TELEPHONE CABLES LIMITED
ANNUAL REPORT 2001-2002
Your Directors present their report together with Audited Accounts for the
period ended 30th June, 2002. The financial year under review was extended
to 15 months from 1st April, 2001 to 30th June, 2002. The subsequent
financial years will be from 1st July to 30th June instead of 1st April to
31st March. The change in the financial year was necessitated to depict the
working of the Company in a balanced manner and for administrative
The Company has been passing through a very difficult period. The financial
results for the period under review are dis-appointing as the Company has
suffered substantial losses amounting to Rs 3842 lacs as against Rs 238
lacs during the previous year comprising of 18 months. These losses were
due to receipt of lower orders of 9.97 Lac Conductor Kilometers (LCKM) on
adhoc basis from Bharat Sanchar Nigam Limited (BSNL) as against the
original allocation of 15.50 LCKM made by them in October, 2001,
substantial reduction of 1606 in prices as compared to the previous year
and various other factors beyond the control of the Company resulting in
significant decline in turnover on account of which the Company suffered
losses amounting to Rs 2058 lacs after accounting for interest of Rs 1626
lacs and depreciation of Rs 451 lacs. The decline in price realization of
the company product was due to excessive capacity in the industry resulting
in severe competition. The losses occurred despite the fact that the
Company had taken a number of measures to cut down its costs, reduce
consumption of raw materials and eliminate wastages by better work
practices with the adoption of Total Quality Management (TOM),
rationalization of managerial and labour costs. Further, by bringing about
improvement in the efficiency of the plant by effecting certain
modifications in the machinery and equipment and by adding some suitable
balancing equipment, the installed capacity of the plant was increased from
23 LCKM in 1998-99 to 38 LCKM in 1999-2001 with a view to getting higher
quantity of orders as generally BSNL restricted the orders to 50% of the
annual installed capacity. The Company has also certification under ISO
9002 and ISO 14001 having regard to its quality management and
environmental care. Since in spite of best efforts, BSNL did not release
the balance order of 5.53 LCKM, the Company had to seek legal remedies
against BSNL and the same are in process. The proceedings in Delhi High
Court have been favourable to the Company and it hopes to get the release
of the orders very soon by BSNL in view of the directions of the High
Court. Besides the above, the Company expects very soon release of an order
of 2.2 LCKM from BSNL which pertained to the tender for the year 2000-2001
for which an arbitrator award has been given in favour of the Company.
During the period under review, the Company achieved a production of 13.49
LCKM as against production of 23.74 LCKM during the previous period of 18
months ended 31st March, 2001. Further, due to the interpretation assigned
by the State Government to the Sales Tax Exemption Rules, the Company had
to write off a sum of Rs 1784 lacs accrued to it on account of sales tax
exemption which was accounted for in the earlier years to comply with the
requirements of Accounting Standards issued by the Institute of Chartered
Accountants of India. The Company will. however, continue to follow up the
recovery of sales tax claim accrued to it and the same will be accounted
for as and when received. Thus, the total losses suffered for the period
ended 30th June, 2002 amounted to Rs 3842 lacs (including the write off of
sales tax of Rs 1784 lacs) with the result that the entire net worth of the
company which was Rs 1555 lacs as on 1st April, 2001 stood fully eroded and
the Company became a sick industrial company within the meaning of Clause
(o) of sub-section (1) of Section 3 of the Sick Industrial Companies
(Special Provisions) Act, 1985 (SICA).
REFERENCE TO THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR):
AS per the provisions of Section 15 of the SICA, where an industrial
company became a sick industrial company, the Board of Directors were
required to make a reference to the Board for Industrial and Financial
Reconstruction (BIFR) for determination of measures which shall be adopted
with respect to the Company, within 60 days from the date of finalisation
of the duly audited accounts of the Company for the financial year at the
end of which the company had become a sick industrial company. Reference
has accordingly been made to the BIFR on 21st October, 2002.
RECALL OF ASSISTANCE BY IDBI AND ICICI:
In our last report, we had mentioned that at the request of the company the
Financial Institutions viz., IDBI and ICICI had sanctioned reliefs and
concessions to the Company in view of the losses suffered by it during the
past few years for reasons beyond its control and that IFCI was also
expected to follow suit. Later, IFCI have also sanctioned reliefs and
IDBI, however, vide its letter dated 23rd April, 2002. recalled their
outstanding principal amount of the loan together with interest aggregating
Rs 33,01,68,602 calculated upto 31st March, 2002 on the ground that the
Company did not make payment to them as per the re-structured package. The
various constraints and hardships under which the Company was passing and
the circumstances through which the Company could not make payment to them
were explained to IDBI. They were requested to withdraw their notice of
recalling the assistance. Ignoring the request of the Company, IDBI have
filed application in the Debts Recovery Tribunal (DIRT), Chandigarh. The
case is yet to be heard.
