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UBE Industries Ltd.

BSE: 523868 Sector: Engineering
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UBE Industries Ltd. (WELDFLUX) - Director Report

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Company director report

UBE INDUSTRIES LIMITED ANNUAL REPORT 2011-2012 DIRECTOR'S REPORT To Members Your Directors have pleasure in presenting their Annual Report together with the Audited Accounts of your company for the year ended 31 March 2012. During the financial year, your company has resumed operations in its Projects Construction and Contracts Divisions and Engineering Division apart from existing operations of infrastructure contracts and capital EPC, ENGG & consultancy contracts. FINANCIAL RESULTS For the year ended For the year ended 31 March 2012 31 March 2011 Income 22002114-00$ 1,81,68,550-00 Expenditure 12809983-00** 1,81,62,860-00* Gross Profit (-9192131-00) 5690-00 Depreciation 9210298-00 9210298-00 Provision for Tax 0 0 PATD -18167-00 (-9204598-00) Net Profit -18167-00 (-9204598-00) Reserves & Surplus 90994189-00 9,10,12,356-00 *Inclusive of the expenditure pertaining to the cleaning and over oiling of the plant and machinery of the company to revive the operations of the company. ** Inclusive of the expenditure pertaining to the cleaning and over oiling of the plant and machinery pertaining to the welding division to revive the operations of the company. $ The progress and income generated in the operations of the infrastructure development division and Projects division was not accounted as the result of the non approval as on 31 March 2012 by the respective clients according to the contract between the clients and the company. FUTURE OUTLOOK Your company has revived its operations which were stalled due to a problem caused by the Department of Industries, Government of Andhra Pradesh. As you are fully aware that the operations of the divisions of the company after de-merger of its four divisions will be functioning as independent companies, however, the proposed planning has been shown below. Projects Division: This Division will be functioned as UBE Projects Limited. The company was incorporated on 4th September 2006 vide incorporation/corporate identity no U 45101 AP 2007 PLC 051055 2006-2007 with the Registrar of Companies, Hyderabad, with main activities as EPC and Turnkey Projects including fabrication. The existing land and buildings of your company will be transferred to the division as per the scheme of de- merged. Engineering Division: This Division will be functioned as UBE Tools Limited. The company was incorporated on 8th September 2006 vide incorporation/corporate identity no U 74999 AP 2006 PLC 051086 2006-2007 with the Registrar of Companies, Hyderabad, with main activities as manufacturing the Special Purpose Machines, Tooling Systems and other light Engineering activities. This division is proposing to acquire the land and construct the buildings; however, soon after the approval of de-merger scheme, till the construction of buildings for operations,the division will be functioned in rented premises. Welding Division: This Division will be functioned as UBE Weldproducts Limited. The company was incorporated on 28th August 2006 vide incorporation/corporate identity no U 31909 AP PLC 050993 2006-2007 with the Registrar of Companies, Hyderabad, with main activities as Manufacture of Welding Consumables and Equipment. This division is proposing to acquire the land and construct the buildings; however, soon after the approval of de-merger scheme, till the construction of buildings for operations, the division will be functioned in rented premises. Automotive Division: This Division will be functioned as UBE Automotive Limited. The company was incorporated on 4th September 2006 vide incorporation/corporate identity no U63011 AP 2006 PLC 051054 2006-2007 with the Registrar of Companies, Hyderabad, with main activities as assembly of Low Cost People Car. Your company is in the process of initiating the operations of the division, has been negotiating for the Technical Cooperation for long term association with M/s. Zastava Automobili of Belgrade for the manufacturing of their model Koral. Memorandum of Understanding is being executed with them during the next financial year. Your company is also exploring the Technical Cooperation for long term association with few other reputed companies from Europe, USA and Australia, for Automotive Division. On completion of the de-merger Scheme, your company will become as a Holding Company for the four companies and continue to be Engineering Company (without manufacturing activities in the field of Turn Key Projects and Integrated Consultancy Company, and Infrastructure Development Company including Marketing and Trading Company. NOTES ON SUBSIDIARY COMPANIES Your company has no subsidiary companies of now; however, your company is proposing to acquire the controlling equity in UBE Automotive Limited, UBE Projects Limited, UBE Tools Limited and UBE Weldproducts Limited, on approval of de-merger scheme, by Honorable High Court of Andhra Pradesh. Once the acquisition is complete, these companies will become as the subsidiary companies to your company. Your company has initiated certain infrastructure projects with the Governments and Private corporate, one such project has been executed the Memorandum of Understanding with the Government of Gujarath and others are in pipeline, the same will be initiated as an SPV, which will become as the Subsidiary Companies to your company. DIVIDEND Considering the long term interest of the Members and as a matter of prudence it is proposed to plough back profits to build up own resources, your Directors, therefore, have not recommended payment of cash dividend for the period ended 31 March 2012. SOCIAL DEVELOPMENT Your company continues to record high priority in its