DIRECTORS' REPORT TO THE SHAREHOLDERS Your Directors have pleasure in presenting the Twenty Third Annual Report together with the Audited Balance Sheet & Profit and Loss Account for the year ended 31.03.2016 FINANCIAL PERFORMANCE: The Company's gross income for the financial year ended 31st March, 2016 was Rs. 5,398.72 lacs compared to Rs.5,048.54 lacs in the previous year. The profit before tax for the Company is Rs. 1,110.27 lacs as against Rs. 829.76 lacs in the previous year. The depreciation for the year is Rs.121.36 lacs compared to Rs.116 lacs in the previous year. After providing Taxation, the Company's net profit stands at Rs.738.79 lacs against Rs.549.72 lacs in the previous year. Your company proposes to transfer Rs. 350 lacs to General Reserve out of the amount available for appropriation and an amount of Rs. 456.63 lacs is to be carried over to Balance Sheet after appropriation of Dividend on Preference Shares and Equity Shares including Dividend Tax. The Net worth of the company is at Rs.1958.44 lacs as on 31.03.2016 as against Rs.1820.05 lacs in the previous year. DIVIDEND The Board of Directors declared an interim dividend of Rs 2/- per Equity Share on 83, 20,000 equity shares of Rs 10/- each aggregating to Rs 166.40 lacs on 16.03.2016 and the dividend had been distributed to the shareholders. The approval of the shareholders has been perused in this Annual General Meeting. The Board of Directors has recommended a final dividend of Re 1/- per Equity share on 83, 20,000 equity shares Rs 10/- each aggregating to Rs 83.20 lacs for the financial year ended 31st March, 2016, which if approved in the ensuing Annual General Meeting will be paid to all the equity shareholders, whose names appear in the Register of Members as on 05h August, 2016. With the approval of the final dividend the total dividend for the financial year ended 31st March 2016 has been Rs. 3/- per share (Rs. 249.6 lacs). REDEMPTION OF 9% NON-CONVERTIBLE NON-CUMULATIVE REDEEMABLE PREFERENCE SHARES The company had redeemed 3,00,000 9% Non-Convertible Non-Cumulative Redeemable Preference shares of Rs 100/- each amounting to Rs 300 lacs on 14.08.2015. PERFORMANCE: Sales and margins improved due to increase in the purchase of castings from reliable outsources and favorable foreign exchange conditions. In spite of price reduction due to severe competition from China, Company has been able to reduce production costs and thus improving margins. Company expects to improve sales and margin due to improved power situation and increase in production. MANAGEMENT DISCUSSION AND ANALYSIS REPORT TRENDS & DEVELOPMENT The Company has a comfortable back order position in spite of a slowdown in the Middle East market. "Make in India" movement by the Government has not improved the domestic market segment as anticipated last year. Products for joining 2" and under pipe sizes have been approved by the testing agencies and will start production during the financial year 2016-2017. DIRECTORS Mrs Panath Anitha, Whole Time Director, who retires by rotation, and being eligible, offers herself for reappointment. KEY MANAGEMENT PERSONNEL Mr. A.V. Palaniswamy, Managing Director, Mrs Panath Anitha, Whole Time Director, Mr. J. Saravanan, Chief Financial Officer and Mr. S. Aravinthan, Company Secretary of the Company are the Key Management Personnel as per the provisions of the Companies Act, and rules made there under. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATE COMPANIES The company does not have any Subsidiary, Joint Venture or Associate Company COMPANY'S PHILOSOPHY ON CODE OF CORPORATE GOVERNANCE The Company sustains to develop, manufacture and supply effective products to meet the customer requirements The striving towards continuous improvement in total quality and keeping abreast of the latest technologies have been enabling the Company to achieve its goal. The focus on training and development of the employees' skills has well bearing results in the goal attainment. The ultimate benefit of these efforts has been aimed in enrichment of the value to the shareholders. The environment and Community has been well recognized while moving towards the goal. Directors' Responsibility Statement Your Directors further report that (i) in the preparation of annual accounts, the applicable accounting standards have been followed and there were no material departures; (ii) the accounting policies selected have been applied consistently, prudent judgments and estimates have been made to give a true and fair view of the state of affairs of the company as at 31st March 2016 and of the Profit of the company and the cash flow statement for the year ended 31.03.2016. (iii) there have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; (iv) the annual accounts have been prepared on a going concern basis. (v) the directors, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively Internal financial control means the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business including adherence to Company's policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. (vi) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. CODE OF CONDUCT All Directors and senior management of the Company have affirmed Compliance with the Code of Conduct of National Fittings Limited for the financial Year ended 31st March 2016. DECLARATION OF INDEPENDENT DIRECTORS The Independent Directors have submitted