ICICI Bank Limited (ICICI has been merged into ICICI Bank Limited) vide its
letter dated July 9, 2002 has also recalled the assistance provided by them
and outstanding aggregating Rs 8,71,33,203 as on 15th May, 2002.
LATEST DEVELOPMENT IN THE INDUSTRY AND FUTURE OUTLOOK:
Bharat Sanchar Nigam Limited (BSNL)/Mahanagar Telephone Nigam Limited
(MTNL), are the major users of PIJF cables; the other small buyers being
Railways, Defence Authorities, etc. The industry's production plans
including that of the Company, therefore, largely depend on the business
plans and demand emanating from BSNL/MTNL. Though the demand from the said
buyers had been growing at about 10-15% per annum till the year 2001, it
went down by almost 50% during the year 2002 due to a sudden adoption of
technology from fixed lines to Wireless in Local Loop (WILL) by BSNL. The
future growth, therefore, depends largely on the business plans of
BSNL/MTNL though it is expected that they will continue procuring PIJF
cables in the coming years on the same pattern as in the past leaving aside
the exceptional year 2002.
The Department of Telecommunications, Government of India has ambitious
plans for the development and growth of telecommunication sector and
multimedia communication. The new perspective plan 2002-2010 as per the New
Telecom Policy of the Government of India envisages growth rate of 16-19%
to meet the objective of providing telephone on demand and connecting each
and every village. Thus, PIJF cable industry would also be expected to play
its role in meeting the demand which shall emanate out of the said growth
plans of telecom companies as per the overall perspective of the 10th Five
Year Plan relating to telecom infrastructure in India. The Company has an
excellent infrastructure and has well established itself in the PIJF cable
industry in the country in terms of its work practices and efficiencies. As
per the 10th Five Year Plan (2002-2007) projections also, there will be a
substantial growth in the offtake of PIJF cables during the next few years.
The Company has participated in a number of export enquiries and expected
export orders also. With the said emerging scenario, the Company hopes to
make a better utilization of its capacity in the coming years. The
envisaged product diversification, i.e., the manufacture of domestic
electrical wires and other cables by using a part of the present facilities
will also lead to a better capacity utilization.
The Company also expects that with the unlocking of substantial
funds/refunds from BSNL, State Government (in respect of sales tax
accrued), Income tax authorities and banks, it will not only improve its
liquidity but will substantially reduce its financial costs which is the
major cause of its losses in the past. As per the RBI's latest credit
policy announced in October this year, the banks have been urged to review
the maximum spreads over their PLRs and reduce them wherever they are
unreasonably high. The banks have, therefore, been called upon to review
both their PLRs and spreads and align spreads within reasonable limits
around their PLR. The company is, therefore, hopeful that in view of the
latest credit policy announced by the RBI, the incidence of interest
charged by the banks is expected to come down which will reduce its
financial costs and ensure better margins.
The industry structure, development, opportunities and threats being faced
by it, risks and concerns to which it is exposed, etc., have been discussed
and analysed in detail in the "Management Discussion and Analysis Report"
which forms a part of this report.
The Company has not accepted any deposits from the public during the period
The industrial relations remained cordial.
During the period ended 30th June, 2002, there was no employee of the
company whose particulars need to be included in this report under section
217 (2A) of the Companies Act, 1956. Information required by the Companies
(Amendment) Act, 1988 is given in Annexure - I to this Report.
CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSIONS AND ANALYSIS REPORT:
The Management Discussions and Analysis Report required in terms of clause
49 of the Listing Agreement with Stock Exchanges, forming a part of the
report is attached as Annexure - II. The Corporate Governance Report and
Auditors' Certificate regarding compliance of conditions of Corporate
Governance required as per the said clause 49 of the Listing Agreement is
also attached as Annexure - III.
M/s. A.F Ferguson Associates, Chartered Accountants, New Delhi, Auditors of
the Company, retire at the conclusion of the ensuing Annual General Meeting
and being eligible, have offered themselves for re-appointment. Your
Company has obtained from them the certificate required under Section 224
(1 B) of the Companies Act, 1956 to the effect that their re-appointment,
if made, would be within the limits specified in that section.
