Your Directors present the 35th Annual Report of the Company together with theAudited Accounts for the year ended Mar 31 2020. Financial Highlights/Performance/theOperating results of your Company as per IndAS Financial Statements for the year ended Mar31 2020 are given below:
1. Financial Highlights/Performance
| || ||Rs in lakhs |
|Particulars ||Year ended Mar 31 2020 ||Year ended Mar 31 2019 |
|Sales ||3653.74 ||2633.74 |
|Other Income ||179.65 ||486.10 |
|PBIDT ||778.22 ||(301.68) |
|Finance Cost ||142.61 ||284.37 |
|Depreciation ||498.24 ||514.81 |
|Profit/(Loss) before Taxation ||137.37 ||(1100.86) |
|Tax Expense ||29.29 ||(27.28) |
|Profit/(Loss) after Taxation ||108.08 ||(1073.58) |
During the year under review the overall performance of your Company got improvedsignificantly. The turnover of the company increased by 22.87% as compared to the previousyear. Sincere efforts taken by the marketing team together with the sustained marketingstrategy evolved by the company yielded sufficient growth with better prospects in theyears to come. Your Company had maintained good relationship with all its Customers in US& Europe and has seen good improvement in capturing business from one of the bigCustomers in the US. It is expected to improve production orders in FY 2020-21. Theoutlook for FY 2020-21 is good and SPEL has plans to induct new Customers from Europe& US regions.
Due to insufficiency of profits during the year under review dividend could not bepaid during the year.
The Global Semiconductor Industry:
The Semiconductor Industry Association (SIA) today announced worldwide sales ofsemiconductors totaled $113.6 billion during the third quarter of 2020 an increase of11.0 percent over the previous quarter and 5.8 percent more than the third quarter of2019. Global sales for the month of September 2020 were $37.9 billion an increase of 4.5percent over last month's total and 5.8 percent more than sales from September 2019. Allmonthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS)organization and represent a three-month moving average. SIA represents 95 percent of theU.S. semiconductor industry by revenue and nearly two-thirds of non-U.S. chip firms.
The global semiconductor industry posted solid sales in the third quarter of 2020reflecting normal seasonal trends and increased demand for semiconductor-enabled productsbut significant market uncertainty remains due to the pandemic and other macroeconomicfactors.
Regionally sales increased on a month-to-month basis in China (7.9 percent) AsiaPacific/Al Other (3.3 percent) Europe (3.3. percent) the Americas (2.2 percent) andJapan (1.5 percent). On a year-to-year basis sales increased in the Americas (20.1percent) China (6.5 percent) and Asia Pacific/All Other (2.9 percent) but decreased inJapan (-1.8 percent) and Europe (-9.8 percent).
Demand for PC semiconductors will decline by an estimated 3 to 9 percent in 2020mostly because companies will delay planned hardware upgrades and other long-termmigration projects. Stable laptop and tablet demand will partly offset this drop sincemany consumers will upgrade their private IT infrastructure to support their work orhomeschooling activities even if they are cutting back in other areas. These onetime ITequipment upgrades will not be repeated to the same extent in later years if the downturnpersists and consumers cut back spending even further. This fact combined withenterprises decreasing computer replacements to manage their liquidity could furthererode semiconductor sales after 2020 if the crisis persists.
Demand for semiconductors used in wireless communication applications will see one ofthe sharpest drops in 2020 with an expected decrease of 11 to 26 percent. The level ofmobile-phone sales the primary demand driver in this category has historically been wellcorrelated with GDP and thus is expected to drop significantly over the coming months.(Sharp decreases have already been documented in areas where COVID-19 is prevalentespecially China). We also expect consumer preferences to shift to less expensive phoneswhich will also negatively affect demand for semiconductors. The recovery of mobile-phonesales will vary by geography with China likely to see an uptick before Europe and theUnited States since its economy is closer to recovery.
Semiconductor companies provide components for many consumer-electronics productsincluding video games televisions and watches. Consumers use discretionary funds topurchase most products in this category so demand is highly correlated with local GDP. Weexpect demand for consumer-electronics semiconductors to drop by 2 to 12 percent in 2020.While significant this decrease is lower than the drop seen within wireless communicationanother area where end-market sales are closely tied to local GDP.