contribution to socio economic development particularly in the areas of Rural Health, education etc., among the villages in the vicinity of the plant. ENERGY TECHNOLOGY AND FOREIGN EXCHANGE Information on conservation of energy, technology absorption and foreign exchange earning/out go, as required to be disclosed in terms of Section 217(1)(e) of the companies Act, 1956 read with the Companies (Disclosure of particulars in the Report of the Board of Directors) Rules 1988, is annexed hereto and forms part of this report. RESEARCH AND DEVELOPMENT Your company is proposing to establish a Central Research Center in the areas of Material Sciences and Engineering. AUDITORS M/s. C V S Balachandra Rao & Co, auditors of your Company, who are retiring at the Twenty Seventh Annual General Meeting and being eligible to offer themselves for reappointment. Your Directors recommend that the appointment of M/s. C V S Balachandra Rao & Co, Chartered Accountants as Auditors of the company and recommend that authority be given to the Board of Directors to fix up the remuneration. AUDIT COMMITTEE Your company has constituted an Audit Committee to meet the requirements under the provisions of Sections 292A of the Companies Act, 1956 and the listing agreement with the stock exchanges. The committee is chaired by Mr S Rahmatullah has taken over as the Chairman of the committee, who has 47 years of wide experience in the field of Secretarial Services, Teaching and Fiscal. CORPORATE GOVERNANCE REPORT A report on Corporate Governance Report and Management Discussions & Analysis Report is annexed separately as part of the report. CASH FLOW STATEMENT A cash flow statement for the year's operation is appended. FIXED DEPOSITS Your company has not accepted any fixed deposits under the provisions of Section 58(a) of the Companies Act, 1956 hence not applicable to the company. INSURANCE All properties are insurable in the interest of the company including buildings, plant and machinery and stocks have been adequately insured. As required under Public Liability Insurance Act. 1991, your company has taken necessary insurance coverage. DIRECTORS Mr. M Chandramouli and Mr. M S Rajaneesh Chandra retire by rotation and being eligible to offer themselves for reappointment. ANCILLARY DEVELOPMENT Your company has planned to develop ancillary companies wherein the products of ancillary Companies will be used in the products of your company. HUMAN RESOURCES Employee relations remained cordial at your company. Your Directors take this opportunity to record their appreciation for the out standing contribution of all employees of your company. Particulars of employees is required to be furnished in terms of the rules framed under Section 217 (2A) of the Companies Act, 1956 as amended by the Companies (Amendment) Act, 1988. During the period, there were no employees drawing remuneration of more than Rs.12,00,000/- or more per annum or Rs 1,00,000/- per month, therefore, no particulars of employees. Towards the foreign travel by the executives if any during the year are reimbursed in INR as equivalent to the exchange rate prevailing the time of travel. CONSERVATION OF ENERGY & TECHNOLOGY ABSORPTION ETC. In accordance with the provisions of Section 217 (1) (e) of the Companies Act, 1956, the required information relating to Conservation of Energy, Technology Absorption and Foreign Exchange earnings and outgo is annexed. DIRECTORS' RESPONSIBILITY STATEMENT AS PER SECTION 217(2AA) OF THE COMPANIES ACT, 1956 Responsibilities in relation to financial statements: The financial statements have been prepared in conformity, in all material respects, with the generally accepted accounting principles in India and the accounting standards prescribed by ICAI in a consistent manner and supported by reasonable and prudent judgments and estimates. The Directors believe that the financial statements reflect true and fair view of the financial position as on 31.03.2012. The financial statements have been audited by M/s. C V S Balchandra Rao & Co, Chartered Accountants in accordance with generally accepted auditing standards which include an assessment of the systems of internal controls and tests of transactions to the extent considered necessary by them to support their opinion. GOING CONCERN In the opinion of the Directors, the Company has started the operation in the main business activities, Manufacturing of Welding Consumable and Equipment, Design, Fabrication, Erection and Commissioning of Process Plants (EPC and Heavy Fabrication), Design, Manufacture, Erect ion and Commissioning of Special Purpose Machine Tools and Tooling Systems, and Infrastructure Development and accordingly it is considered appropriate to prepare the financial statements on the basis of going concern. Maintenance of accounting records and internal controls The company has taken proper and sufficient care for the maintenance of adequate accounting records as required by the Statute. Directors have overall responsibility for the Company's internal control system which is designed to provide a reasonable assurance for safeguarding of assets, reliability of financial records and for preventing and detecting fraud and other irregularities. The system of internal control is monitored by internal audit function, which encompasses the examination and evaluation of the adequacy and effectiveness of the system of internal control and quality of performance in carrying out assigned responsibilities. Internal Audit Department interacts with all levels of management and the Statutory Auditors, and reports significant issued to the Audit Committee of the Board. Audit Committee supervises financial reporting process through review of accounting and reporting practices, financial and accounting controls and financial statements. Audit Committee also periodically interacts with internal and statutory auditors to ensure quality and