The Directors take pleasure in presenting the 12th Annual Report together with theaudited financial statements of the Company for the year ended 31st March 2020.
1. Business Environment
The country's growth softened in 2019 as corporate and environmental regulatoryuncertainty together with concerns about the health of the non-banking financial sectorweighed on demand and applied the brakes on economic growth. Demand slowed more sharplythan expected amid stress in the non-banking financial sector and a decline in creditgrowth. Added to this the Novel Coronavirus (COVID-19) has come to cast a long shadowover the much-anticipated recovery albeit expected to be a mild one in the Indianeconomy in 2020-21 with the World Health Organisation (W.H.O.) declaring the virusoutbreak a pandemic.
India's GDP decelerated to its lowest in over 6 years during 2019-20 and just that whenthere were signs of mild recovery of the economy with corporate tax rate cut the outbreakof the COVID-19 has imposed fresh challenges. Steps taken to contain its spread such asnationwide restrictions/lockdown have brought economic activity to a standstill withserious implications for both consumption and investment. Three major contributors to GDP-private consumption external trade and investments are already affected. As per theprojections of the International Monetary Fund (IMF) India's growth rate is seen slidingall the way to 1.9% in 2020.
For the global economy too the COVID-19 pandemic is inflicting high and rising humancosts worldwide. As a result the global economy is projected to contract sharply by3% in 2020 much worse than during the 200809 financial crisis.
The automobile industry was on the brink of a revival after a torrid year. Lookingforward the expectation was that of a decent current year with a revival from the secondquarter onwards. However the pandemic inflicted lockdown has dealt a decisive blow to thegrowth of automobile industry. As per the Society of Indian Automobile Manufacturers(SIAM) the Indian auto sector which contributes 9%-10% to the nation's
GDP has delivered below potential growth over the last 5 years with a CAGR of ~1.5% forpassenger vehicles (PVs) and two-wheelers (2Ws). During the year under review Indian autosector witnessed a de-growth of 18% in sales. In the four-wheeler segment the passengervehicle and commercial vehicle sale volumes were down by 18% and 29% respectively. In thetwo-wheeler segment scooters sales and motorcycles were down by 17% and 18%.
2. Standalone Financial Highlights
|Particulars ||2019-20 ||2018-19 |
|Sale of Products ||4052.67 ||4983.05 |
|Profit Before Exceptional || || |
| ||420.72 ||371.08 |
|Items and Tax || || |
|Profit on Shares tendered || || |
| ||19.11 ||- |
|under Buyback Scheme || || |
|Provision for Employee || || |
|Voluntary Retirement ||(21.97) ||- |
|Scheme Expense || || |
|Provision for Impairment on || || |
| ||- ||(9.00) |
|Investments (Net) || || |
|Profit Before Tax ||417.86 ||362.08 |
|Tax Expense ||(87.31) ||(118.57) |
|Profit After Tax ||330.55 ||243.51 |
No transfer to the General Reserves has been proposed for the year under review.
3. Performance Overview
During 2019-20 the Company achieved a turnover of `4053 Cr. registering a de-growthof 19% over the previous year due to slowdown in the auto industry. The Profit beforeDepreciation Interest Exceptional Items and Tax was at `610 Cr. as against `563 Cr. inthe previous year. The Profit before Tax and Exceptional Items was at `421 Cr. as against`371 Cr. in the previous year registering an impressive growth of 13%. The Companyfocused on reducing fixed costs working capital and spending capital expenditureprudently on critical growth projects.
During the year the Company tendered 49 lakh shares in the Buyback Scheme announced byShanthi Gears Limited (SGL) to all its eligible shareholders at a consideration of `140/-per share of which 32.39 lakh equity shares were accepted on a proportionate basis bySGL. The Company received a consideration of `45.35 Cr. and recognised a profit of `19.11Cr. shown as exceptional profits.
During the year the Company implemented voluntary retirement schemes in certainlocations at a cost of `21.97 Cr. to improve the productivity and competitiveness of itsbusiness. This is shown as exceptional loss in the financial statements.
The Cycles and Accessories segment recorded revenue of `781 Cr. as compared to `1238Cr. during 2018-19 a de-growth of 37% since the Cycles market continues to be sluggishand also because of exit from institutional business. The operating profit before interestand tax stood at `26 Cr. as compared to `11 Cr. during the previous year registering agrowth of 128%.
The Engineering segment registered revenue of `2258 Cr. as compared to `2896 Cr. duringthe previous year. The operating profit before interest and tax stood at `264 Cr. ascompared to `254 Cr. during 2018-19 registering a growth of 4%.
The Metal Formed Products segment recorded revenue of `1399 Cr. as compared to `1360Cr. during the previous year a growth of 3%. The operating profit before interest and taxstood at `123 Cr. remained flat as compared to previous year.
4. COVID-19 and its impact
Consequent to the outbreak of the COVID-19 pandemic and the lockdown/curfew introducedby the Central and State Governments the operations in the Company's manufacturing plantssituated across various locations of the Country had to be shut down or were disruptedtowards the latter half of the second fortnight of March 2020 onwards and which continuedthrough the month of April 2020.
With the easing in the lockdown/curfew and the Governments permitting operations to beresumed with necessary permission from the local authorities the Company from end April2020 onwards has resumed operations in a partial manner in almost all the plants barringvery few which are also expected to commence operations shortly as customers start placingtheir orders. As the situation improves the
Company expects to scale up operations to the full levels over time.
As the pandemic is ongoing the Company continues to take various measures to safeguardthe health and safety of its employees and further to ensure total adherence to theguidelines issued by the Central and the respective State Governments besides the localauthorities at all its business locations.