Sales of semiconductors for automotive applications primarily depend on car salesvolume and the level of vehicle digitization and electrification. Since global automotivedemand has already fallen sharply this year and will likely decline further over comingmonths the automotive semiconductor market is expected to decrease by 10 to 27 percent in2020. Semiconductor companies will likely not feel any effect until late in the secondquarter however due to the long lead times of automotive semiconductors.
Within industrial applications the major demand drivers for semiconductors includeinvestments in medical electronics aerospace equipment power and energy products aswell as upgrades to lighting solutions. Demand is expected to decline for all of these endmarkets through 2020 as companies postpone infrastructure investments reducemanufacturing activities or decrease operations. Overall semiconductor demand forindustrial applications is expected to fall 1 to 11 percent this year.
For medical electronics demand in certain medical-device categories that are directlyrelated to the management of COVID-19 including ventilators X-ray machines anddiagnostic tools has sharply increased since the start of the outbreak. However therewill be even steeper demand declines in other areas that will offset such extreme demandspikes for critical treatment products because many hospitals are postponing purchases toimprove liquidity.
COVID Impact on Semiconductor Industry:
The semiconductor industry may not be witnessing the direct wrath of the coronaviruscrisis so far but it is probably going to suffer the repercussions because the outbreakslows or suspends production among electronics manufacturers. The real damage for thesemiconductor industry lies ahead because the coronavirus disrupts production atelectronic manufacturing companies that represent a number of the world's largestsemiconductor purchases.
Notably the U.S. tech industry is predicted to be disturbed the foremost because ofits dependency on China as both a severe market and a critical supplier for its goods.The blacklisting of Huawei thanks to the U.S.-China trade war led to tensions betweentech companies within the U.S. and China which had an impact of about $26 billion towhich the coronavirus outbreak is supposed to add more fuel. The effect of the virus ispushing the tech companies to shut their offices and manufacturing units also asrestricting non-essential business visit the country. A number of the tech majors toannounce such travel restrictions include the likes of Apple Microsoft Tesla Google andAmazon.
All chip end markets are going to be impacted but that discretionary consumer-centricend markets are going to be affected the foremost. Although semiconductor supply seems tobe uninterrupted suppliers in China are encountering challenges associated with thisoutbreak. For overseas semiconductor organizations especially fabless firms the bestproblem is import and export logistic. Due to the effective control of "flights inand out of China many government staff members haven't returned to the area. As a resultthe import/export process in China now's taking for much longer than before slowing thepace of commerce". Furthermore the Semiconductor Industry Association has sentletters to the Trump administration and federal officials urging them to designatesemiconductor businesses as "essential" so that their U.S. operations cancontinue amid state and native coronavirus shutdowns.
For chipmakers the impact is much serious within the package and testing realm becauseof shortages in labor and several packages and testing plants in China have reduced ordecreased operations. This has created a challenging environment for chip companies thatbelieve such back-end package and testing capacity. At this time many small andmedium-sized chip design companies are faced with the dilemma of being unable to getsufficient production capacity from package suppliers. If this production holds upcontinues for an extended period these design companies may face bankruptcy oracquisition.
EMS companies are running at about 25% because of workforce issues. This is oftenwithin the virus-affected areas. Other organizations will begin to ascertain themoffering salary or bonus incentives to people who show up to figure. Some EMS companieshave already started transferring manufacturing to Taiwan Vietnam etc. because oftariff issues. This might solve the workforce issue. But if piece part shortages existhaving an entire workforce won't solve that issue.
China exports around 50% of the worldwide technology supply chain; hence the globaltech sector is predicted to face massive disruptions because of the spread of thecoronavirus and its effects on production in China. The outbreak has already valued at 12%decline in smartphone production while smart watch production set down a drop of about16%. Laptops PCs and smart speakers are other products that have set down significantdeclines. While the tech industry might not see the direct and immediate impact ofcoronavirus the decline in production and supplier numbers can cause sales and financialworries for tech giants within the coming months. Companies from various businessverticals are predicted to look out to other countries for supplies opening opportunitiesfor the remainder of the planet.
