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Kinetic Engineering Ltd.

BSE: 500240 Sector: Auto
NSE: KINETICENG ISIN Code: INE266B01017
BSE 16:01 | 27 Mar 2018 Kinetic Engineering Ltd
NSE 05:30 | 01 Jan 1970 Kinetic Engineering Ltd
OPEN 69.00
PREVIOUS CLOSE 68.45
VOLUME 15932
52-Week high 112.40
52-Week low 60.45
P/E
Mkt Cap.(Rs cr) 114
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 69.00
CLOSE 68.45
VOLUME 15932
52-Week high 112.40
52-Week low 60.45
P/E
Mkt Cap.(Rs cr) 114
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Kinetic Engineering Ltd. (KINETICENG) - Director Report

Company director report

(Including Management Discussion & Analysis)

Dear Members

Your Directors present the 44th Annual Report on the business and operations of KineticEngineering Limited and the Audited Financial Accounts for the financial year ended 31 stMarch 2015.

Financial Highlights

During the financial year 2014-15 the company has made remarkable progress in buildingthe financial strength of the company. Efforts taken for debt reduction and costsrationalization have yielded into strengthening of key financial ratios for the companyensuring a strong success for the business in the long term. As a result the financialhighlights are as follows:

2014 (in Cr) 2013 (in Cr)
Revenues 61.16 61.00
EBITDA 23.98 (78.21)
Profit 10.22 (59.00)
Debt 278.60 192.44

Key Take Aways include:

• Decrease in material costs: from 60.82% to 58.40%.

• Profit for the company of Rs. 10.22 Cr during the year as against a loss of?59.00 Cr in the previous year.

• Decrease in total debt of the company by Rs. 86.16 Cr.

Major factors contributing to net profit were as under: -

A. Backward integration into forgings and turning to become a 100% verticallyintegrated facility for transmission assemblies manufacturing

B. Rationalisation of businesses to focus on profitable verticals

C. Reduction in overheads through re-layout of plant facilities

D. Negotiation and arriving at a settlement of FCCB bonds worth $ USD 23 MN

E. Settlement of Promoter ICDs worth Rs. 7.25 Crores.

Resulting in a net gain to? 26.75 Crores; and resulting in a net profit for the companyof? 10.22.

BUSINESS OVERVIEW

The Company has undertaken the strategic decision to transform its traditional 2wheeler business to autocomponents in the year 2009 in order to tap its immense technicalexpertise and infrastructure available to become a unique and credible supplier of autoparts & systems focused on transmission assemblies. Overthe period since theinception the company has achieved a strong strategic direction to explore the immensepotential of this business and has been taking constructive steps to build a robustbusiness ahead. These include:

• A Larger Focus on International Customers and make in India initiative

• Technology partnerships to add to the company’s competitiveness and productportfolio

• Focus on transmission assemblies as core business area

• Control on costs through backward integration

• Upgradation of Facilities anid Equipments

• Upgradation of Quality systems

• Make in India:

In line with the Honorable Prime Ministers Mantra for “Make in India” yourcompany has been the winner of the prestigious EEPC’s award for export excellanceconsecutively for the last 5 years. Taking forward this strength the company has wonvarious prestigious high volume business from international customers such as:

American Axle A US Company with sales worth $2.93 billion for a major order worth Rs.30 cr annually

Aixam France part of the $5 BN US Polaris industry for the supply of completetransmission assembly for their quadricycle for Rs. 12 cr annually

Renault Nissan for the supply of transmission parts for their upcoming small car KWIDand various other global platforms worth Rs. 20 cr annually marking your company’sentry into the passenger car segment of a global OEM

Magna Powertrain for the supply of broached transmission components in the US worthRs. 5 crore annually

These businesses are under various stages of development and are expected to commencein 2014 - 2015 and ramp up in the coming years to the desired volumes. As you can seeyour company has been successful in bagging business across the globe amongst diversemarket segments and is well poised to grow its business substantially. In addition thecompany continues to maintain its relationship with existing customers including MahindraGroup TATA motors Carraro India and various others. The company has also proudlydeveloped various parts for India’s favorite small car Nano’s new versions whichhave recently hit the market.