veracity of company's accounts. Internal Auditors and Statutory Auditors have full and free access to all the information and records as considered necessary to carry out their responsibilities. All the issues raised by them have been suitably acted upon and followed up. ACKNOWLEDGEMENTS Your Directors wish to thank the Central Government, Government of Andhra Pradesh, Financial Institutions and the Company's Bankers for a variety of help and regular encouragement to the company. Your Directors gratefully acknowledge the trust and confidence you as esteemed shareholders have placed in the company at all times. Your Directors also wish to place on record their appreciation of the dedicated services rendered by all the officers, staff and workers of the company at all levels and for their unfailing loyalty and sense of belonging which constituted the hall mark of your company. For and on behalf of the Board Place: Hyderabad S. Vijaya Bhaskar Date : 31 August 2012 Managing Director ANNEXURE INFORMATION AS PER SECTION 217 (1) (E) READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF DIRECTORS) RULES 1988 AND FORMING PART OF THE DIRECTORS REPORT FOR THE YEAR ENDED 31 MARCH 2011 CONSERVATION OF ENERGY Energy Consumption & Cost Reduction Steps taken to reduce the energy consumption & reduce the cost of production Energy audits are been performed and all the relevant steps are adopted. TECHNOLOGY ABSORBTION Technology imported during the last Five years Technology Imported Year of Import Status None - - FOREIGN EXCHANGE EARNINGS/OUTGO 1. Exports & Foreign Exchange earnings - Nil 2. Imports/expenditure in foreign currency - Nil MANAGEMENT DISCUSSION AND ANALYSIS Global Economic Condition The 21st century is seeing a fundamental reshaping of the way business, society and government operate. In recent times, the economic crisis and its repercussions have accelerated the shift of economic power from the developed to the emerging nations and exposed a fragile world with limited capacity to respond to systemic risks. As a consequence, the global economic growth has stymied and likely to traverse in an uncertain zone for some years to come. The major challenges besetting the world economy are managing the shift in balance of power from the developed to emerging economies, increasing competition for securing natural resources, improving productivity in the wake of growing skill mismatches, non-inclusive growth in the emerging economies and above all, a looming economic uncertainty and socio- political fragility. Today the global economy is awaiting a movement where governments define new ways of relating to each other, operate in new frame works and business models, while coping with the ever-evolving challenges. A more thoughtful analysis reveals that global rebalancing needs to be a long-term, collaborative process. It must encompass those excluded from the fruits of global prosperity and encourage those who have prospered to continue doing so in a sustainable manner. The recent economic crisis and socio-political tensions demonstrated that systemic risks can no longer be tidily contained and addressed in a single ecosystem but require a-multi disciplinary, multi-stakeholder efforts to improve the global economic system's overall resilience. Investment from developed economies has typically flown into emerging markets, which offer more dramatic growth and strong returns. However, some of these markets are associated with high volatility and socio-political tensions, giving rise to new set of investment risks. In addition, growing consumption demand in emerging markets is driving up commodity prices, both crude oil and other raw materials which is expected to impede the global economic recovery in the medium term. Overview of Indian Economy The Indian economy witnessed a higher growth in GDP of 8.5% for the year 2010-2011 over a growth of 8% in 2009-2010. A strong rebound in agriculture and continued momentum in some sectors of manufacturing and construction enabled the economy to achieve a higher growth in 2010-2011. Economic growth was supported on the demand side by private consumption during the year, and accelerated investment in the first three quarters of 2010-2011. Consumer durables, automobile sector and engineering goods shored up the overall industrial sector performance. In 2011-2012, the projected growth rate is in the range of 8% to 8.5%. Aided by its young demographic profile, India is regarded as one of the youngest economies in the world with considerable opportunities as a consumer market and a manufacturing hub. To achieve a sustainable growth, the country needs to push forward critical governance reforms and innovative public-private partnerships to deliver rapid and inclusive growth and an enabling environment for upgrading infrastructure. It is encouraging that infrastructure has been the focal point of the Government's budget proposals for 2011-2012, accounting for a record 49% of total plan allocation. In order to strengthen public-private partnerships it has proposed additional avenues for financing infrastructure projects. However, the resilience of the economy would continue to get tested in the medium term by the challenges thrown up by a struggling world economy and domestic pressures of inflation and increasing interest rates. Construction and turnkey projects business scenario Construction industry registered a higher growth of 8.1% for the year 2010- 2011 led by an increased level of activities of industrial and infrastructure construction segments. The growth trends is likely to sustain through the next year on the back of renewed thrust on infrastructure. The real estate and IteS facility construction has gained traction, despite stringent regulations and financing issues. Increasing award of public-private projects in airports and Ports sectors, besides the conventional Roads & Bridges sector have also