The Company has considered the possible effects/ impact arising from COVID-19 on itsfinancial results for the year 2019-20 and at this stage it has concluded that nomaterial adjustments are required to the same. The Company will continue to closelymonitor any material changes to future economic conditions. A note in this regard isincluded in the Standalone Audited Financial Statements for the year under review videNote 32 Significant Accounting Judgements Estimates and Assumptions formingpart of this Annual Report for the financial year 2019-20.
5. Business Review Standalone 5.1. Cycles and Components TI's Presence
The Cycles and Components segment of the Company comprises of bicycles of the Standardand Special variety including alloy bikes & specialty performance bikes cyclingaccessories bicycle components sold as spares and home fitness equipment.
Bicycles fall under two distinct categories - Standards and Specials. While Standardcycles are largely used for commuting especially in small towns & rural areasSpecial cycles cater to recreational usage where the product is used for fun fitness andleisure activities. During the financial year the Trade industry witnessed a sharp dropof 17% as against the previous year majorly due to the economic slowdown and lowerdiscretionary spends. Standards have de-grown by 17% and Specials have de-grown by 18%.However Premium Cycles Group as a subset of Specials have declined by 38% due to loweraffinity for premium products in general. In addition to this movements by theunorganized players based on economy offerings have also impacted the organized trade (AllIndia Cycle Manufacturers Association-AICMA) players' sales volume.
Over 79% of the country's requirements are met by four major players. The smallerregional players and imports constitute the balance. TI Cycles enjoys a share of 24% ofthe total organised trade market with a much higher share in the premium segment.
Review of Performance
TI Cycles sold 19.8 lakh bicycles during the year in Trade which is 16% lower ascompared to 2018-19. Overall Trade bicycle industry itself registered a negativegrowth of 17% over the previous year. The thrust on Specials segment was driven bya concerted effort to enhance consumer experience through exclusive retail outlets underthe exclusive retail brand Track & Trail'. Moreover the expansion of exportbusiness and domestic spares business is considered to be a new avenue of business to theCompany. To participate in the growing economy sub-segment 14 low cost products werelaunched in major categories like Kids and Mountain Terrain Bikes (MTB).
In 2019-20 70 new model bicycles were launched and 53 older models were refreshed.38% of the trade sales volume came from new products. Multiple innovations were introducedfor the first time in the industry notable among them being the night vision handlebar onHercules Jackal' bicycle. The night vision handlebar is a ground-breaking innovationin the categoryextremely easy to assemble and use the integrated headlight. Thisfeature is aimed at ensuring that the adventurous youngster has no worries about riding atnight or in low visibility. Design registration was also filed to protect this idea fromimitation. In addition patented anti-slip chain technology was brought to the market in anew avatar last year BSA Ladybird Summer ASC' bicycle to create more buzz inthe marketplace.
On the consumer outreach front the business consistently ran digital campaigns for itsmajor brands BSA Ladybird Hercules Roadeo Mach City and Montra delivering asignificant lift in brand awareness. A television commercial campaign "Hercules-MadeFor More" was launched wherein it was showcased on how the rugged & fierceHercules bicycle enables teenagers to do more by pushing boundaries and emerge victorious.The objective of the campaign was to increase brand awareness and product considerationamong the target group. In addition the Disney licence has been renewed to continueoffering premium range of bicycles with Disney/Marvel characters.
The operating profit before interest and tax (PBIT) stood at `26 Cr. as compared to`11 Cr. in the previous year a growth of 128%.
The Engineering Segment of the Company consists of cold rolled steel strips andprecision steel tubes viz. Cold Drawn Welded tubes (CDW) and Electric Resistance Weldedtubes (ERW). These products primarily cater to the needs of the automotive boilerbicycle general engineering and process industries. The Company is further engaged in themanufacture of large diameter welded tubes mainly for non-auto application which arelargely imported.
During 2019-20 the automotive industry's production volume was lower by 15%.
Across all segments of automotive industry there was a de-growth over the last fiscalyear. Passenger vehicle commercial vehicle and two-wheeler segments were lower by 15%32% and 14% respectively over the last fiscal year.
The lower industry growth was mainly due to the following factors:
BS IV to BS VI transition being mandatory from 1st April 2020 brought in a senseof cautious approach both from the consumers and the auto majors.
Increase in truck load norms by the Government enabling the transporters toincrease the per trip truck loads.
Increase in insurance premium and compulsory ABS leading to increase in cost ofacquisition of vehicles for the consumer.
NBFC debacle leading to lower loans disbursement.
General consumer sentiments being low leading to lower demand.
With the Government in the second quarter of the financial year under review ahead ofthe festival season announcing measures to spur growth through reduction in income taxrates for corporates and increase in Government spend on infrastructure etc a marginalimprovement in the growth rates was witnessed in the second half of the financial year.
Globally also with all countries witnessing slowdown in each of their economies theystarted initiating actions to protect their own markets. US continued with its tariffbarriers imposed on various countries and products including steel. Europe brought inquota system to restrict imports into the region.
Review of Performance
The Engineering segment revenues were impacted due to the de-growth in the automotiveindustry.
During the year volumes of the tubes business de-grew by 21% cold rolled steelstrips business de-grew 16% and large diameter tubes by 26%.
During the year under review the segment registered revenue of `2258 Cr. as comparedto `2896 Cr. during the previous year. The operating profit before interest and tax stoodat `264 Cr. as compared to `254 Cr. during 2018-19 registering a marginal growth of 4%.
Given the situation of a lower demand the business focused on internal measures tocontrol cash fixed expenses flexing manpower and other fixed expenses to partially offsetthe drop on account of lower volumes.