Technology:

Your company continues to partner with technology suppliers to build horizontal andvertical capabilities and offer to customers end to end solutions as noted below:

- The Company is a proud partner with Magna Styer India as a partner under itsexisting “technical alliance agreement” whereby MSIA complements KEL’smanufacturing capabilities in terms of design testing and validation of transmissionassemblies for its customers. Magna Styer India is a subsidiary of Magna Styer GMBHAustria one of the world’s largest design xxx

- The Company also has a technical agreement with CTI (Chief Transmissions Limitedformerly Taiwan Golden Bee) a Taiwanese company focusing on making CVT’s from 50 ccto 1000 cc. The company hopes to expand its CVT business in the growing scooter market inIndia together with this alliance.

- The Company also has developed its strength in forgings through backward integration.The company has recently added 1 hammer and 1 press of 1300 tons and has over 95% of itsforgings done in house.

These technological partners give the Company a unique position in the market to offerits customer products of international standards at reasonable costs Upgradation offacilitiles and Quality Systems:

In line with the customer profile the company has taken various initiatives to upgradeits facilities to international standards. These include:

Set up of a modern & automatic assembly line Creation of a conveyorised singlepiece flow line for high volume customer Addition of in-house press forge shop Addition ofnew machines for various critical processes like induction hardening and rack rolling.These shops have been upgraded with a new 5 S initiative to maintain cleanliness andautomisation required to deliver the precision quality demanded by the business.

With a quality system set up in tune with the requirements of ISO 9001 and withISO/TS16949:2002 certification the Company plans to leverage its skills in domestic aswell as international market by further striving for total customer satisfaction throughrelationship building and providing superior products and technological solutions to itscustome' The Company has further strengthened its quality systems by an internal qualityassessment system called as "KQAA" (Kinetic Quality Assessment and Awards")which reviews and rewards exceptional practices in Quality at each cell. Various effortsand initiatives have been taken to have a larger focus on Kaizens Pokayoke QualityAnalysis methodlogy APQP documentation and other systems that will ensure a sustainableeffort for the business.

The company has launched “KEDS”; a training center called as “KnowledgeEnhancement & Development of Skills Center” for its employees in its Ahmednagarfacility which focuses on motivational and training of its staff and workers at regularintervals.

Overview of Settlement with FCCB holders:

A. On 13 February 2008 the Company issued USD 18000000 (United States DollarsEighteen Million) 2% Convertible Bonds due 2013 i.e. 180 (one hundred and eighty) bonds offace value USD 100000 (United States Dollars One Hundred Thousand)each.

B. The Bonds were issued pursuant to the terms of the Offering Circular theSubscription Agreement and the trust deed dated 13 February 2008 entered into between theCompany and the Trustee as amended by a supplemental deed dated 15 February 2013 (each asmay be amended and/ or restated from time to time collectively the “TrustDeed"). The Company had also entered into an Agency Agreement in relation to theappointment of the Principal Agent the Registrar the Conversion Agent and the TransferAgent.

C. The Bonds are listed on the Singapore Exchange Securities Trading Limited Singaporeunder ISIN Code: ISIN XS0345165020.

D. As per the terms of the Trust Deed the Bonds were scheduled to be redeemed by theCompany on 15 February 2014 (the “Maturity Date”) but have not been redeemedrepurchased cancelled or converted.

E. The Bondholders and the Company have discussed and negotiated in good faith termsand conditions for a full and final settlement of the Bonds and have entered an Agreementto record their understanding.

F. Accordingly the FCCB liability of about Rs. 142 Crores as on 31.03.2015 will besettled as under:

1. Rs. 70 Crores Cash Payment; and

2. By way of issuing 2340499 shares of the Company at a price of Rs. 156 per share.

The above settlement is subject to approval of RBI and Company will be making anapplication to RBI. Similarly Micro Age Instruments Pvt. Ltd. a promoter group Companyalso agreed to a settlement whereby its dues of Rs. 7.25 Crores will be settled at Rs.3.50 Crores by way of issuing 224359 shares of the Company at a price of Rs. 156 pershare.

The above referred negotiations and settlements helped the Company to improve its NetWorth to Rs. 41.91 Crores as on 31.03.2015 and reduction of its liabilities byRs. 149.25Crores.

