The Directors are pleased to present their Thirty-Fifth Annual Report together withaudited financial statements for the financial year ended 31st March 2019.
The fiscal 2018-19 turned out to be yet another challenging year for the Indian economywith GDP growth for the year coming down to 6.8 percent from 7.2 percent achieved infiscal 2017-18. Rate of growth was impacted due to factors such as - slowdown inagriculture and mining activities decline in Government consumption tightened financialenvironment sharp fluctuations in the Rupee etc.
Domestic Commercial Vehicle Industry (CVI) started fiscal 2018-19 on a strong notewhich continued through the first half of the fiscal - registering a growth of 37.8percent. However the growth fell to 3.3 percent in the second-half of the year due toseveral adverse factors such as - implementation of the regulatory changes in axle normssudden deterioration in availability of credit triggered by the crisis in the non bankingfinancial sector fleet operators viability concerns on account of factors such as subduedeconomic growth freight availability and freight rates etc. As a result for the year asa whole the domestic CVI registered growth of 17.6 percent with volume of 1007300vehicles. Light vehicles (LCVs) grew 19.5 percent to reach 616600 and Medium & Heavyvehicles (M&HCVs) grew 14.7 percent to reach 390800.
In fiscal 2018-19 Your Company was able to achieve higher sales at 13602 against11355 in the previous year - up 19.8 percent helped by higher demand of Passengercategory vehicles and the launch of the new truck range "Global Series" withbest-in-class fuel efficiency enhanced driver comfort and super drivability.
The financial performance of the Company for the year ended 31st March 2019 issummarized below:
| || ||(Rs. in Crores) |
|Year ended 31st March ||2019 ||2018 |
|Sales volume (No. of vehicles) ||13602 ||11355 |
|Total Income ||1413.71 ||1177.25 |
|Less : Excise duty ||- ||39.09 |
|Net Income ||1413.71 ||1138.16 |
|Less : Material cost & other expenses ||1334.84 ||1089.78 |
|Operating profit ||78.87 ||48.38 |
|Finance Costs ||16.10 ||10.52 |
|Depreciation and amortization expense ||38.44 ||28.40 |
|Profit before tax ||24.33 ||9.46 |
|Profit after tax ||19.57 ||8.50 |
The Directors recommend payment of dividend of Rs. 3.0 per equity share of face valueof Rs. 10/- each for the year ended 31st March 2019 (previous year - Rs. 1.5 per equityshare). The cash outflow on that account will be Rs. 5.23 crores (previous year -Rs. 2.62crores) including dividend distribution tax of Rs. 0.89 crores (previous year - Rs. 0.45crores).
MANAGEMENT DISCUSSION AND ANALYSIS
A Management Discussion and Analysis which also covers the state of the Company'saffairs forms a part of this report.
A report on corporate governance together with the Auditor's Certificate confirmingcompliance with corporate governance norms as stipulated under the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 forms a part of this report.
Industrial relations and work atmosphere remained cordial throughout the year withsustained communication and engagement with workforce through various forums.
SAFETY HEALTH AND ENVIRONMENT
The Company continues to demonstrate strong commitment to safety health andenvironment which have been adopted as core organizational values. The Company ensuressafety and audits its facilities in accordance with statutory and regulatory requirements.The Directors review these areas periodically through reports and presentations made atthe Board Meetings. Employees are continuously made aware of hazards/risks associated withtheir job and their knowledge and skills are updated through requisite training to meetany emergency. Medical check-ups and eco-friendly activities are conducted periodically.Safe disposal of hazardous waste is ensured through an effluent treatment plant and anincinerator; a sewage treatment plant ensures eco-friendly disposal of sewage.
The Company continues to maintain and uphold ISO 9001:2015 (Quality Management System)the BS OHSAS 18001:2007 (Occupational Health & Safety Assessment Series) and ISO14001:2015 (Environmental Management System) certifications. Further the Company is alsocertified as IATF 16949: 2016 in respect of automobile sector management system and ISO27001:2013 in respect of Information Security Management System.
CURRENT BUSINESS ENVIRONMENT
The slowdown in the Commercial Vehicle industry which started in the second-half ofprevious fiscal further intensified during the first four months (April-July) of currentfiscal with domestic CV volumes contracting 13.6 percent- M&HCVs down 21.6 percent andLCVs 8.6 percent. The reasons for such slowdown and the prevailing scenario are discussedin detail in the Management Discussion and Analysis which forms part of this Report.