With reference to Note Nos. 19 and 20 in Schedule 'L' to the Accounts
referred to by the Auditors in Para 5 f (i) and f (ii) of their Report, it
is clarified that the notes are self-explanatory.
The report of M/s. V. Kumar Associates, Cost Accountants, in respect of
audit of the Cost Accounts of the Company for the period ended 30th June,
2002 has been submitted to the Central Government.
The Audit Committee of the Directors had been constituted by the Board on
30th April, 2001 comprising of Mr. A.S. Chatha, Mr. Narendar Kumar, Mr.
K.S. Grewal, Directors and Mr. D.C. Mehandru, Director (Finance) with Mr.
Chatha as its Chairman. The Board reviewed the composition of the Audit
Committee at its meeting held on 23rd September, 2002 and in order to
comply with clause 49 of the Listing Agreement regarding Corporate
Governance which, interalia, provided that Audit Committee shall have
minimum three members all being non-executive directors, the Board withdrew
Mr. D.C. Mehandru, Director (Finance) being an executive director from the
Committee. The Committee, thus, now comprises of Mr. A.S. Chatha as its
Chairman and Mr. Narendar Kumar and Mr. K.S. Grewal as members.
DIRECTORS' RESPONSIBILITY STATEMENT:
As required under section 217A (2AA) of the Companies Act, 1956, we
a) that in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures;
b) that the Directors have selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as at 30th June, 2002 and its loss for that period;
c) that the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities;
d) that the Directors have prepared the annual accounts on a going concern
IDBI withdrew the nomination of Mr. K.P. Nair and in his place, nominated
Mr. B. Dasgupta with effect from 5th September, 2001. Mr. Dasgupta was also
withdrawn by IDBI with effect from 30th September, 2002.
The Punjab State Industrial Development Corporation Limited (PSIDC)
withdrew the nomination of Mr. Rakesh Kumar and in his place nominated Mr.
S.L. Bansal, their General Manager (MIS) with effect from 20th September,
The Board placed on record its appreciation of the valuable contribution
made by Mr. K.P Nair, Mr. B. Dasgupta and Mr. Rakesh Kumar during their
tenure on the Board.
Mrs. G.K. Brar and Mr. S.L. Bansal retire by rotation at the forthcoming
Annual General Meeting and being eligible, offer themselves for re-
Your Directors express their deep appreciation to the employees at all
levels for sincere and dedicated services rendered by them during the
critical and trying period through which the Company is passing.
For and on behalf of the Board
Place : Chandigarh Mrs. G.K. Brar
Dated : 11th November, 2002. Chairperson
ANNEXURE-I TO THE DIRECTORS' REPORT
INFORMATION REQUIRED UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE
REPORT OF BOARD OF DIRECTORS) RULES, 1988
A. CONSERVATION OF ENERGY
The machines under operation are power intensive using state of the art
technology like micro processor based heat control systems, highly
efficient motor control, etc. Automatic power factor control systems
maintain the optimum power factor through capacitor-banks thereby saving
energy. In general the machines are already equipped with energy
B. TECHNOLOGY ABSORPTION
1. Research & Development (R&D)
(i) The Company is an ISO 9002 and ISO 14001 Company having regard to its
quality management and environmental care.
(ii) The Company has ongoing R&D Program which is continuously being
(iii) The Company has continuously been adding to its already well-equipped
laboratory so as to keep abreast with the latest developments.
2. Technology Absorption
Information regarding Imported Technology
(i) Technology imported from ESSEX GROUP OF USA for manufacturing
Polyethylene Insulated Jelly Filled Telecommunication Cables.
(ii) Year of Import : 1988.
(iii) Technology has been fully absorbed. The Company has set up an R&D
Wing to develop manufacturing of LAN and other cables.
C. FOREIGN EXCHANGE EARNINGS AND OUTGO
Earnings : Nil
Outgo Rs. 32,36,138
For and on behalf of the hoard
Mrs. G.K. Brar
Place : Chandigarh
Dated : 11th November, 2002.
ANNEXURE-II TO THE DIRECTORS' REPORT
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
BUSINESS OF THE COMPANY
The Company is engaged in the manufacture and marketing of Polyethylene
Insulated Jelly Filled Telephone Cables (PIJF Cables). The main buyers of
these cables are Bharat Sanchar Nigam Limited (BSNL) and Mahanagar
Telephone Nigam Limited (MTNL).