their disclosures to the Board that they fulfill all the requirements as stipulated in Section 149(6) of the Companies Act, 2013 so as to qualify themselves to be appointed as Independent Directors under the provisions of the Companies Act, 2013 and the relevant rules. POLICY ON DIRECTOR'S APPOINTMENT AND REMUNERATION INCLUDING CRITERIA FOR DETERMINING QUALIFICATIONS, POSITIVE ATTRIBUTES, INDEPENDENCE OF A DIRECTOR, KEY MANAGEMENT PERSONNEL AND OTHER EMPLOYÉÉS The company shall have such person on the Board who complies with the requirements of the Companies Act, 2013. Directors/KMPs shall be persons of sound integrity and honesty, apart from knowledge, experience etc in the respective fields. No person less than the age of 21 years shall be appointed as the director of the Board. Composition of the Board shall be in compliance with the requirements of the Companies Act, 2013. The Executive Directors are paid with remuneration as approved by the members but are not paid sitting fees. Managing Director, Whole Time Director, Company Secretary and Chief Financial Officer shall be the Key Management Personnel (KMPs) of the Company. All persons who are Directors, KMPs, members of Senior Management and all the employees shall be abide by the code of conduct. Independent directors are not entitled for ESOPs MANNER IN WHICH FORMAL ANNUAL EVALUATION HAS BEEN MADE BY THE BOARD OF ITS OWN PERFORMANCE AND THAT OF ITS COMMITTEES AND INDIVIDUAL DIRECTORS 1. Nomination and Remuneration Committee of the Board prepared and sent through its Chairman draft feedback form for evaluation of the Board and independent directors. 2. Independent Directors at a meeting of themselves considered and evaluated the Board's performance, performance of the Chairman and other non-independent Directors. 3. The Board subsequently evaluated performance of the Board, the Committees and Independent Directors. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS MADE UNDER SECTION 186 OF THE COMPANIES ACT, 2013 There were no loans, guarantees or investments made by the Company under Section 186 of the Companies Act, 2013 during the year under review and hence the said provision is not applicable. PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES All the related party transactions that were entered during the financial year were in the ordinary course of the business of the Company. There were no materially significant related party transactions entered by the Company with its promoters, Directors, Key Management Personnel and other persons which may have a potential conflict with the interest of the Company. All the related party transactions are placed before the Audit Committee for approval. For the business transactions with the related parties which are of repetitive nature as well as for the normal business transactions which cannot be foreseen prior omnibus approval from the Audit Committee are obtained and accordingly required disclosures are made to the Committee on quarterly basis in terms of the approval of the Committee. The Policy on materiality of related party transactions and also on dealing with the related party transactions as approved by the Audit Committee and Board of Directors is uploaded on the Company's web-site and the link for the same is <https://www.nationalfitting.com>. The particulars of Contracts or Arrangements with the related parties made under Section 188 of the Companies Act, 2013 are furnished in Annexure - 1 and are attached to this report. LISTING OF SHARES IN EXCHANGE AND DELISTING The shares are listed in Bombay Stock Exchange and will be continued to be listed in Bombay Stock Exchange which has extensive networking and the investors have access to on-line dealings with the company's securities across the country. The Company duly paid the necessary listing fees with Bombay Stock Exchange. SHARES There was no issue of fresh equity shares during the financial year. No Bonus Shares were issued. The Company has not issued any Sweat Equity Shares and not provided any Employee Stock Option Scheme. The Company has not bought back any of its securities during the year under review. INTERNAL FINANCIAL CONTROLS AND THEIR ADEQUACY The Company has implemented adequate procedures and internal controls which provide reasonable assurance regarding reliability of financial reporting and preparation of financial statements. The Company also assures that internal controls are operating effectively. MATERIAL CHANGES AND COMMITMENTS There were no material changes and commitments affecting the financial position of the company which have occurred between the end of the financial year and the date of the report. RISK MANAGEMENT POLICY Potential risk for the business of the Company and methods to handle those risks have been reviewed and monitored regularly. Few risks and the steps taken for handling them have been detailed below: 1) Sourcing of Component Company is witnessing an increasing trend of Chinese products acceptance in the market due to the longer delivery periods requested by the Company. Company is taking steps to increase the production capacities of the component suppliers and additional manufacturing capacity will be created in house for all the components made in house and processing. 