The Company sold 5195 vehicles during four months April-July 2019 period against5284 in the corresponding period of the previous year - a drop of 1.7 percent.
Amidst prevailing competitive environment and frequently changing regulatoryrequirements the Company will continue its focus on customer reach product developmentinnovative and cost effective technology solutions and improving production efficiency.
Company's capex project with an estimated outlay of Rs. 220 crores for technologicaladvancement product development and up-gradation updating of plant infrastructure toimprove manufacturing efficiency has been fully implemented with total spending of Rs.195.7 crores. This capex was funded through external commercial borrowings (ECB) ofRs.140.0 crores designated in US Dollars (fully hedged) and the balance from internalaccruals.
Mr. Takeru Kikkawa and Mr. Takahiro Imai tendered their resignation as Directors of theCompany with effect from 14th November 2018. The Board in its Meeting held on 14thNovember 2018 recorded its deep appreciation for the valuable support and advice of thetwo gentlemen during their tenure.
The Board on the recommendation of its Nomination and Remuneration Committeeappointed Mr. Tadanao Yamamoto as an Additional Director and Whole-time Director of theCompany designated as Director-Quality Assurance on 14th November 2018 (effective 30thNovember 2018) for two years subject to approval of the Shareholders of the Company inthe ensuing Annual General Meeting.
The Board on the recommendation of its Nomination and Remuneration Committeere-appointed Mr. Gopal Bansal as Whole-time Director & Chief Financial Officer of theCompany for a further period of two years with effect from 11th February 2019 subject toapproval of the Shareholders of the Company in the ensuing Annual General Meeting.
The Board on the recommendation of its Nomination and Remuneration Committee hasproposed the re-appointment of Mr. S.K. Tuteja and Mr. Sudhir Nayar as IndependentDirectors of the Company for a second term of five consecutive years commencing from 22ndSeptember 2019 and Dr. (Mrs.) Vasantha S. Bharucha as Independent Director of the Companyfor a second term of three consecutive years commencing from 22nd September 2019.
Mr. P.K. Nanda and Mr. A.K. Thakur Independent Directors of the Company whose currentterm completes on 21 st September 2019 do not wish to seek re-appointment for a secondterm due to personal reasons. Accordingly their tenure as Director of the Company shallcome to an end on 21st September 2019. The Board in its meeting held on 14th August2019 recorded its deep sense of appreciation for the valuable contributions made by MrNanda and Mr Thakur during their long association with the Company.
The Board on the recommendation of its Nomination and Remuneration Committee hasappointed Mr. Chandra Shekhar Verma as an Additional Director (Non-Executive IndependentDirector) of the Company with effect from 22nd September 2019 for five years subject toapproval of the Shareholders of the Company in the ensuing Annual General Meeting.
At the last Annual General Meeting held in August 2018 the Members had approved theappointment of Mr. Gota Iwanami and Mr. Masaki Morohoshi as Non-Executive Directors.
Mr. Gota Iwanami retires by rotation and being eligible offers himself forre-appointment.
Mr. Kazuo Goda retires by rotation and being eligible offers himself forre-appointment.
The details of the Directors being recommended for appointment/re-appointment arecontained in the Notice of the ensuing Annual General Meeting of the Company.
All the independent Directors have given declaration to the Company that they meet thecriteria of 'independence' set out in the SEBI (LODR) Regulations 2015 and the CompaniesAct 2013.
KEY MANAGERIAL PERSONNEL (KMPs)
In terms of the applicable provisions of the Companies Act 2013 Mr. Yugo HashimotoManaging Director & CEO Mr. Gopal Bansal Whole-time Director & CFO and Mr.Parvesh Madan Company Secretary are the Key Managerial Personnel of the Company.
At the last Annual General Meeting held in August 2018 Mr. Yugo Hashimoto wasappointed as Managing Director & CEO of the Company w.e.f.10th August 2018. The Boardhas re-appointed Mr. Gopal Bansal as Whole-time Director & CFO of the Company for afurther period of two years effective from 11 th February 2019.