The business focused on reducing working capital and spending capital expenditureprudently on critical growth projects.
A greenfield Tube Manufacturing plant in Rajpura Punjab was inaugurated in November2019 to cater to the increased demand from the customers in the northern region.
The business continued to focus on Total Quality Management (TQM) journey to improveits quality and focused on employee development. Career path initiatives were taken up toprovide opportunities to employees within the organization for new openings and to enablecross function exposure and growth.
With regard to the ongoing investigation on the Company's exports to the US market forthe Countervailing Duty (CVD) and Anti-dumping Duty (AD) by the US Department of Commerce(USDOC) on complaint of alleged dumping of cold-drawn steel mechanical tubes from Indiaand some other countries the Company has participated in the first review and filed allthe responses as per timelines to USDOC. The outcome is expected during the currentfinancial year.
5.3. Metal Formed Products
Automotive & industrial chains fine blanked products stamped productsroll-formed car doorframes and cold rolled formed sections for passenger coachesconstitute the Metal Formed Products segment.
During 2019-20 production of two-wheeler segment and passenger vehicles de-grew by 14%and 15% respectively.
This segment is one of the major players manufacturing roller chains and fine blankedparts for the automotive industry in India. The replacement market for chains andsprockets continued to register a good growth due to the increasing two-wheelerpopulation.
With international car majors continuing to invest in the country and increasinglyusing India as an export base many component manufacturers have the opportunity to caterto the global needs of automobile manufacturers and their Tier-1 suppliers. The passengercoach segment witnessed good growth as the Ministry of Railways is focussing on passengersafety by initiating conversion of all old type coaches into stainless steel coaches. Thissegment has achieved considerable volume growth over previous year supplying to variouscustomers.
Review of Performance
Sale of automotive chains dropped by 12% and industrial chains grew by 10% whencompared to
2018-19 in volume terms. The Company continued to expand its presence in theaftermarket segment benefiting from the two-wheeler population growth. In spite ofchallenging external environment industrial chains recorded growth. Despite de-growthin passenger vehicles segment fine blanked components volumes had a nominal growthprimarily through new parts developed for the four-wheeler segment.
Doorframe sale volumes were lower by 16% during 2019-20 as against the passenger carsegment's de-growth of 15% due to higher sales on select models with two of therenowned auto majors. The focus is on generating more business from the auto OriginalEquipment Manufacturers (OEMs) leveraging the Tier-1 position with specific emphasis onroll form products and other tubular parts used in passenger cars. In additionstrengthening the current position in respect of coach parts and expanding the customerbase are some of the opportunities that are looked into closely to sustain the drivetowards growth.
The chains business segment will continue its core business processes to handle bothvolume fluctuations and change in the product mix to meet customers' demand. Thereplacement market continues to provide opportunities for growth notwithstanding goodcompetition and the business expects to strengthen on the sales structure deepen itscoverage and launch new products for new categories.
During the year under review the segment recorded revenue of `1399 Cr. as compared to`1360 Cr. during the previous year a growth of 3%. The operating profit before interestand tax which stood at `123 Cr. remained flat as compared with the previous year.
The Board of Directors declared an Interim Dividend of `3.50 per share on equity shareof face value of `1 each for the financial year 2019-20 which was paid on 18th March 2020to all the eligible shareholders. A Dividend Distribution Tax (DDT) of `12.60 Cr. wasremitted to the Government in respect of the said Interim Dividend. No Final Dividend hasbeen proposed by the Board for the said financial year and the Interim Dividend of `3.50per equity share already declared and paid in respect of the financial year 2019-20 willbe considered as the Dividend for the said financial year.
The dividend pay-out is in accordance with the Company's policy on DividendDistribution. The said Policy as approved by the Board is uploaded and is available on thefollowing link on the Company's website http://www.tiindia.com/article/values/601.Details thereof also form part of this Annual Report for the information of shareholdersas AnnexureA.
7. Share Capital
The paid-up Equity Share Capital as on 31st March 2020 was `18.79 Cr.
Cash and Cash Equivalents as at 31st March 2020 were `21.64 Cr. In addition theCompany has investments in Liquid Schemes of Mutual Funds for `90 Cr. The Companycontinues to focus on judicious management of its working capital. The Company has takenmany steps during the year to improve the working capital turns. The working capitalparameters were kept under strict check through continuous monitoring.
8.1. Non-Convertible Debentures
During the year Non-Convertible Debentures (NCDs) aggregating `100 Cr. were redeemedand no fresh NCDs were issued during the year. As on 31st March 2020 NCDs aggregating`100 Cr. were outstanding.
The Company has not accepted any fixed deposits under Chapter V of the Companies Act2013 and as such no amount of principal and interest were outstanding as on 31st March2020.
8.3. Particulars of Loans Guarantees or Investments
During the year under review the Company has not given any loans or guarantees underthe provisions of Section 186 of the Companies Act 2013. The Company purchased 905250Equity Shares of the face value of `10 each fully paid up at par of M/s. WatsunInfrabuild Private Limited for an aggregate amount of `0.91 Cr. during the year.
As part of treasury management the Company also deploys any short-term surplus inunits of mutual funds the details relating to which form part of the Notes to thefinancial statements provided in this Annual Report.