triggered the growth. The gross capital formation for 2010-2011 is lower at 7.6% as against 13.8% achieved in 2009-2010. The Core industries registered a lower growth of 5.8% in 2010-2011, largely due to supply side constraints. The sluggish growth for the past 2-3 years in the Core sector is dampening the fresh investment decisions. Similarly the industrial sector saw an erratic growth trend during the year, thereby delaying new capex decisions. It is expected that with supply side constraints easing, the confidence will re-emerge for undertaking fresh capacity addition projects. Investments in Power sector are expected to be good over the next 5 years. While there is some slippage in achieving the targeted capacity additions during the 11th plan, major capacity additions in the thermal power segment have been planned during 12th five year plan, with special thrust to super critical technology. The sector, however, needs to tackle environmental and social issues expeditiously, besides trying up fuel sources so as to achieve the targeted growth in capacity. Business Challenges Sustained economic growth in India on the backdrop of slow recovery internationally, will continue to attract global EPC players to the country. Low cost Chinese power plant equipment manufacturers, armed with tariff protection and shorter delivery schedules, pose a major challenge to domestic power equipment manufacturers. On the cost front, input prices are expected to rise further. The ability of businesses to hand competition will depend upon success of technology tie ups, pre-bid alliances, cost leadership and execution excellence. Order prospects for infrastructure, power, fertilizer, water and roads largely depend upon the government's ability to implement policy decision and finance large scale projects. Power projects and new projects in minerals and metals sector face hurdles due to issues such as land acquisition, coal linkages and environmental clearances. With increasing proportion of large sized Engineering, Procurement & Construction (EPC) orders under execution, meeting stiff delivery schedules set by demanding customers will require smart contracts management and close project monitoring to achieve sales targets. The year 2010-2011 saw sustained increase in the process of major inputs and raw materials. Considering the huge need for domestic infrastructure, there could be some imbalance in the demand and supply scenario leading to increasing costs and pressure on margins. Growth Strategies & thrust Areas Ensuring cost competitiveness, timely execution of projects within cost estimates, managing volatility, control over working capital, achieving operational efficiency, improved supply chain management will be the key success factor for the projects and product businesses to achieve the desired growth in the medium term. The major strategies for growth are enumerated below: New Business structure rollout The company has embarked upon bidding and successful in getting the Ahmadabad Parking Station Projects and initiation of the same will emerge as an excellent order position. Upon implementation of the same, a new era of infrastructure development will emerge With the re-structure framework and formation of subsidiary companies (SC) has successfully commenced the planning sector with completion of the changes in policies and processes pursuant to formation of subsidiary companies (SC s) and the new structure is effective in third quarter of the financial year 2012. The new SC structure is expected to facilitate scalable, high impact organizational structure in the near future. The formation of SCs would empower business to harness sector opportunities, enhance competitiveness, attract talent, create leadership band width, increase accountability and strengthen performance culture. International Business On the international front, the company vision to establish an electrode manufacturing unit at Malta and Hydro Power project at Georgia will begin the International vision of the company. Thrust Areas of Project Businesses The SC in project business will focus on expanding customer base, strengthening business development efforts, better key account management, cost leadership, improved capacity utilization; technological tie ups to acquire capability to bid for high-end projects and forays into new business segments and geographies. PCC Division has plans to acquire new capabilities in areas of EPC for chemical plants, process plants and pharmaceutical plants. Business development initiatives will be strengthened to establish the SC and EPC players in Chemical plants, process plants and pharmaceutical plants. Infrastructure division will enhance engineering the design band width to increase the proportion of high-end Design and Build jobs. Tie-ups are envisaged with leading international players for high rise construction technology and formwork. 'Green Building' capacity will be developed considering futuristic market trends. Thrust Areas of Product Businesses Welding Division businesses will work on enhancement of operational efficiencies, cost competitiveness and better supply chain management. Various initiatives are underway to strengthen product range in Electrical and Automation AC. The AC will promote integrated solutions to gain competitive advantage. Engineering Division business (SPMs, Tools & Tooling Systems, Industrial Machinery) will strengthen the product range in initiatives are planned for improving the capacity utilization and vendor development. Human Resource Development Attracting and retaining talent with requisite competencies, especially for the emerging businesses and focus on training and development to improve productivity are key thrust areas for businesses to strengthen competitive advantage. Various initiatives have been planned for career planning, employee engagement, competency building and succession planning.