Semiconductor deals have slowed in recent years because of a U.S.-China trade war andconcern among some American policy makers that China is pursuing illicit means to acquirekey technology. The attempt to buy Cypress by a German company is seen as a important testof how far the Trump administration is willing to go to curb China's ambitions.
Qualcomm Inc. decided to scrap its $44 billion bid for rival chipmaker NXPSemiconductors NV in 2018 after an almost two-year wait for approval. Analog Devicesacquired Maxim in an all-stock deal valued at $21 billion the biggest merger of 2020 inthe semiconductor sector. The deal combines the second and third biggest linear analogchip makers.
Texas Instruments however remains the biggest player in analog with 2019 revenues of$9.6 billion compared to about $7 billion combined revenues for the newly mergedcompanies. TI finished with about $14 billion overall in 2019 making it the seventhlargest semiconductor maker while Maxim was 19th and Maxim 31st according to an Omdiatally of 150 global semi makers.
We do not expect the average annual M&A run rate of $30bn a year to increase overthe next two to three years. M&A will be driven in part by the leading chip companiesusing M&A to cut costs round out R&D resources and acquire skilled design AIand data management personnel. The big players will continue to fund or acquire AIstart-ups from the large populations in the US Israel and China. Alibaba will beespecially active.
Outsourced Assembly and Test (OSAT) Industry
he OSAT industry to experience a second consecutive year of slowdown in 2020 as weforecast smartphone sales to decline by a mid-single-digit percentage due to weak demandand production disruption following declines of 2% in 2019 and 4% in 2018. InternationalData Corporation (IDC) predicts that there is a higher than 50% chance that worldwidesemiconductor revenue will decline by 6% in 2020. We also expect the chip assembly andtest supply chain to be severely affected at least in 1H20 which will lead to productiondisruptions at most OSAT vendors. Slower 5G adoption and a longer smartphone replacementcycle will also weigh on demand.
Wafer suppliers such as foundries and IDMs are able to maintain their manufacturingoperations due to their high degree of industrial automation. In addition their majorexpansion plans are projected to take place after making some strategic adjustments. Butas the pandemic persists regions such as Taiwan South Korea Europe the U.S. and Japanare attempting to curb the spread by restricting border entry or adopting teleworkarrangements. These efforts along with the health of the European American and Japanesesupply chains of key equipment and raw materials will be factors determining foundryoperations in the future.
With regards to the demand side foundries are able to maintain their capacityutilization rate by fulfilling orders from 4Q19 and by their clients' restocking demands.In contrast with the IC design or OSAT industries the foundry industry's revenue in 1Q20has felt less impact from the pandemic. But the rapid global spread of the pandemic isprojected to affect not only the global economy but also personal and corporatepurchasing power to be potentially reflected in foundry revenue performances from 2Q20onwards.
The packaging and testing or outsourced semiconductor assembly and test (OSAT)industry previously suffered major declines due to the China-U.S. trade war; thepandemic's current effect on the industry thus appears relatively minor in comparison.Forecasters expects OSAT revenue in 1Q20 to trend either flat or upwards YoY while theindustry's performance in 2Q20 and later will depend on client demand.
The Indian Semiconductor Industry
The semiconductor industry has become a strategic sector and has a tremendous economicimpact. But India lags behind in semiconductor manufacturing compared to other developedcountries. Many experts have said that India needs to design and manufacture criticalcomponents involved in storage and processing and this is important for our nationalsecurity.
The electronics and semiconductor requirements for various sectors including defenceIT manufacturing is critical for the future of India's economy but we are totallydependent on imports as of now.
