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Sundaram Brake Linings Ltd.

BSE: 590072 Sector: Auto
NSE: SUNDRMBRAK ISIN Code: INE073D01013
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OPEN 488.00
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VOLUME 32
52-Week high 836.45
52-Week low 400.00
P/E 45.93
Mkt Cap.(Rs cr) 173
Buy Price 0.00
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OPEN 488.00
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VOLUME 32
52-Week high 836.45
52-Week low 400.00
P/E 45.93
Mkt Cap.(Rs cr) 173
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Sundaram Brake Linings Ltd. (SUNDRMBRAK) - Director Report

Company director report

Your Directors have pleasure in presenting the Forty Fourth Annual Report of theCompany together with Audited Accounts for the year ended 31st March 2018.

FINANCIAL RESULTS: ($ in lakhs)
Details Year ended 31.03.2018 Year ended 31.03.2017
Revenue from Operations 25049.81 24514.15
Profit before interest depreciation and tax 995.24 962.60
Less : Interest 189.11 281.35
Profit before depreciation and tax 806.13 681.25
Less : Depreciation 430.61 537.98
Profit before tax and exceptional items 375.52 143.27
Add : Exceptional item
Profit before tax 375.52 143.27
Less : Provision for Taxation
Current Tax 66.25 -
Prior Period Tax
Deferred Tax Liability / (Asset) (net) (67.22) (32.67)
Profit after tax 376.49 175.94
Add : Surplus / (Deficit) brought forward 177.34 1.40
Less: Transfer to Other Comprehensive Income (23.15)
Surplus Carried over 530.68 177.34

ECONOMIC SCENARIO

India's GDP is estimated to have grown by about 7.3 % after initial hiccups from theGST Roll out on 1st July 2017. Implementation of GST is widely considered tohave positive impact for the Automotive Industry and the wider economy in the years tocome.

AUTOMOBILE INDUSTRY SCENARIO

After overcoming a dip in the aftermath of the demonetization in November 2016 theAutomobile market rebounded strongly and in 2017-18 growth has increased.

VEHICLE SALES DATA FOR FY 2016-17 & 2017-18:

Vehicle Sales 2W 3W PV/ Vans SUV LCV/ MCV HCV Tractors Total
2016-17 19930015 783773 2890054 916255 476067 346286 571249 25913699
2017-18 23007688 1016700 2947206 1088046 568912 384408 700867 29713827
% Growth 15% 30% 2% 19% 20% 11% 23% 15%

Your company's traditional strength in Light Medium and Heavy Commercial Vehiclesallowed us to generate a OE sales growth that was above that of those segments of theIndustry.

SBL'S PERFORMANCE

The Net sales for the year 2017-18 were at $ 241.34 crores as against $ 224.82 croresin the previous year showing a growth of 7%. While growth in OE segment was 28% there wasdecline in Domestic After Market and Export segments by 2% & 4% respectively.

Growth in OE sales was aided by supply of various newly developed Linings & ClutchFacings to a Major Commercial Vehicle Manufacturer both for Heavy Commercial Vehicles& Passenger cars. Sales to other major Commercial Vehicle manufacturers for whom SBLis the main source also increased.

EXPORTS:

As US economy was buoyant Exports to North America grew by 13%. However there was adecline of 23% in Middle East countries due to sluggishness caused by the drop in crudeprices.

Exports to African Markets saw a decline of 18% due to import restrictions imposed byvarious Governments and changing political conditions.

Net Foreign Exchange earned by your company in the year under review was $ 69.51 croresas against $ 76.06 crores in 2016-17.

EFFORTS TAKEN FOR COST REDUCTION:

Steps taken for reduction of Raw material loss in production and conservation of energyhelped your company to achieve cost reduction in these two important areas.

As a part of strategy to match the Employees' cost to production value VoluntaryRetirement Scheme (VRS) was implemented in January 2018 in TSK Plant 1 located nearMadurai and there was an outgo of $ 152 lacs as VRS compensation. This amount is fullyabsorbed as Employees' cost in the year.

OTHER POINTS:

The price of phenol the main ingredient of Resin one of the key Raw Materials forBrake Linings increased sharply and significantly from December 2017 and has impactedthe bottom line in the year under review.

The term loans availed from Export-Import Bank of India and State Bank of India havebeen repaid fully during FY 2017-18.

Your Company continues to take steps for adding new customers and new products both inDomestic and Export markets.