8.4. Consolidated Financial Highlights
|Particulars ||2019-20 ||2018-19 |
|Revenue from contract with customers (net) ||4750.39 ||5773.05 |
|Profit Before Exceptional items and Tax ||425.18 ||383.49 |
|Exceptional items ||(21.97) ||3.00 |
|Profit Before Tax and ||403.21 ||386.49 |
|exceptional items || || |
|Tax Expense ||(89.94) ||(126.81) |
|Profit for the year before ||313.27 ||259.68 |
|Minority Interest and || || |
|share of profit from || || |
|Associate || || |
|Share of loss from Associate ||- ||8.85 |
|Net Profit for the Year ||313.27 ||250.83 |
9. Business Review Subsidiaries and Joint Venture
9.1. Shanthi Gears Ltd (SGL)
SGL a subsidiary of the Company recorded revenue of `242 Cr. in 2019-20 in line withprevious year. Profit before tax was `33 Cr. (previous year: `42 Cr.). During theyear SGL renewed its focus on re-establishing itself in the market and gaining newcustomers.
SGL continued to look at enlarging its market presence create a robust channelenhance its process capabilities and launch new products to meet the growing expectationsof customers.
During the financial year 2018-19 Buyback Scheme was announced by SGL to all itseligible shareholders to purchase up to 50 lakh shares at a consideration of `140/- pershare. Under the Scheme the Company tendered 49 lakh shares of which 3238958 equityshares were accepted on a proportionate basis by SGL considering the overall response tothe Buyback. The Company received a consideration of `45.35 Cr. as Buyback considerationduring the year under review viz. on the 5th April 2019 from SGL. Post-Buyback theCompany holds 70.47% of SGL's paid up share capital as against 70.12% held pre-Buyback.
SGL also declared and paid an Interim Dividend of `2 per share for the financial year2019-20.
9.2. Financire C10 SAS (FC10)
FC10 the Company's wholly owned subsidiary in France recorded consolidated revenue ofEuro 32 Mn. in 2019 (previous year: Euro 34 Mn.). The loss after tax for the year wasEuro 0.70 Mn. as compared with the profit of Euro 0.39 Mn. in the previous year. Theconsolidated results of FC10 include results of its subsidiaries viz. Sedis SAS SedisGmbH and Sedis Co Ltd in UK.
9.3. TI Tsubamex Private Limited (TTPL)
TTPL is a joint venture of the Company with M/s. Tsubamex Company Limited Japanto engage in the business of design and engineering of sheet metal dies and fixtures andproviding related services.
Arising from operational challenges that TTPL had to face in terms of winning neworders and also in meeting rising customer expectations on quality and price parametersvis--vis its small size of operations and high working capital intensity TTPL had soldduring the financial year 2018-19 its identified manufacturing assets to the identifiedbuyer and fully utilised the amount realised through the sale and from the collectionsfrom supplies made earlier for repaying its creditors during the financial year underreview.
Necessary impairment in the entire investment has already been recognized in the booksof account of the Company for the financial years 2017-18 and 2018-19.
9.4. Great Cycles (Private) Limited (GCPL)
GCPL is the Company's subsidiary in Sri Lanka acquired in March 2018. The Company holds80% of GCPL's equity capital.
During the year under review GCPL recorded revenue of `3 Cr. (previous year: `16 Cr.)and registered loss before tax of `1 Cr. (previous year profit before tax: `2 Cr.)
9.5. Creative Cycles (Private) Limited (CCPL)
CCPL is the Company's subsidiary in Sri Lanka acquired in March 2018. The Company holds80% of CCPL's equity capital.
During the year under review CCPL recorded revenue of `8 Cr. (previous year: `55 Cr.)and registered loss before tax of `2 Cr. (previous year profit before tax: `1 Cr.).
The statement containing salient features of the financial statements of the Company'sSubsidiaries/ Joint Venture is attached as Annexure-B. The Consolidated FinancialStatements of the Company and its subsidiaries prepared in accordance with the IndianAccounting Standards form part of the Annual Report.
10. Financial Review
10.1. Profits & Profitability
The Profit before Tax and exceptional items registered a growth of 13% through betteroperating efficiencies input and fixed cost reduction initiatives and reduction ininterest costs.
All the business segments of the Company maintained their focus on servicing customersimproving efficiencies controlling working capital and reducing resources employed in thebusiness.
10.2. Capital Expenditure
The Company continues to assess the trends emerging in industry and the changingrequirements of its customers and invests appropriately for the long-term with a view toservicing its customers in a more timely and efficient manner.
10.3. Interest Cost
The Company's interest cost reduced to `29 Cr. in the financial year 2019-20 from `52Cr. in the previous year mainly on account of lower borrowing and better management of networking capital. With strong focus on cash generation the Company achieved a significantlevel of net debt reduction of `342 Cr. during the year. The total borrowings (net ofCash Debt Securities and Current investments) were reduced to `149 Cr. as on 31st March2020 from `491 Cr. as on 31st March 2019.
10.4. Financial Ratios
The key financial ratios of the Company in which there were significant changes (morethan 25%) during the financial year compared to the previous financial year with reasonstherefor are as under:
|Sl. No. Financial Ratio* ||FY 2019-20 ||FY 2018-19 ||% change over previous year ||Reasons |
|1. Interest Coverage Ratio ||21.1 ||10.7 ||97% ||Reduction in borrowing & finance charges and increase in the Profit before Interest Tax and Depreciation. |
|2. Debt-Equity Ratio ||0.2 ||0.4 ||57% ||Reduction in debt and increase in net worth due to higher profits. |
|3. Net Profit Margin ||8.2% ||4.9% ||66% ||Improvement in profits reduction of fixed costs reduction of interest cost and reduction of tax rate. |
|4. Revenue Growth ||(19.1%) ||15.6% ||(222%) ||Lower sales on account of de-growth in auto industry. |
*Ratios are tracked by the Company on a standalone basis
10.5. Internal Control Systems
Internal control systems in the organisation are looked at as the key to its effectivefunctioning. The Company believes that internal control is one of the key pillars ofgovernance which provides freedom to the management within a framework of appropriatechecks and balances. Given the nature of business and size of operations the Company hasdesigned and instituted a robust internal control system that comprises well-definedorganisation structure roles and responsibilities documented policies and procedures toreduce business risks through a framework of internal controls and processes. Thesecontrols ensure:
Recording of transactions are accurate complete and properly authorised;
Adherence to Accounting Standards compliance to applicable StatutesCompany policies and procedures and timely preparation of financial statements;
Effective usage of resources and safeguarding of assets;
Prevention and detection of frauds/errors;
Efficient conduct of operations.