NOMINATION AND REMUNERATION POLICY
During the year under review the Company has amended the Nomination and RemunerationPolicy (effective 1st April 2019) in accordance with the amendments to ListingRegulations. The key amendment in the Policy being the change in the definition of SeniorManagement in line with the amendments to Listing Regulations. The Policy is attached as AnnexureA.
SUBSIDIARIES JOINT VENTURES AND ASSOCIATE COMPANIES
The Company does not have any Subsidiary Joint Venture or Associate Company.
RELATED PARTY TRANSACTIONS
All related party transactions that were entered into during the financial year were atarm's length in the ordinary course of business and in compliance with the applicableprovisions of the Companies Act 2013 and the Listing Regulations. There were no materialtransactions made by the Company during the year that would have required shareholdersapproval.
All related party transactions are placed before the Audit Committee for approval.Prior omnibus approval of the Audit Committee is obtained for the transactions which arerepetitive in nature.
During the year the Board has amended the Policy on Related Party Transactions tobring it in line with the amendments to Listing Regulations. The amended Policy isavailable on the Company's website at web link:http://smlisuzu.com/Financials/RPTPolicy.aspx
In terms of Section 134(3)(h) of the Companies Act 2013 there are no transactions tobe reported in Form AOC-2. The details of the related party transactions as per Ind-ASareset out in Note 36 to the Financial Statements.
EXTRACT OF ANNUAL RETURN
Pursuant to Section 92 (3) of the Act and Rule 12 (1) of The Companies (Management andAdministration) Rules 2014 the extract of Annual Return in Form MGT-9 is available onthe website of the Company at weblink http://smlisuzu.com/Upload/AgmNotice/42b9dd40Final%20MGT-9.pdf and is also attached as Annexure B.
MEETINGS OF THE BOARD
Five Board meetings were held during the year as detailed in the Corporate GovernanceReport which forms part of this report.
The Audit Committee comprises three independent Directors Mr. P.K. Nanda as ChairmanMr. A.K. Thakur and Mr. Sudhir Nayar and the Whole-time Director & CFO Mr. GopalBansal. Consequent upon the the changes in the holding of office by certain IndependentDirectors w.e.f 22nd September 2019 the Board has reconstituted the Audit Committee byinducting Mr. S.K. Tuteja as Chairman and Mr. Chandra Shekhar Verma as Member of theCommittee in place of Mr PK. Nanda and Mr. A.K. Thakur.
All the recommendations made by the Audit Committee during the year were accepted bythe Board.
PARTICULARS OF EMPLOYEES
The information as per Section 197 of the Companies Act 2013 read with Rule 5 (1) ofthe Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 formspart of this Report is attached as Annexure C.
The disclosure as per Section 197 of the Companies Act 2013 read with Rule 5 (2) andRule 5 (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 is provided in a separate annexure forming part of this Report. That annexure is notbeing sent to the Members and others entitled to this Report and the financial statementsas provided in Section 136 (1) of the Companies Act 2013. However the annexure isavailable for inspection by the Members at the Registered Office of the Company duringbusiness hours on working days of the Company up to the date of the ensuing Annual GeneralMeeting. Any member interested in obtaining a copy thereof may write to the CompanySecretary.
PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS UNDER SECTION 186 OF THE COMPANIES ACT2013
The Company has not given any loans guarantees or made any investments during theyear which would be covered by Section 186 of the Companies Act 2013.
AMOUNTS PROPOSED TO BE CARRIED TO RESERVES
The Company proposes to carry Rs. 1.96 crores to General Reserve for the financial year2018-19 (Previous year - Rs. 0.85 cores).
MATERIAL CHANGES AND COMMITMENTS AFFECTING FINANCIAL POSITION OF THE COMPANY
No material changes have occurred or commitments made after 31st March 2019 which mayaffect the financial position of the Company or require disclosure.
Your Company is conscious of its responsibility towards preservation of naturalresources and continuously takes initiatives to reduce consumption of electricity andwater.
The primary objective of risk management is to protect the Company against risks to thevalue of the business its capital and its continuity. In order to achieve the objectiveand for better governance the Board has constituted a Risk Management Committee (RMC)comprising three independent Directors one non-executive Director and the Whole-timeDirector & CFO.