DIVIDEND:

While the company's performance improved in the last two years the rising prices ofcritical materials pose a serious issue for the future. Your Directors consider it prudentto skip dividend for the year in order to conserve resources.

OUTLOOK FOR 2018-19

The growth prospects of Indian Economy and Automobile sector look better. YourDirectors view the outlook for 2018-19 with optimism.

However the following concerns need mention.

1. Entry of foreign companies through JVs has increased the number of Friction MaterialManufacturers and has intensified competition.

2. Any change in US policies with regard to imposition of import Tariffs for frictionmaterials from India may affect growth in sales to North America.

3. Continuing rise in price of phenol remains a cause of significant concern.

4. Electric buses are expected to be manufactured in India from 2020 onwards for whichsuitable braking solutions with significantly different technology is required.

RESEARCH AND DEVELOPMENT

Your Company's R&D facility located in Padi has been enjoying recognition as anapproved R&D unit by the Department of Scientific & Industrial Research (DSIR)Ministry of Science & Technology Government of India New Delhi and the recognitionis valid up to 31st March 2021.

During the year under review thrust was given for development of new products viz.Commercial Vehicle Linings & Clutch Facings both for new and existing customers.

Efforts for achieving reduction in energy costs were continued in the year underreview.

The total expenditure for R&D incurred in 2017-18 was $ 10.01 crores as against $7.69 crores in the previous year.

PUBLIC DEPOSITS

Your Company does not hold any deposit from the public.

BOARD MEETINGS

The Board of Directors of the Company met four times during the financial year.

Audit Committee and Stakeholders' Relationship Committee of the Board of Directors metfour times during the year.

DIRECTOR

Mr. K Ramesh Director of the Company who retires by rotation and being eligible forre-appointment offers himself for re-appointment as Director of the Company subject to theapproval by the Shareholders of the Company by an Ordinary Resolution.

DECLARATION FROM INDEPENDENT DIRECTORS ON ANNUAL BASIS

The Company has received necessary declaration from all Independent Directors of theCompany under Section 149(7) of the Companies Act 2013 that the Independent Directors ofthe Company meet with the criteria of their Independence laid down in Section 149 (6) ofthe Act. The format of the Disclosure is given as Annexure I.

VIGIL MECHANISM

The Company adopted a Whistle Blower Policy establishing vigil mechanism to provide aformal mechanism to the Directors and employees to report their concerns about unethicalbehavior actual or suspected fraud or violation of the Company's Code of Conduct orethics policy. The Policy provides for adequate safeguards against victimization ofemployees who avail the mechanism and also provides for direct access to the Chairman ofthe Audit Committee. It is affirmed that no personnel of the Company has been deniedaccess to the Audit Committee. The policy of Vigil mechanism is available on the Company'swebsite www.tvsbrakelinings.com.

No complaint has been received from any employee since inception of the vigilmechanism.

MATERIAL CHANGES & COMMITMENTS

There are no material changes and commitments affecting the financial position of thecompany which have occurred between the end of the financial year (FY 2017-18) of thecompany to which the financial statements relate and date of the report.

DIRECTORS' RESPONSIBILITY STATEMENT

In pursuance of Section 134(5) of the Companies Act 2013 your Directors confirm :

1. that in the preparation of the Annual Accounts the applicable Indian AccountingStandards (Ind-AS) have been followed;

2. that they have selected such accounting policies and applied them consistently andmade judgments and estimates that are reasonable and prudent so as to give true and fairview of the state of affairs of the Company at the end of the financial year and of theprofit and loss of the Company for that period;

3. that they have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting frauds and other irregularities;

4. that they had prepared the annual accounts on a going concern basis;

5. they had laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and were operating effectively; and

6. the Directors had devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.

INFORMATION ABOUT THE FINANCIAL PERFORMANCE / FINANCIAL POSITION OF THE SUBSIDIARIES /ASSOCIATES / JV AND INFORMATION ABOUT SUBSIDIARY / JV / ASSOCIATE COMPANY

There is no Subsidiary or Associate Company or JV and hence these are not applicable.

EXTRACT OF ANNUAL RETURN

As required pursuant to Section 92(3) of the Companies Act 2013 and Rule 12 of theCompanies (Management and Administration) Rules 2014 an extract of Annual Return in FormNo. MGT 9 as a part of this Annual Report is given in Annexure II.

STATUTORY AUDITORS

M/s. Brahmayya & Co. Chartered Accountants Chennai having registration number000511S were appointed as Statutory Auditors of the Company for a period of 5 years in the43rd AGM held on 4th August 2017 subject to ratification at the AGMevery year till the conclusion of the 48th AGM.