To ensure efficient internal control systems the Company has a well-establishedindependent and multi-disciplinary in-house Internal Audit function that carries outperiodic audits across locations and functions. The scope and authority of the InternalAudit function is derived from the Internal Audit charter duly approved by the Management.
The Internal Audit function reviews compliance vis-a-vis the established designof the internal control as also the efficiency and effectiveness of operations. InternalAudit function is responsible for providing assurance on compliance with operatingsystems internal policies and legal requirements as well as suggesting improvements tosystems and processes. It reviews and reports to management and the Audit Committee aboutcompliance with internal controls and the efficiency and effectiveness of operations aswell as the key process risks. The Company also has established whistle-blower mechanismoperative across the Company.
The Audit Committee of the Board of Directors comprising of independent directorsregularly reviews the audit plans significant audit findings adequacy of internalcontrols compliance with Accounting Standards as well as reasons for changes inaccounting policies and practices if any.
The summary of the Internal Audit findings and status of implementation of action plansfor risk mitigation are submitted to the Audit Committee every quarter for review andconcerns if any are reported to the Board. This process ensures robustness of internalcontrol system and compliance with laws and regulations including resource utilisation andsystem efficacy.
Revenue and capital expenditures are governed by approved budgets and the levels aredefined by a delegation of authority mechanism. Review of capital expenditure isundertaken with reference to benefits expected in line with the policy for the same.
Investment decisions are subject to formal detailed evaluation and approved by therelevant authority as defined in the delegation of authority mechanism. The AuditCommittee reviews the plan for internal audit significant internal audit observations andfunctioning of the Company's Internal Audit department on a periodic basis.
10.6. Internal Financial Control Systems with reference to the Financial Statements
The Company has complied with the specific requirements of the Companies Act 2013 whichcall for establishment and implementation of an Internal Financial Control framework thatsupports compliance with requirements of the said Act in relation to the Directors'Responsibility Statement.
The Company's business processes are enabled by an Enterprise-wide Resource Platform(ERP) as its core IT system. The operating management is not only responsible for revenueand profitability but for also maintaining financial discipline and accountability. Thesystems and processes are continuously improved by adopting best in class processesautomation and implementing latest Information Technology tools.
The Company has a formal system of internal financial control to ensure the reliabilityof financial and operational information and regulatory and statutory compliances. Thisis reviewed regularly and tested by Internal Audit Team. The Company's business processesare enabled by the ERP for monitoring and reporting processes resulting in financialdiscipline and accountability.
11. Enterprise Risk Analysis and Management
The Company has an established risk assessment and minimisation framework. Thisframework provides a mechanism to identify the risk evaluation of likelihood of happeningand consequences. It also provides for assessment of options to mitigate the risk anddevelop appropriate risk management plans. There are normal constraints of timeefficiency and cost.
The Risk Management Committee of the Board of Directors reviews the risk mitigationplans periodically to monitor the key risks of the Company and evaluate the management ofsuch risks for effective mitigation.
During the year under review the Risk Management Committee met on 23rd July 2019 and31st October 2019 and reviewed the risks and mitigation plans of the SBUs of the Company.
Some of the risks associated with the business and the related mitigation plans arediscussed hereunder. The risks given below are not exhaustive and the evaluation of riskis based on management's perception.
11.1. Bicycles and Components
|Risk ||Why considered as Risk ||Mitigation Plan / Counter Measure |
|Product Obsolescence Risk || Availability of alternatives || Higher variety in all sub-segment Economy Mass and Premium |
| || Increased affordability for motorised vehicles || |
| || Shrinking road space for cycling || E-bike will be introduced to reduce cycling effort |
| || || Cycling as a concept beyond commuting - leisure fitness fun and recreation |
|Sourcing Risk || Dependence on vendor base || Continuous upgrading of vendor capability |
| || Consistent quality and supplies || Relationship building |
| || 25% of vendors located in residential area || Reduce import dependency |
| || || Rationalize vendor base |
|Competition Risk || Competition from domestic suppliers || Enhancing the Brand awareness |
| || Imports || Introducing new models with a healthy |
| || ||innovation funnel |
| || || Consistent quality and timely delivery |
| || || Enhancing price competitiveness |
|Volume & Profitability Risk || Rapid decline in Standards segment || Drive growth in Premium cycles segment |
| || Low price competition in Specials segment || Build capability to compete in Specials segment at various price points |
| || Growth in Premium segment not sufficient to offset the overall drop in volume || |
| || || Cost reduction measures to enhance profitability |
| || || Closure of all warehouses and optimize logistics costs |
|Technology Risk || Lack of capacity and capability to handle large scale shift to alloy bikes || Capability building for manufacture and assembly of alloy bikes |
| || || Establishing reliable source for high end bikes |
|Risk ||Why considered as Risk ||Mitigation Plan / Counter Measure |
|User Industry Concentration Risk || Significant exposure to auto sector || New products / applications to existing customers |
| || Time lag in pass through of input cost changes || |
| || || Introduction of new products catering to non- auto users |
| || || Leverage application engineering skills for tubular solutions |
| || || Drive operational efficiencies vigorously |
|Technology Obsolescence Risk || Cheaper alternatives for auto applications affecting revenue streams || Imbibing new and relevant technologies |