RMC is entrusted with the functions of determining efficacy of risk managementframework of the Company evaluation of risks and mitigating measures. The Company hasadopted a formal Risk Management Policy based on the recommendations of firmC.
The Policy sets out key risk areas - financial risks (including risk to assets)commodity price risks foreign exchange fluctuation risks legislative and regulatoryrisks environmental risks (including natural disasters) operational risks (marketsproduction technology etc.) IT & Cyber Secuity risks risks relating to employmentand manpower and individual large transactional risks. The Managing Director & CEOidentifies and proposes action in respect of all risks through his management team as andwhen any are perceived or foreseen or inherent in operations; analyses these and thenreports to firmC for its review and guidance. The Directors also bring to the notice ofand caution the Committee of a risk perceived by them.
CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility (CSR) Committee consists of two independent Directorsnamely Mr. S.K.Tuteja as Chairman and Dr. (Mrs.) Vasantha S. Bharucha and two Whole-timeDirectors - Mr. Yugo Hashimoto the Managing Director & CEO (appointed w.e.f 10thAugust 2018) and Mr. Gopal Bansal Whole-time Director & CFO. On the recommendationsof the Committee the Board has adopted Company's policy on CSR with key thrust areasdefined as - promoting healthcare and sanitation supporting education of girl child andunder privileged children sponsoring vocational/technical education etc.
Annual Report on CSR activities for the year ended 31st March 2019 is attached as AnnexureD.
Pursuant to the provisions of the Companies Act 2013 and Listing Regulationsperformance evaluation of the Directors the Board as well as Committees of the Board hasbeen carried out and the details are covered in the Corporate Governance Report.
CHANGE IN THE NATURE OF BUSINESS
There has been no change in the nature of business of the Company during the year.
There was no change in the Company's issued subscribed and paid-up equity sharecapital during the year.
During the year the Company has not accepted any deposit under Chapter V of theCompanies Act 2013.
SIGNIFICANT ORDERS PASSED BY REGULATORS COURTS OR TRIBUNALS IMPACTING GOING CONCERNAND COMPANY'S OPERATIONS
To the best of our knowledge the Company has not received any such orders fromregulators courts or tribunals or any other authority during the year which may impactthe going concern status of the Company or its operations in future. POLICY ONPREVENTION PROHIBITION AND REDRESSAL OF SEXUAL HARASSMENT AT WORKPLACE
The Company has adopted a policy in line with the provisions of the Sexual Harassmentof Women at Workplace (Prevention Prohibition and Redressal) Act 2013 (the Act) and theRules there under. The Policy aims to provide protection to women at the workplace andprevent and redress complaints of sexual harassment and for matters connected orincidental thereto with the objective of providing a safe working environment. TheCompany has also constituted an Internal Complaints Committee in accordance with the Actto inquire into complaints and take appropriate action.
The Company has not received any complaint of sexual harassment during the year.
VIGIL MECHANISM/ WHISTLE BLOWER POLICY
The Company has adopted a whistle blower policy to provide formal mechanism to theDirectors and employees to report their concerns about unethical behaviour actual orsuspected fraud or violation of the Company's code of conduct or ethics policy. Itprovides for adequate safeguards against victimization of Directors and employees whoavail the mechanism and provides for direct access to the Chairman of the Audit Committee.
During the year the Board has amended the said Policy (effective from 1st April 2019)in accordance with the amendments to SEBI (Prohibition of Insider Trading Regulations)2015 enabling employees to report instances of leak of Unpublished Price SensitiveInformation.
Whistle Blower Policy of the Company is available on the Company's website at web link:http://smlisuzu.com/Financials/WhistleBlowerPolicy.aspx.
The Company has duly complied with the applicable Secretarial Standards issued by theInstitute of Company Secretaries of India (ICSI).
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to Section 134 (3) (c) and 134 (5) of the Companies Act 2013 the Directorsto the best of their knowledge and ability confirm that:
(a) in the preparation of the annual accounts for the year ended 31st March 2019 theapplicable accounting standards have been followed and proper explanations providedrelating to material departures if any;
(b) they have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at 31 st March 2019 and of the profit ofthe Company for the year ended on that date;
(c) they 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 and otherirregularities;
(d) they have prepared the annual accounts on a going concern basis;
(e) they have laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and are operating effectively;
(f) they have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems are adequate and operating effectively.