In view of the amendment in Section 40 of the Companies Amendment Act 2017ratification of their appointment every year is not necessary and they will hold officetill the conclusion of 48th AGM of the Company.

SECRETARIAL STANDARDS & SECRETARIAL AUDIT

Your Directors confirm that Your Company has complied with the Secretarial Standardsof Board Meeting (SS-1) and General Meetings (SS-2) during the year 2017-18.

Pursuant to the provisions of Section 204 of the Companies Act 2013 read with Rule 9of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 theCompany appointed Mr. V Suresh Practising Company Secretary to undertake the SecretarialAudit. The Secretarial Audit Report for the Financial Year 2017-18 is annexed to thisreport as Annexure III.

QUALIFICATIONS IN AUDIT REPORTS

Explanations or comments by the Board on every qualification reservation or adverseremark or disclaimer made -

(a) by the Statutory auditor in his report; and

(b) by the Company Secretary in practice in his Secretarial audit report.

Not applicable as there are no qualifications in Statutory Auditors' Report and inSecretarial Auditors' report.

COST AUDIT

Cost Audit is not applicable to the Company from the Financial Year 2014-15 based onthe amended Companies (Cost Audit & Record) Rules 2014 dated 31st December2014 issued by the Ministry of Corporate Affairs Govt. of India.

CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO

A. CONSERVATION OF ENERGY

(a) Energy conservation measures taken during 2017-18:

• Appropriate & optimum Usage of motor power to reduce the Electrical energyconsumption for Presses.

• Optimization of the heating and insulation methods to reduce cost of energy.

• Redesign of layout / regrouping of finishing machines to reduce the usage ofpower.

(b) Impact of the above measures:

• The measures taken above have helped in reducing electrical energy and Fuel costand would continue to help in reducing the energy cost in the months to come.

B. TECHNOLOGY ABSORPTION

(1) Specific areas in which R&D activites carried out by the Company

(a) Developed and obtained OEM approval for drum brake lining for heavy tipper truckand bus applications.

(b) Developed and obtained OEM approval for drum brake lining for light commercialvehicle applications.

(c) Developed and obtained OEM approval for new grade woven clutch facings forcommercial vehicle applications.

(d) Extensive studies conducted and formulations developed to mitigate stiction andcorrosion in brake drums of Cars & SUVs.

(e) Dynamometer tests developed simulating actual vehicle & duty cycle conditionsfor more effective validation of drum brake linings and disc brake pads.

(f) Extensive studies conducted on commercial vehicle and two-wheeler liners andformulations developed to mitigate braking noise.

(2) Benefits derived as a result of the above

1. Continued recognition of in-house R&D by Department of Scientific and IndustrialResearch (DSIR) Government of India (valid up to 31.03.2021).

2. Continued efforts in reducing raw material costs through up-gradation in quality andyield improvement.

(3) Future plan of action

(a) Development of disc brake pads for various new vehicle applications for domesticOEM and export markets.

(b) Development of drum brake linings for various new vehicle applications for domesticOEM and export markets.

(c) Development of clutch facings for commercial vehicle applications and oil immersedbrake liners for agricultural tractor applications.

(4) Expenditure on R&D

Particulars Financial Year
2017-18 2016-17
Capital 1.08 10.99
Revenue 999.53 757.58
Total 1000.61 768.57
Total R & D expenses as % of total turnover 4.2% 3.4%

C. TECHNOLOGY ABSORPTION ADAPTATION AND INNOVATION

1. Efforts in brief made towards technology absorption adaptation and innovation

(a) Initiated the use of new methodologies to study and minimize braking noise invehicles.

(b) Use of new generation raw materials for development of noise-free and morecorrosion resistant drum brake liners.

(c) Process optimization for improvement of quality in friction products.

(d) Product and process improvement by bench marking our products against globalleaders.

2. Benefits derived as a result of the above efforts

(a) Development of competitive products for export and domestic markets.

(b) Quality upgradation and optimal use of resources leading to substantial savings.

D. FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars Financial Year
2017-18 2016-17
Foreign Exchange earned 9975.63 10531.38
Foreign Exchange used 3025.08 2925.83
Net Foreign Exchange earned (a-b) 6950.55 7605.55

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS / COURTS / TRIBUNALS

During the year 2017-18 no significant and material orders were passed by theRegulators or Courts or Tribunals impacting the going concern status and company'soperations in future.

