. All employees (Permanent contractual temporary andtrainees) are covered under this policy. The Company has not received any complaint aboutsexual harassment during the year 2019-20.
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. R Sridharan & Associates Company Secretaries to undertake SecretarialAudit of the Company. The Secretarial Audit Report is annexed herewith and forms part ofthis Report as Annexure-E. The Company has ensured compliance of the Secretarial Standardsissued by the Institute of Company Secretaries of India during the period under review.Accordingly no qualification or observation or other remarks have been made by theSecretarial Auditor in his Report.
The Members have appointed M/s Deloitte Haskins & Sells Chartered Accountants(Firm Registration No. 008072S) the Statutory Auditors of the Company for a period of 5years from the conclusion of 45th AGM (2018) till the conclusion of 50thAGM (2023) subject to ratification of such appointment by members at every AGM. Therequirement to place the matter relating to appointment of auditors for ratification byMembers at every AGM has been done away by the Companies (Amendment) Act 2017 with effectfrom May 7 2018. Accordingly no resolution is being proposed for ratification ofappointment of statutory auditors at the Forty- seventh AGM
Mr. B. Venkateswar was appointed as Cost Auditor for audit of the Cost Accountingrecords of the Company for the year ended 31 March 2021. A resolution seeking Members'ratification of the Remuneration payable to Cost Auditor is included in the AGM noticedated 26 May 2020. The Cost Audit report will be filed within the stipulated period.
The Directors thank all Customers Vendors Banks State Governments and Investors fortheir continued support to your Company's performance and growth. The Directors also wishto place on record their appreciation of the contribution made by all the employees of theCompany in delivering the good performance during the year.
| ||On behalf of the Board |
| ||L Ramkumar |
|Chennai ||Chairman |
|26 May 2020 ||DIN-00090089 |