FAMILIARISATION PROGRAMME FOR INDEPENDENT DIRECTORS
The details of familiarisation programme for Independent Directors in respect of theirroles rights & responsibilities nature of the industry in which Company operatesbusiness model of the Company and related matters are available on the website of theCompany at web link: http://smlisuzu.com/Financials/FamiliarisationProgramme.aspx
Pursuant to the provisions of Section 204 of the Companies Act 2013 and The Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 M/s A. Arora &Co. a firm of Company Secretaries in practice were appointed as the Secretarial Auditorsof the Company to carry out the Secretarial Audit of the Company for fiscal 2018-19.
The Secretarial Audit Report for the year under review does not contain anyqualification and is attached as Annexure E.
B S R & Associates LLP a firm of Chartered Accountants was appointed as theStatutory Auditors of the Company at its 31st Annual General Meeting for a period offive years.
The Auditor's Report on the Audited Financial Statements of the Company for the yearunder review does not contain any qualification.
The remarks of Statutory Auditor on the Internal Financial Controls is providedhereunder :
"According to the information and explanations given to us and based on our auditthe following material weakness has been identified as at 31 March 2019:
The Company did not have an appropriate internal control system to ensure that thepurchases were recorded in accordance with the approved purchase orders which couldpotentially result in over/ understatement of purchases and may result in unauthorizedpayments to vendors. Additionally as described in note 44 of the financial statementsthere is an ongoing investigation being carried out by an external firm in relation toallegations received by the Company with regard to certain operational and financialmatters. Pending the final outcome of this investigation completeness of identificationof deficiencies cannot be ascertained.
In our opinion except for the effects/ possible effects of the material weaknessdescribed above on the achievement of the objectives of the control criteria the Companyhas maintained in all material respects adequate internal financial controls withreference to financial statements and such internal financial controls were operatingeffectively as at 31 March 2019 based on the internal financial controls with referenceto financial statements criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls Over Financial Reporting issued by the Institute of Chartered Accountants ofIndia (the "Guidance Note").
We have considered the material weakness identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the 31 March 2019financial statements of the Company and the material weakness does not affect our opinionon the financial statements of the Company."
The Management's response on the above remarks of Statutory Auditor :
The observations of the Auditors pertained to some control deficiencies that existedduring the implementation phase of new ERP system (SAP) recently adopted by the Companyand the Management has already taken appropriate corrective actions. No financial loss hasbeen incurred by the Company on account of this. The other observation of the Auditors isself-explanatory.
INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO FINANCIAL STATEMENTS
Based on the work performed by the internal statutory and secretarial auditors and thereviews carried out by the Management and the relevant Board Committees the Directors areof the opinion that the Company has in place adequate internal financial controls withreference to financial statements commensurate with the size and nature of the businessof the Company. During the year such controls were tested and no reportable materialweaknesses (except as mentioned above) in the design or operation were observed.
During the year the Company had received allegations in respect of certain operationaland financial matters from President - Worker Union and a former employee. The Companyinvestigated these allegations internally. While the work performed internally did notindicate any material financial impropriety the Company considered it appropriate toengage an external independent firm which possesses the necessary skills to carry out suchwork including evaluation of the appropriateness of certain transactions. As on datethis investigation is ongoing and the Company expects it to be completed by 30th September2019.
Based on an assessment of the findings that have resulted from the investigation so farperformed by the said external firm the Company is of the view that while there may havebeen some control deficiencies there is no evidence that indicates the likelihood of anymaterial adjustment to the Company's financials.
CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO
The required information on conservation of energy technology absorption and foreignexchange earnings and outgo as stipulated in the Companies Act 2013 is attached as AnnexureF.
There are no cost records which are prescribed under Section 148(1) of the CompaniesAct for any of the products manufactured/services rendered by the Company.
Your Directors express their grateful appreciation for the co-operation received fromthe concerned Government departments banks dealers and other business constituentsduring the year under review. Your Directors also wish to place on record their deepappreciation for the committed services of the employees of the Company at all levels.
| || |
FOR AND ON BEHALF OF THE BOARD OF DIRECTORS
| ||S.K. TUTEJA ||YUGO HASHIMOTO |
|Dated: 14th August 2019 ||Chairman ||Managing Director & CEO |