INTERNAL FINANCIAL CONTROLS

The Board and the Audit Committee have been reviewing the Internal Financial controlsand strengthening the same. Further Audit Committee periodically reviews the InternalAudit Reports and suggestions and corrective actions are implemented.

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

During the year the Company has not given any loan (Secured or Unsecured) and had notgiven any guarantee or provided any security to any person.

RISK MANAGEMENT

The Risk Management policy adopted by the Board formalizes the Company's approach tooverview and manage material business risks.

All the risks associated with the business of the Company have been taken care of bytaking adequate measures by the Company which have been reviewed by the Audit committeeand the Board in their meetings held from time to time.

CORPORATE SOCIAL RESPONSIBILITY(CSR)

CSR is not applicable to the Company as the average net profits of the Company for thepreceding three years is NIL as the Company has incurred losses in the past years.

REASON FOR NOT SPENDING FOR CSR

CSR is not applicable to the Company as the average net profits of the Company for thepreceding three years is NIL as the Company has incurred losses in the past years.

ANNUAL REPORT ON CSR

Annual Report on CSR in the prescribed format has been enclosed as Annexure IV.

RELATED PARTY TRANSACTIONS

All the related party transactions entered by the Company are normal businesstransactions entered in the ordinary course of business and are on arm's length basis. Thecompany has been following a policy of getting omnibus approval for the Related PartyTransactions (RPTs) from the Audit Committee.

The actual RPTs entered were approved by the Audit Committee and by the Board at thequarterly meetings during the Financial Year 2017-18. The policy on Related PartyTransactions as approved by the Board is uploaded on the Company's website.

Particulars of Contracts or Arrangements with Related parties referred to in Section188(1) in form AOC-2 are furnished as Annexure V.

JUSTIFICATION FOR ENTERING INTO RELATED PARTY TRANSACTIONS

The Company's Related Party Transactions have been made to meet the requirements ofoperations and at an arm's length basis and have been entered in the ordinary course ofbusiness.

BOARD EVALUATION

In terms of Section 134 (3) (p) of the Companies Act 2013 and Regulation 4(2)(f) ofthe SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 the Boardreviewed and evaluated its own performance from the following perspectives:

(a) Company Performance; (b) Risk management; (c) Corporate Ethics;

(d) Performance of the Individual Directors; and

(e) Performance of the Committees viz. Audit Committee Nomination and RemunerationCommittee (NRC) and Stakeholders' Relationship Committee (SRC)

The Board upon evaluation considered that the Board is well balanced and diverse and iscommensurate with the business profile and size of the Company.

The Board after discussion and review noted with satisfaction of its own performanceand that of its Committees and individual Directors.

RATIO OF REMUNERATION OF DIRECTOR

As per Section 197 (12) of the Companies Act 2013 read with Rule 5 of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the details of Ratio ofRemuneration to each Director to the median employee's remuneration is furnished asAnnexure VI.

PARTICULARS OF EMPLOYEES

No employee of the Company was in receipt of remuneration of not less than $ 1.02crores during the year or $ 8.50 lakhs per month during any part of the said year as perSection 197 of the Companies Act 2013 read with Rule 5 (2) of the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014.

LISTING WITH STOCK EXCHANGES

The Company confirms that it has paid the Annual Listing Fees for the year 2018-19 toNational Stock Exchange where the company's shares are listed.

CORPORATE GOVERNANCE

Your company has taken adequate steps to adhere to all the conditions laid down in SEBI(Listing obligations and disclosure requirements) regulations 2015 with respect toCorporate Governance. A report on Corporate Governance is included as a part of thisannual report as Annexure VII.

A Certificate from the Statutory Auditors of the Company confirming the compliance ofconditions of Corporate Governance as stipulated in SEBI (Listing obligations anddisclosure requirements) regulations 2015 forms part of this Annual report.

The Managing Director and the Chief Financial officer of the Company have certified tothe Board the financial statements and other matters in accordance with the Regulation17(8) of the SEBI (Listing obligations and disclosure requirements) regulations 2015pertaining to CEO/CFO certification for the financial year ended 31st March2018.

ACKNOWLEDGEMENT

Your Directors wish to thank State Bank of India and Export-Import Bank of India fortheir continued support and assistance.

Your Directors also wish to thank all the Customers the Wholesalers both in India andworldwide for their continued support.

Your Directors wish to place on record their sincere appreciation for the good work ofall the employees.

For and on behalf of the Board
Place: Chennai K MAHESH KRISHNA MAHESH
Date : May 29 2018 Chairman Managing Director