2) Market Risk Oil prices have not improved in the Middle East market to continue the expansion in the infrastructure projects where most of our products are utilized. Company is exploring alternate markets like Africa, Iran and Australia in spite of larger presence of Chinese products. Expecting the domestic markets to improve in the infra structure areas. 3) Exchange Risk Company is expecting the exchange rate to be stable due to RBI policies and the risks have diminished considerably. 4) Manpower Requirement Products manufactured by the Company are labor intensive and the Company and Component Suppliers are facing shortage of skilled local labor. Presently Company is employing 60% of the man power requirement from outside the State and the economies of those states improve, there is a likelihood of 60% labor to move back. Company and component suppliers are taking steps to modernize the manufacturing methods by mechanization and automation. Special purpose machines are being envisaged to reduce labor. 5) Power Power cuts have been removed from 15th June, but interruption of power are still prevalent. Unless the financial condition of the state power supply companies are improved, there may be more interruption due to unwillingness of the private power production to supply power to state owned companies. Company is taking steps to buy power directly from private power producers through the dedicated feeders. 6) Chinese Factor Chinese economy is projected to slow down further and due to higher production capacities in our product lines, the Chinese companies are increasingly entering the export markets like Middle East, Africa, and India. Chinese Government is funding the infrastructure projects in these countries and the Chinese companies are preferred for all supplies over other countries. Export from India to Middle East has decreased considerably due to this Chinese factor in all areas. Company will maintain the market share with shorter deliveries due to the increased production capacities and introduction of new product design and new products. CORPORATE SOCIAL RESPONSIBILITY (CSR) A Board level Committee of CSR has been constituted and the Board has adopted a CSR Policy as recommended by the Committee. The Annual Report on the Company's CSR activities is furnished in Annexure 2 and attached to this report ANNUAL RETURN The extracts of Annual Return pursuant to the provisions of Section 92 read with Rule 12 of the Companies (Management and administration) Rules, 2014 is furnished in Annexure 3 and is attached to this Report. LEGAL COMPLIANCE There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future. TRANSFER OF UNCLAIMED DIVIDEND TO INVESTOR EDUCTION AND PROTECTION FUND The Company has unclaimed dividend amounting to Rs 6304442/- No amount is required to be transferred to Investor Education and Protection Fund for this financial year. DEPOSITS The Company has neither accepted nor renewed any deposits during the financial year. The information required under Section 197 of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2015 are given below: During the period under review, there was no employee drawing remuneration in excess of the limits prescribed under Section 197 of the Companies Act, 2013 and Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. STATUTORY AUDITORS M/s Krishaan & Co., Chartered Accountants, Chennai were appointed as Statutory Auditors of the Company from the conclusion of the Annual General Meeting held on 14.08.2015 until the conclusion of forth Annual General Meeting to be held after that meeting. The Company has received a certificate from the above Auditors to the effect that if they are reappointed, it would be in accordance with the provisions of Section 141 of the Companies Act, 2013. Their continuance of appointment and payment of remuneration are to be confirmed and approved in the ensuing Annual General Meeting. SECRETARIAL AUDIT REPORT Pursuant to the requirements of the Companies Act, 2013, the Company has appointed Mr M R L Narasimha, B.com, FCS, Practicing Company Secretary (Cop No: 799) as the Secretarial Auditor for the financial year 2016 whose report on 28th May, 2016 is attached separately to this report. Annexure 4. EXPLANATIÛN OR OÛMMENTS ON QUALIFICATIONS, RESERVATIONS OR ADVERSE REMARKS OR DISCLAIMERS MADE BY THE AUDITORS AND THE PRACTICING COMPANY SECRETARY IN THEIR REPORTS There were no qualifications, réservations or adverse remarks made either by the Auditors or by the Practicing Company Secretary in their respective reports. BOARD MEETINGS I. BOARD OF DIRECTORS a) Composition of Board of Directors: Executive Promoter Director 1 Executive Non-Promoter Director 1 Non-Executive Independent Director 2 b) Non-Executive Directors Compensation There are no pecuniary relationship/transactions with the Non-Executive Directors vis-à-vis the Company. c) Board Meetings Dates of Board meetings are fixed in advance and agenda papers are circulated to directors seven days before the meeting d) Number of Board meetings conducted on the year under review The Company had five Board meetings during the financial year under review as on 29.05.2015, 14.08.2015, 13.11.2015, 12.02.2016 and 16.03.2016. The AGM was held on 14.08.2015. COMMITTEES OF THE BOARD (A) AUDIT COMMITTEE: (i) Composition The Audit Committee of the Board comprises three directors, namely M. R. Alagar, Chairman, Mr A.V. Palaniswamy and Mr. M. Loganathan, members. The composition of Audit Committee meets the requirement of Section 177 of the Companies Act, 2013 Members