G. Company is also in discussion with Reliance Capital Limited for the settlement ofliability.

The above referred negotiations will further help the Company to improve its Net Worthand make it a virtually debt free Company.

While the global recovery was still slow and witnessing divergent trends IndianEconomy grew at 7.3% in the Financial Year (FY) 2014-15 against 6.9% in 2013-14 (Source:Indian Statistical Office (CSO) of India data). The major contributor was themanufacturing sector which registered 7.1 % growth for the year.

The Government has initiated a slew of steps to take the economy forward.

INDUSTRY OVERVIEW

Industry structure

The Auto Component Industry in India has a strong positive multiplier effect as a keydriver of economic growth. Indian auto components are exported to more than 160 countriesand it is indeed very heartening that component exports have been growing at a CAGR of 29%over the past six years. The major business of your Company comes from exports. Companyalso benefitted from the strengthening of the rupee. All these factors have helped theCompany immensely.

Outlook Opportunities and Threat Your company has successfully bagged business acrossthe globe amongst diverse market segments and is well poised to grow its businesssubstantially. Company also benefitted from the strengthening of the rupee.

The Company has got orders however the same are in development stage and themanagement is of the view that it is will take another 2 to 3 quarters to operationalisethe orders.

Deposits

During the year under review your Company did not accept any deposits within themeaning of provisions of Chapter V - Acceptance of Deposits by Companies of the CompaniesAct 2013 read with the Companies (Acceptance of Deposits) Rules 2014.

Share Capital

The paid up equity share capital as on 31 March 2015 was? 13.57 cr.

There was no public issue rights issue bonus issue or preferential issue etc. duringthe year.

Research & Development

Research and development is viewed as crucial for development of the Company. Theseactivities add in expanding and upgrading the product portfolio and improving theofferings to the customers.

Conservation of Energy Technology Absorption and Foreign Exchange Earnings and Outgo

The information pertaining to conservation of energy technology absorption foreignexchange earnings and outgo as required under section 134(3)(m) of the Companies Act 2013read with Rule 8(3) of the Companies (Accounts) Rules 2014 is furnished in Annexure I andis attached to this Report.

Auditors

The auditors M/s P. G. Bhagwat Chartered Accountants hold office until the ensuingAnnual General Meeting and have furnished a certificate in terms of Sec. 224(1) of theCompanies Act 1956 about their eligibility.

Secretarial Auditor

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. Devendra V. Deshpande Practicing Company Secretary (Certificate of PracticeNumber: 6099) to undertake the Secretarial Audit of the Company.

In terms of provisions of sub-section 1 of section 204 of the Companies Act 2013 theCompany has annexed to this Board Report as Annexure II a Secretarial Audit Report givenby the Secretarial Auditor.

The Secretarial Audit Report does not contain any qualification reservation or adverseremark. Employees

Key Managerial Personnel (KMP)

The following have been designated as the Key Managerial Personnel of the Companypursuant to sections 2(51) and 203 of the Companies Act 2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014:

a) Mr.Arun H. Firodia-Chairman

b) Ms. Sulajja Firodia Motwani-Vice Chairperson

c) Mr.AjinkyaA. Firodia-Managing Director

d) Mr. Mukund V. Tasgaonkar - Chief Financial Officer (CFO)

e) Mr. RohitPurandare-CompanySecretary(CS) Other than Mr. Pranvesh Tripathi CompanySecretary and Mr. Ravindra Yadav Company Secretary none of the KMP has resigned duringthe year under review. Particulars of Employees and related disclosures

In terms of the provisions of Section 197(12) of the Companies Act 2013 read withRules 5(2) and 5(3) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 a statement showing the names and other particulars of theemployees drawing remuneration in excess of the limits set out in the said Rules areprovided in the Annexure forming part of the Annual Report.

Disclosures pertaining to remuneration and other details as required under Section197(12) of the Companies Act 2013 read with Rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 are provided in the Corporate GovernanceReport which is attached as Annexure III forming part of the Annual Report.

Having regard to the provisions of Section 136(1) read with its relevant provision ofthe Companies Act 2013 the Annual Report excluding the aforesaid information is beingsent to the members of the Company. The said information is available for inspection atthe Registered Office of the Company during working hours and any member interested inobtaining such information may write to the Company Secretary and the same will befurnished without any fee and free of cost.