| || || Equipment upgradations |
|Raw Material Risk || Volatility in steel price || Alliance with steel producers |
| || Inconsistency in quality || Global sourcing |
| || High inventory holding || Strategic sourcing |
| || || Rationalization and standardization of grades |
| || || Move to products with higher value addition |
|Competition Risk || Competition from integrated steel mills || Consistent quality and timely delivery |
| || New entrants with financial strength || Import substitution development of new grades |
| || Imports || |
| || || Product range of offering leveraging all businesses of the Company |
| || || Innovate on products process and applications |
| || || Leveraging metallurgy skills |
|Export related risks || Increased trade protectionism and import || Identification of new export markets and |
| ||tariff ||customers |
| || Global competition || Capability building |
| || Need for higher capability || Enhanced domestic sales |
11.3. Metal Formed Products
|Risk ||Why considered as Risk ||Mitigation Plan / Counter Measure |
|Product Risk || Revenues are model specific || Indigenization of equipment |
| || || Pursue options for other business using the same facilities |
| || || Model specific investments to be done by |
| || ||OEMs |
| || || More rigorous analysis of risks before taking |
| || ||up the project |
|User Industry || Dependence on auto sector || Diversification into non-auto business |
|Concentration Risk || Impact of slow down || Focus on industrial applications |
| || || Develop range of power transmission products |
|Customer Retention || Availability of alternative source || Cost competitiveness through Operational |
|Risk || Disruption in supplies ||Excellence initiatives |
| || || Leverage design strength |
| || || Leverage proximity to customer |
| || || Build technology superiority |
| || || Product - plant rationalization |
|Entry of competition || Low technology barrier || Leverage position with customer as technology leader |
| || Impact on profit || |
| || || Continuous upgrading of technical specifications |
| || || Cost reduction |
| || || Concentration in focus markets |
|Entry of || Better product range || Enhance product portfolio leveraging |
|internationally || Tie-up with local player/end user ||acquisition |
|established players || || Leverage leadership and competitive position |
| || High quality' image || |
|in domestic market || ||in industry |
| || || Strengthen collaboration with R&D team of |
| || ||customers |
| || || Pursue opportunities in systems/components |
| || || Pursue options for collaborating with other |
| || ||multi-national player(s) of repute |
|Sourcing Risk || Dependence on a few vendors for certain || Vendor relationship building |
| ||components || Enhancing vendor base both locally as well |
| || ||as overseas |
| || || Leveraging strength of combined entity |
|Pricing risk || Year-on-year price reduction expectation || Utilisation of existing assets optimal |
| || Price recovery due to dependence on a few OEMs ||investment assumptions and reduced cost of operations |
| || || Value engineering and value analysis in |
| || ||business re-engineering process |
| || || Claims from customer for lower volumes |
|Risk ||Why considered as Risk ||Mitigation Plan / Counter Measure |
|Human Resource || Ability to attract talent especially people with || Corporate Brand Building |
|Risk ||domain knowledge for new projects || Robust recruitment process |
| || Retention of talent || Structured induction and on the job training |
| || Availability of adequate flexible workforce post COVID-19 || Coaching and team building |
| || || Individual career and development plan |
| || || Effective communication exercises |
| || || Continuous engagement with identified talent pool |
| || || Deskill operations |
| || || Continuously engage with contractors and contract labour for their wellness & engagement |
| || || Making policy changes in line with government directives for health and safety & keeping the workforce safe without disruption to business |
|Currency Risk || Foreign currency exposure on exports imports and borrowings || Early identification and monitoring of exposures |
| || || Hedging of exposures based on risk profile |
|IT/Cyber Related || Confidentiality integrity and availability || Access controls |
|Risk || || Secure Network Architecture |
| || || Infrastructure redundancies & disaster |
| || ||recovery mechanism |
| || || Audit of controls |
|Project || Delay in implementation || Effective project management |
|Management Risk || Increase in cost || Pre-implementation planning |
| || Potential delay in stabilization of production || Deployment of adequate resources |
| || || Effective monitoring |
12. Corporate Social Responsibility (CSR)
The Company being part of the Murugappa Group is known for its tradition ofphilanthropy and community service. The Company's philosophy is to reach out to thecommunity by establishing service-oriented philanthropic institutions in the field ofeducation and healthcare as the core focus areas. The CSR Policy of the Company isavailable on the Company's website at the following link http://www.tiindia.com/article/values/467.
As per the provisions of the Companies Act 2013 the Company was required to spend`4.94 Cr. during the financial year 2019-20. The Company incurred
`5.29 Cr. but spent for `5.13 Cr. in cash towards the identified CSR projects in thefields of education health care and public infrastructure during the year.
The Annual Report on CSR for 2019-20 is annexed to and forms part of this Report asAnnexureC as well as in the Company's website at the following linkhttp://www.tiindia.com/article/values/546
13. Alteration of Memorandum of Association
During the financial year 2019-20 with the approval of the Members by means of aSpecial Resolution passed with the requisite majority through postal ballot andelectronic voting a new sub-clause 10 was inserted in III(A) [Main Objects Clause] of theMemorandum of Association to facilitate the Company's foray into the business of visionproducts and components.
During the year under review the Company identified a suitable location in the SriCity Special Economic Zone (SEZ) Chittoor District Andhra Pradesh for the aforesaidvision products and components project and after entering into necessary agreements withthe Sri City SEZ authority for lease of the land the installation of machinery and othercivil work have been completed. Production is expected to commence in the second quarterof the current financial year.