3. Human Resources Development
Your Company has enthroned the attributes listed below as its core values. TheManagement will assiduously practice and enthuse its Employees to imbibe these virtues.Towards this end training is imparted every month every Employee goes throughout thedrill at least once in six months :
Business Ethics : defines us as a Company
Professionalism : defines us as Individuals
Citizenship : defines our contribution to Society
SPEL's medium for Corporate Social Responsibility (CSR) is through Socio-EconomicContribution (S-E-C) and SPEL Employees Social Service Organization (SESSO). For mostpeople the idea of Social Service is donating money to a social organization - perhaps anold-age home or an orphanage or similar. This however is the easy part. The difficult partis volunteering one's time to improve society.
When can we make a contribution to Society?
During Phase 1 of our lifetime perhaps up to the age of 35 we are so focused onbuilding our careers starting our families & establishing a name for ourselves
During Phase 2 perhaps from age of 35 thru 65 we are the most active in our workworking as a team being able to significantly contribute to Economic Development
During Phase 3 perhaps from age 65 onwards we are most able to contribute our time onan increased basis to social causes S-E-C at SPEL is all about how we can contributesocially during Phase 2 itself while also handling Economic Development. Towards thisthere are 3 areas that each of us can assist by making these a part of our day to dayapproach:
1. Following discipline in any and everything we do
2. Providing a helping hand to people around us in any way we possibly can
3. Showing the right path forward to people around us S-E-C in SPEL is primarily doneby One-to-One Mentoring as each person encourages & motivates the other towards amore purposeful & effective lifestyle.
As part of the core values following activities were undertaken through SESSO :
i) Educational assistance to the needy people in and around Factory.
ii) Voluntary Blood Donation camp.
iii) Assistance to orphanage and old age home located near Factory.
4. Material changes affecting the financial position of the Company which haveoccurred between the end of Financial Year and the date of the report. Nil
5. Details of significant and material orders passed by the regulators or courts ortribunals impacting the going concern status and Company's operations in future
6. Adequacy of internal financial controls
The Company's internal financial controls systems are commensurate with the nature ofbusiness and the size and complexity of its operations. These are routinely tested by theInternal Auditors and cover all key business areas.
7. Subsidiary/Joint Ventures/Associate Companies
Your Company had incorporated a Wholly Owned Subsidiary Company during FY 2017-18 inthe name and style of SPEL Semiconductor Packaging Limited. This Company is yet tocommence production. It is envisaged to commence production after getting due statutoryapprovals from the authorities.
The Company has not accepted any deposits from public and as such no amount on accountof principal or interest on deposits from public was outstanding as on the date of theBalance Sheet.
9. Statutory Auditors
Mr.K.Nadhiswaran CharteredAccountant has expressed his consent for the re-appointmentas Statutory Auditor for the Financial Year 2020-21 and has confirmed that theappointment if made will be in accordance with the limits specified under Section 139 ofthe Companies Act2013.
10. Share Capital
There has been no change in the share capital of the Company during the year.
11. Extract of the Annual Return
As provided under Section 92(3) of the Act the extract of Annual Return is given inannexure in the prescribed Form MGT-9 which forms part of this report.
12. Conservation of energy technology absorption and foreign exchange earnings andoutgo:
The details of conservation of energy technology absorption foreign exchange earningsand out go are as follows:
Conservation of Energy
The Company has in place an Energy Committee which meets once a month. This Committeeconsists of Cross-functional Executives. It assesses the potential areas develops meansto save energy and implements the plan with the approval of the Management.
Measures were taken during the year to conserve water and electricity resorting toreuse of Dicing process water rain water harvesting power factor improvement andinvestment on air cooled chillers and air compressors.
|Savings in Electricity ||52292 Units |
|Savings in Water consumption ||731 ||KL |
The particulars regarding Technology Absorption are not applicable to your Company.
Foreign Exchange Earnings and Outgo
Your Company is a 100% Export Oriented unit and is constantly striving to increase itsexports. Foreign Exchange used during the year:$ 483 Lakhs Foreign Exchange earned duringthe year :$ 1252 Lakhs
13. Research & Development
The Company has carved out an ambitious plan of investment in R&D. This willinclude investment in Package Intellectual Property thereby assisting Company's revenueand profitability in the future years.
14. Directors and Key Managerial Personnel
Mr. D. Balakrishnan who retires by rotation and being eligible offers himself forre-appointment.