Board Meetings and Annual General Meeting During the year 6 meetings of the Board ofDirectors were held. The details of the meetings are furnished in the Corporate GovernanceReport which is attached as Annexure-llltothis Report.

During the year 1st April 2014 to 31st March 2015 6 Board Meetings were held on 22ndApril 201424th May 2014 28th June 2014 14th August 2014 13th November 2014 and12th February 2015. The 43rd Annual General Meeting (AGM) of the Company was held on 29thSeptember 2014.

Meetings of Independent Directors The Independent Directors of the Company meet beforethe Board Meetings without the presence of the Chairman & Managing Director orExecutive Director or other Non-Independent Directors or Chief Financial Officer or anyother Management Personnel.

These Meetings are conducted in an informal and flexible manner to enable theIndependent Directors to discuss matters pertaining to inter alia review of performanceof Non-Independent Directors and the Board as a whole review the performance of theChairman of the Company (taking into account the views of the Executive and Non-ExecutiveDirectors) assess the quality quantity and timeliness of flow of information between theCompany Management and the Board that is necessary for the Board to effectively andreasonably perform their duties.

Audit Committee

This Committee comprises of the following Directors viz. Mr. Shirish R. Kotecha(Chairman of the Committee) Mr. Jinendra H. Munot Mr. Ramesh J. Kabra and Mr. K. H.Sancheti. All the Members are Independent Directors. All the Members of the Committeepossess strong accounting and financial management knowledge. The Company Secretary of theCompany is the Secretary of the Committee.

All the recommendations of the Audit Committee were accepted by the Board.

Directors and Key Managerial Personnel During the year under review Mr. Ashish KumarAgarwal Nominee Director stepped down from the Board. The Board wishes to place on recordits deep sense of appreciation for the valuable contributions made by him to the Board andthe Company during his tenure as Director.

Mr. A. H. Firodia Director retires by rotation at the forthcoming Annual GeneralMeeting and being eligible offers himself for re-appointment.

The Independent Directors of the Company have declared that they meet the criteria ofIndependence in terms of Section 149(6) of the Companies Act 2013 and that there is nochange in their status of Independence. At the Board Meeting held on May 22 2014 Mr.Ajinkya A. Firodia was appointed as Managing Director of the Company for a tenure of 5years Mr. Mukund Tasgaonkar was appointed as Chief Financial Officer w.e.f. 24th May2014 and Mr. Pranvesh Tripathi resigned from the post of Company Secretary as on 24thMay 2014 thereafter Mr. Ravindra Yadav was appointed as Company Secretary on 24th May2014. Mr. Ravindra Yadav resigned from the post of Company Secretary on 5th July 2014.Mr. Rohit Purandare was then appointed as Company Secretary on IstAug. 2014 and wasdesignated as “Key Managerial Personnel” of the Company pursuant to Sections2(51) and 203 of the Companies Act 2013 read with the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014.

Extract of Annual Return

Pursuant to sub-section 3(a) of section 134 and subsection (3) of section 92 of theCompanies Act 2013 read with Rule 12(1) of the Companies (Management and Administration)Rules 2014 an extract of the Annual Return as on 31 st March 2015 in Form No. MGT 9 isattached herewith as Annexure IV and forms part of this Report.

Board Evaluation

Pursuant to the provisions of the Companies Act 2013 and Clause 49 of the ListingAgreement Independent Directors at their meeting without the participation of theNon-independent Directors and Management considered/evaluated the Boards’performance Performance of the Chairman and other Non- independent Directors.

The Board have undergone a formal review which comprised Board effectiveness survey360 degree and review of materials. This was delivered by an external specialist andresulted in a full Board effectiveness report and Directors’ feedback. This isfurther supported by the Chairman’s Annual Director Performance Review.

The Board subsequently evaluated its own performance the working of its Committees(Audit Nomination and Remuneration and Stakeholders Relationship Committee) andIndependent Directors (without participation of the relevant Director).

The criteria for performance evaluation have been detailed in the Corporate GovernanceReport which is attached asAnnexure-lll to this Report.