14. Corporate Governance
The Company is committed to maintaining high standards of corporate governance.
The Company was wholly in compliance with the requirements of the Listing Agreementwith the Stock Exchanges as well as the SEBI Listing Regulations.
A report on corporate governance together with a certificate from the Auditors isannexed in accordance with the terms of the SEBI Listing Regulations and forms part of theBoard's Report as Annexure-D. The Managing Director and the Chief Financial Officer havesubmitted a certificate to the Board regarding the financial statements and other mattersin terms of Part B of Schedule II [Corporate Governance] of the SEBI Listing Regulations.
The Report further contains details as required to be provided in the Board's Report onthe policy on Directors' appointment and remuneration including the criteria annualevaluation by the Board and Directors composition and other details of Board committeesimplementation of risk management policy whistle-blower policy/vigil mechanism dividendpolicy etc.
15. 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 500 listedentities the Business Responsibility Report forms part of the Annual Report asAnnexure-E.
The Business Responsibility Policy of the Company is displayed in the Company's websiteat the following link http://www.tiindia.com/article/values/667.
16. Human Resources
The Company continued to lay emphasis on a high performing work culture to achieveorganisational goals of the present as well as those of the future in a sustainable way byestablishing a culture of process discipline organisational oneness and achievementorientation across its businesses through simplification and digitization empowermentproject-based working customer centricity and process discipline. The initiativestaken by the Company are in line with its long-term Human Resources Strategy which hasbeen drawn up with three broad thrust areas - capability building improved accountabilityand high-performance work culture.
As part of the capability building initiatives a leadership program to create anddevelop a talent pool for managing the various growth businesses of the Company enablingthe identified leaders to operate with greater speed efficiency and capability aligned tothe Company's structure and strategy was initiated during the year under review. Allcritical positions have been mapped to ensure a smooth succession planning. A structuredcareer path framework for those with high potential by mapping them to business-criticalprojects as well as for grooming internal talent among the management staff was pilotedduring the year under review.
A framework covering building of trust role clarity technical capability changechampions and recognition/reward for high performers was conceptualized in order todevelop and improve ownership and accountability among the blue collared employees androlled out during the year. The framework is presently under implementation.
In order to achieve a high-performance work culture through a systematic approach tomanaging performance of organisations teams and individuals various actions wereimplemented across three themes viz. better faster and more efficient.
The initiatives launched with the help of Japanese consultants in the form of TotalQuality Management (TQM) for the Chains and the Tubes Divisions and the Toyota ProductionSystem (TPS) for the Cycles Division are making good progress with a strong emphasis onreduction in the overall plant rejections and improvement in product capability.
The total number of permanent employees on the rolls of the Company as on 31st March2020 is 3302.
Industrial relations continued to remain cordial at all the Company's units during theperiod under review.
The information relating to employees and other particulars required under Section 197of the Companies Act 2013 read with Rule 5 of the Companies (Appointment &Remuneration of Managerial Personnel) Rules 2014 will be provided upon request. In termsof Section 136 of the Companies Act 2013 the Report and Accounts are being sent to theMembers excluding the information on employees particulars of which are available forinspection by the Members at the Registered Office of the Company during business hours onall working days of the Company up to the date of the forthcoming Annual General Meeting.If any Member is interested in obtaining a copy thereof such Member may write to theCompany Secretary in the said regard.
The disclosure with regard to remuneration as required under Section 197 of the Actread with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 is attached and forms part of this Report as Annexure-F.
17. Prevention of sexual harassment at workplace
The Company has policy on prevention of sexual harassment at workplace in line with therequirement of the Sexual Harassment of Women at the Workplace (Prevention Prohibition& Redressal) Act 2013. An Internal Complaints Committee (ICC) to redress complaintsreceived regarding sexual harassment has been constituted in compliance with therequirements of the said Act. The policy extends to all employees (permanent contractualtemporary and trainees). Employees at all levels are being sensitized about the new Policyand the remedies available thereunder. No complaints were received and disposed of duringthe year under review.
18. Employee Stock Option Scheme
During the year under review the Company has granted 38684 stock options to eligibleemployees under its Employee Stock Option Plan viz. ESOP 2017.
Details in respect of the ESOP 2017 as required under the relevant SEBI Regulations aredisplayed in the Company's website at the following link http://www.tiindia.com/article/values/554
19. Sale of shares held by Employees Trust
TII Employees Share Purchase Scheme a trust was holding 703680 equity shares or `2each of the erstwhile Tube Investments of India Limited (Demerged Company under the Schemeof Arrangement for demerger approved by the Hon'ble National Company Law Tribunal Chennaiin July 2017). Consequent to the demerger of the manufacturing business from the DemergedCompany the Trust was allotted 703680 equity shares of `1 each of the Demerged Companyand 703680 equity shares of `1 each of the Company (being the Resulting Company underthe demerger). These shares are treated as treasury shares in the standalone financialstatements of the Company. During the year under review the Trust had in compliance withthe SEBI (Share Based Employee Benefits) Regulations 2014 sold these shares as they werenot backed by any ESOP grants. The net gain from sale of such shares aggregating `56.56Cr. net of tax has been credited to retained earnings in the Company's books of accountfor the financial year ended 31st March 2020.