During the year under review Mr.M.Jayasankar ceased to the Director of the company andthe Board records the services rendered by the Director during the tenure of office asDirector.
15. Number of meetings of the Board
Five Meetings of the Board were held during the year. For details of the meetings ofthe board please refer to the Corporate Governance Report which forms part of thisreport.
16. Audit Committee
The details pertaining to composition of Audit Committee are included in the CorporateGovernance Report which forms part of this report
17. Vigil mechanism for Directors and Employees
The Company has a Vigil Mechanism by way of Whistle Blower Policy to provide a VigilMechanism for Employees and Directors to report genuine concerns. The provisions of thispolicy are in line with Section 177 (9) of the Act. A copy of the policy is uploaded inthe website of the Company.
18. Nomination and Remuneration Committee
The details pertaining to Nomination and Remuneration Committee are included in theCorporate Governance Report which forms part of this report
19. Loans guarantees or investments
Particulars of loans guarantees and investments have been disclosed in the financialstatements.
20. Contracts or arrangements with Related Parties
The particulars of every contract or arrangements entered into by the Company withrelated parties referred to in sub-section (1) of section 188 of the Companies Act 2013including certain arm's length transactions under third proviso thereto have beendisclosed in Form No. AOC -2.
21. Managerial Remuneration
Managerial Remuneration is given in annexure which forms part of this report.
22. Secretarial Audit Report
Secretarial Audit Report is given as annexure which forms part of this report.
23. Formal Annual Evaluation of Board on its own performance Committees of the Boardand the individual directors
The Board of Directors has carried out an annual evaluation of its own performanceCommittees of the Board and the individual directors pursuant to the provisions of the Actand Corporate Governance as prescribed under Regulation 17 (10) of SEBI (LODR) Regulation2015. In a separate meeting of the independent directors performance of theNon-Independent Director and performance of the Board as a whole was evaluated.
24. Familiarization Programme for Independent Directors
The Company has prepared and presented a power point presentation for IndependentDirectors in order to enable them to familiarize with the Company's policies andpractices.
25. Risk management
A Risk Management Committee to identify and monitor the risks has been formed with aresponsibility to review the risks and evolve mitigation plan required.Periodical actionis taken to address the major risks identified.
26. Corporate Governance Certificate
The Corporate Governance Certificate from the Auditors regarding compliance ofconditions of Corporate Governance as stipulated in Regulation 23(4) of the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 is annexed with this report.
27. Directors' Responsibility Statement
Pursuant to Section 134(5) of the Companies Act 2013 the Board of Directors to thebest of their knowledge and ability confirm that:
(a) in the preparation of the annual accounts the applicable accounting standards havebeen followed along with proper explanation relating to material departures
(b) they have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of the Company at the end of the financial year and of the loss ofthe Company for that period; (c) they have taken proper and sufficient care for themaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;
(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 operating effectively and
(f) they have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively.
(g) 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 the managementand the relevant board committees including the audit committee the Board is of theopinion that the Company's internal financial controls were adequate and effective duringthe Financial Year 2019-20.
Your Directors place on record their gratitude especially to the Promoters who hadassisted significantly towards the recovery bath. Directors also placed on record theirgratitude to the Government of India the Government of Tamil Nadu FinancialInstitutions Bankers Insurance Companies Customs & Excise authorities valuedoverseas Customers & Vendors and the Promoters for the continued assistance andsupport extended to the Company.
Yours Directors wish to place on record their appreciation of the efficient and loyalservices rendered by the supportive Employees at all levels of the Company. YoursDirectors wish to thank the Shareholders who constitute the mainstay of the Company fortheir unstinted support forbearance confidence reposed on the Management.
| ||By order of the Board |
| ||for SPEL Semiconductor Limited |
|N. Suryanarayanan ||D. Balakrishnan ||S. Chandramohan |
|Director ||Whole Time Director &CEO ||Director |
|DIN 02282919 ||DIN: 02131242 ||DIN 00052571 |
|31st August 2020 || || |
|Chennai || || |