INDUSTRY STRUCTURE AND DEVELOPMENT:
The year 2001-2002 was indeed a very difficult year for the telecom cable
industry as a whole in general and PIJF cable industry in particular. The
demand for PIJF cables has hitherto been growing @ 10% to 15%. However, the
demand emanating from BSNL/MTNL went down suddenly by almost 50% during the
year 2002 as against the requirement of 454 LCKM last year, the total
required quantity on the basis of tender finalized in June, 2002 was about
242 LCKM both by BSNL (215 LCKM) and MTNL (27 LCKM) for the current year.
This is mainly on account of sudden shift in technology from fixed lines to
Wireless in Local Loop (WILL) even though it is a costlier technology and
somewhat un-affordable by the users for whom it is intended. This coupled
with the excess capacity in the industry led to unprecedented under-bidding
resulting in fall in tendered prices. The business plans of the company
hinge largely on the demand from BSNL/MTNL. However, having regard to the
ambitious plans of the Government for the telecom sector as discussed below
under the heading "Opportunities and Threats", it is expected that both of
them will continue to procure PIFJ cables in the coming years on the same
pattern as in the past leaving aside the exceptional year 2002.
OPPORTUNITIES AND THREATS:
The decline in demand of PIJF cables, reduction in its prices, over
capacity and intense competition are posing great threat to the PIJF
telephone cable industry. Opportunities may, however also arise in view of
the fact that the Government has ambitious plans for the development of
telecommunication sector and multimedia communication. The new Perspective
Plan 2000-2010 as per the new Telecom Policy of the Government envisages
growth rate of 16% to 19% to meet the objectives of providing telephone on
demand. Out of the expected total addition of 1461 Lac telephones during
the 10 year period from 2000 to 2010, 55% is estimated to be mobile phones
and the remaining 45% fixed phones. Thus, even though the demand for mobile
phone will increase, fixed phone will still be in demand which will sustain
the PIJF cable industry in the years to come. Further, as per the 10th Five
Year Plan projections also, there will be a substantial growth in the
offtake of PIJF cables.
RISKS AND CONCERNS:
The industry is mainly dependent upon business plans and requirements of
BSNL/MTNL for its survival and this is the most serious risk factor to
which the industry is exposed. Further, falling demand as also prices of
PIJF cables which account for 800% of the industry turnover, are matters of
great concern for the industry.
In view of the present situation of the industry discussed and analysed
above, the future outlook of the industry depends on the implementation of
the growth plans of telecommunication sector as envisaged in the
Government's Perspective Plan 2000-2010 and 10th Five Year Plan and the
business plans of BSNL/MTNL and their requirement of PIJF cables. It is,
however, expected that the demand for these cables will pick-up and the
industry will be on the path of recovery in due course.
OPERATIONAL/ FINANCIAL PERFORMANCE:
The substantial decline in production and turnover is due to lack of orders
and significant reduction in prices as discussed above and explained in the
Directors' Report. Heavy losses are also due to these factors and also
because the Company had to write off income of Rs 17.84 crores accrued to
it on account of exemption in sales tax and accounted for in the earlier
years for the reasons explained in the Directors' Report.
The company produces and markets only one product, i.e. PIJF cables and
hence the above discussion, analysis and performance is in respect of the
said segment only.
INTERNAL CONTROL SYSTEM:
The Company has adequate internal control procedures commensurate with the
size of the Company and the nature of its business with regard to purchases
of its stores, spare parts, raw materials, plant and machinery, equipment
and other assets and for the sale of goods. The internal control systems
are reviewed by the Internal Auditors and their reports are reviewed by the
Management, Audit Committee and the Board of Directors. The Audit Committee
exercises powers and performs functions as envisaged under section 292A of
the Companies Act, 1956 and Clause 49 of the Listing Agreement with the
HUMAN RESOURCE AND INDUSTRIAL RELATIONS:
The Company believes in cordial industrial relations for smooth functioning
and strives to ensure that harmonious relations are maintained, Necessary
development and training opportunities are provided to improve the skills
and efficiencies of employees. During the period under review, the Company
had 303 employees on its roll as on 30th June, 2002.
Statements in the Management Discussion and Analyses Report describing
Company's objectives, projections, estimates and expectations may
constitute "forward looking statements" within the meaning of applicable
laws and regulations. Actual results might differ materially from those
either expressed or implied. .
For and on behalf of the Board
Mrs. G.K. Brar
Place : Chandigarh
Dated : 11th November, 2002.