20. Directors' Responsibility Statement
The Board of Directors confirm that the Company has in place a framework of internalfinancial controls and compliance system which is monitored and reviewed by the AuditCommittee and the Board besides the statutory internal and secretarial auditors. To thebest of their knowledge and belief and according to the information and explanationsobtained by them your Directors make the following statements in terms of Section134(3)(c) of the Companies Act 2013:
a) that in the preparation of the annual Financial Statements for the year ended 31stMarch 2020 the applicable accounting standards have been followed along with properexplanation relating to material departures if any; b) that such accounting policies asmentioned in the Notes to the Financial Statements have been selected and appliedconsistently and judgment and estimates have been made that are reasonable and prudent soas to give a true and fair view of the state of affairs of the Company as at 31st March2020 and of the profit of the Company for the year ended on that date;
c) that proper and sufficient care has been taken 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) that the annual Financial Statements have been prepared on a going concern basis;
e) that proper internal financial controls to be followed by the Company have been laiddown and that the financial controls are adequate and were operating effectively; &
f) that proper systems have been devised to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.
M/s. S R Batliboi & Associates LLP Chartered Accountants (LLP Identityno.AAB-4295) were appointed as Statutory Auditors at the 9th Annual General Meeting heldon 6th November 2017 for a period of five years viz. from the conclusion of the said 9thAnnual General Meeting till the conclusion of the 14th Annual General Meeting.
In terms of the resolution passed by the Members with regard to the appointment of theStatutory Auditors the said appointment is subject to ratification by the Members atevery Annual General Meeting and their remuneration will be recommended to theShareholders at the time of taking up such ratification of appointment each year. In thesaid regard by an amendment to the Companies Act 2013 under the Companies (Amendment) Act2017 the requirement for ratification of appointment of the Statutory Auditors at eachAnnual General Meeting has been done away with. Accordingly there is no requirement underthe law for ratification of appointment of the Statutory Auditors by shareholders andhence the same is not proposed. The remuneration payable to them in respect of theirremaining term viz. for FYs 2020-21 and 2021-22 needs to be fixed at the Annual GeneralMeeting as required under Section 142 of the Companies Act 2013.
Accordingly the Board recommends the terms of remuneration payable to the StatutoryAuditors as set out in the resolution contained in the Notice of the ensuing AnnualGeneral Meeting.
The Company is required to maintain cost records in respect of Steel Products MetalFormed Products and parts & accessories of auto components of the Company and suchaccounts and records are made and maintained. M/s. S Mahadevan & Co. (firmno.000007) Cost Accountants were appointed as the Cost Auditors of the Company forauditing the cost accounting records maintained by the Company in respect of theapplicable products for the financial year 2020-21. Necessary resolution for ratificationof their remuneration in respect of the aforesaid terms of appointment for financial year2020-21 forms part of the Notice for the ensuing Annual General Meeting.
22. Related Party Transactions
All related party transactions that were entered into during the financial year underreview were on an arm's length basis and were in the ordinary course of business. Thereare no materially significant related party transactions during the year which may have apotential conflict with the interest of the Company at large. Necessary disclosures asrequired under the Indian Accounting Standards have been made in the notes to theFinancial Statements.
The policy on Related Party Transactions as approved by the Board is uploaded and isavailable on the following link on the Company's website http://www.tiindia.com/article/values/476.None of the Directors had any pecuniary relationships or transactions vis--vis theCompany.
Mr. M M Murugappan Director will retire by rotation at the ensuing Annual GeneralMeeting under
Section 152 of the Companies Act 2013 ("the Act") and being eligible heoffers himself for re-appointment.
The Board takes pleasure in recommending the re-appointment of Mr. M MMurugappan as Director at the forthcoming Annual General Meeting.
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 thereunder. In the opinion of the Board all the Independent Directors havethe integrity expertise and experience including the proficiency as required toeffectively discharge their roles and responsibilities in directing and guiding theaffairs of the Company.
Mr. Pradeep V Bhide's term as Independent Director ends at the conclusion of theensuing Annual General Meeting. The Board places on record its appreciation of thedistinguished services rendered by Mr. Pradeep V Bhide during his long associationsince October 2010 as Director of TII before and after its demerger.
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. 31st March 2020 and the date of thisReport; &
- 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.
25. Secretarial Audit
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 Mr. R Sridharan of Messrs R. Sridharan & Associates a firm of CompanySecretaries in Practice to undertake the Secretarial Audit of the Company. The Report ofthe Secretarial Audit Report is annexed herewith and forms part of this Report asAnnexure-G.
The Company has ensured compliance of the Secretarial Standards issued by the Instituteof Company Secretaries of India during the period under review. Accordingly noqualifications or observations or other remarks have been made by the Secretarial Auditorin his said Report.
26. Annual Return
Extract of the Annual Return of the Company is annexed and forms part of the Report asAnnexure-H. The same is also available on the website of the Company at the followinglink http://www.tiindia.com/investors/750
27. Key Managerial Personnel
Mr. Vellayan Subbiah Managing Director Mr. K Mahendra Kumar Chief FinancialOfficer and Mr. S Suresh Company Secretary are the Key Managerial Personnel (KMPs) of theCompany as per Section 203 of the Companies Act 2013.
28. Energy Conservation Technology Absorption and Foreign Exchange Earnings and Outgo
The information on conservation of energy technology absorption and foreign exchangeearnings and outgo stipulated under Section 134(3) (m) of the Companies Act 2013 read withRule 8 of The Companies (Accounts) Rules 2014 is annexed herewith and forms part of thisReport as Annexure-I.
The Directors thank all Customers Vendors Financial Institutions Banks StateGovernments Joint Venture Partners and Investors for their continued support to yourCompany's performance and growth. The Directors also wish to place on record theirappreciation of the contribution made by all the employees of the Company resulting in thegood performance during the year under review.
| ||On behalf of the Board |
|Chennai ||M M Murugappan |
|27th May 2020 ||Chairman |