Material changes and commitments affecting the financial position of the Company whichhave occurred between March 31 2015 and May 12 2015 (date of the Report)

There were no material changes and commitments affecting the financial position of theCompany between the end of financial year (March 312015) and the date of the Report(August 132015).

GOVERNANCE

Corporate Governance

Your Company has a rich legacy of ethical governance practices many of which wereimplemented by the Company even before they were mandated by law. Your Company iscommitted to transparency in all its dealings and places high emphasis on business ethics.A Report on Corporate Governance along with a Certificate from the Statutory Auditors ofthe Company regarding compliance with the conditions of Corporate Governance as stipulatedunder Clause 49 of the Listing Agreement which is attached as Annexure III to this AnnualReport. Vigil Mechanism

The Vigil Mechanism as envisaged in the Companies Act 2013 the Rules prescribedthereunder and the Listing Agreement is implemented through the Company’s WhistleBlower Policy to enable the Directors and employees of the Company to report genuineconcerns to provide for adequate safeguards against victimisation of persons who use suchmechanism and make provision for direct access to the Chairman of the Audit Committee.

Whistle Blower Policy of the Company is available on the Company’s website at theweb-link: www. ki netici nd ia .com/i nvestors

Further details are available in the Report on Corporate Governance that forms part ofthis Annual Report. Contracts or Arrangements with Related Parties All Related PartyTransactions entered into during the year were in the Ordinary Course of Business and onArm’s Length basis. No Material Related Party Transactions i.e. transactionsexceeding ten percent of the annual financial turnover as per last audited financialstatements were entered during the year by your Company. Accordingly the disclosure ofRelated Party Transactions to be provided under section 134(3)(h) of the Companies Act2013 in FormAOC-2 is not applicable.

The policy on Related Party Transactions as approved by the Board is uploaded on theCompany’s website andean be accessed at web link: www.kineticindia.com/investorsInternal Control System

The company has adequate internal control system commensurate with its size and natureof business for ensuring efficiency of operations adherence to management policies andprotection of company's assets. The company's Audit Committee periodically reviews theinternal control systems and compliance with Company's policies procedures and laws.Cautionary Statement

The report contains estimates and expectations which could be 'forward looking'.Actual results however might differ from estimates and expectations expressed or impliedin this report as the same are affected by many other uncertainties including rawmaterial availability & prices changes in Government regulations tax regimeseconomic developments and other incidental facto'

Directors responsibility statement Pursuant to section 134(5) of the Companies Act2013 your Directors based on the representations received from the Operating Managementand after due enquiry confirm that:

(a) in the preparation of the annual accounts for the Financial Year ended 31st March2015 the applicable accounting standards have been followed;

(b) the Directors had in consultation with Statutory Auditors selected accountingpolicies and applied them consistently and made judgments and estimates that arereasonable and prudent so as to give a true and fair view of the state of affairs of theCompany as at 31st March 2015 and of the profit of the Company for the year ended on thatdate;

(c) the Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud andirregularities;

(d) the Directors have prepared the annual accounts on a going concern basis;

(e) the Directors have laid down adequate Internal Financial Controls to be followed bythe Company and such Internal Financial Controls were operating effectively during theFinancial Year ended 31st March 2015;

(f) the Directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectivelythroughout the Financial Year ended 31 st March 2015.

Remuneration Policy of the Company

The Remuneration policy of the Company comprising the appointment and remuneration ofthe Directors Key Managerial Personnel and Senior Executives of the Company includingcriteria for determining qualifications positive attributes independence of a Directorand other related matters has been provided in the Corporate Governance Report which isattached as Annexure-lll to this Report.

Particulars of loans guarantees or investments under Section 186 of the Companies Act2013

Details of loans guarantees and investments covered under the provisions of Section186 of the Companies Act 2013 are given in Note A-11 of the Notes to the financialstatements.

Significant and Material Orders Passed by the Regulators or Courts or Tribunalsimpacting the Going Concern status of the Company

There are no significant and material orders passed by the Regulators or Courts orTribunals which would impact the going concern status of the Company. Acknowledgement

The directors express their sincere thanks to Central & State GovernmentsFinancial Institutions banks who have extended their support in form of CreditFacilities suppliers and stakeholders for the support extended to the Company and alsowish to place on record their appreciation of the dedicated services rendered by theemployees of the Company.