of the Audit Committee have requisite financial and management expertise (ii) Terms of reference • Recommendation for appointment, remuneration and term of appointment of the auditors of the Company • Discussion and review of periodic audit reports and discussion with external Auditors about the scope of audit including the observations of Auditors. • Review and monitor the auditor's independence and performance • Approving Internal Audit Plans and reviewing efficacy of the function. • Overseeing Financial Reporting Process • Reviewing periodic financial results, financial statements and auditors' report thereon. • Approval or modification of transaction of the company with related parties • Scrutiny of inter-corporate loans and investments • Evaluation of internal financial controls and risk management systems. • Valuation of undertakings or assets of the Company. (iii) Attendance The committee met 4 times during the period on the following dates: 29.05.2015, 14.08.2015, 13.11.2015 and 12.02.2016 The Statutory Auditors, Internal Auditor and the Chief Financial Officer are invited to attend and participate at meetings of the Committee. VIGIL MECHANISM The Company has established a vigil mechanism and overseas through the committee the genuine concerns expressed by the employees and other Directors. The Company has also provided adequate safeguards against victimization of employees and Directors who express their concerns. The Company has also provided direct access to the chairman of the Audit Committee on reporting issues concerning the interests of co employees and the Company. (B) SHAREHOLDERS RELATIONSHIP COMMITTEE The Shareholders / Investors Grievances Committee have been reconstituted as Shareholders Relationship Committee in line with Section 178 (5) of the Companies Act, 2013 and are headed by Mr M Loganathan, Non-Executive Director. The Committee monitors re-dressal of complaints received from shareholders/investors with respect to transfer of shares, non-receipt of dividend, non-receipt of Annual Report etc. The Committee also take note on number of transfers processed, issue of fresh share certificates, dematerialization of share certificates, report about top shareholders, share holding pattern etc. There were no complaints received for this financial year. No instrument of transfers was pending on 31st March, 2016. All the communication received from shareholders was satisfactorily complied with, within the stipulated time. During the year the Committee was met 10 times. S Aravinthan, Company Secretary is the Compliance Officer. The Company has appointed M/s. SKDC Consultants Limited, Coimbatore as Share Transfer Agent. Transfer/transmissions, issue of duplicate certificates etc as well as requests for de-materialization are approved/ confirmed, as the case may be, within the prescribed period through the above Share Transfer Agent. No valid transfer request remained pending for transfer to the transferees as on 31.03.2016. (C) NOMINATION AND REMUNERATION COMMITTEE The Company has a Remuneration Committee consists of Mr R Alagar, Independent Director, M Loganathan, Independent Director and Mr A V Palaniswamy, Non-Independent Director as members. Functions of the remuneration committee are 1) Level and composition of remuneration which is reasonable and attractive to retain and motivate quality directors 2) Monitoring the performance and remuneration of the directors, key managerial personnel and other employees of the Company. The Remuneration of Whole Time Director is determined by the Remuneration Committee consists of only Non-Executive Directors. The recommendation of the remuneration committee are considered and approved by the Board subject to the approval of the Shareholders. The company has not paid any remuneration to any of its Non Executive Directors, except the Sitting Fees for attending the meetings of the Board of Directors and Audit Committee CORPORATE GOVERNANCE SEBI relaxed the applicability of Corporate Governance for certain companies (companies having paid up equity share capital not exceeding 10 crores and net worth not exceeding 25 crores as on the last day of the previous financial year) by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The equity share capital of the company is 8.32 crores and net worth is 19.58 crores and as such Corporate Governance Report has not been submitted along with the Board Report. The Board of Directors assuring that the Corporate Governance as stipulated in the Companies Act, 2013 have been fully complied with. CONSERVATION OF ENERGY a) On the assumption that power cut will be lifted and that power interruptions will be substantially reduced, the company is proposing to replace the existing power intensive, less efficient machines with newer CNC machines. b) Continuous melting operation will reduce the existing power consumption per ton of metal considerably. c) The molding operation will be continuous and this will reduce power consumption per ton of castings.. TECHNOLOGY ABSORPTION Company has developed the fittings for 2" and under pipe sizes and will be the second company in the world to produce and market in Ductile Iron. Company has developed several items in Stainless Steel products for railway brake systems and water treatment plants. Grooved products are being re-designed to reduce material content and minimize processing periods. FOREIGN EXCHANGE EARNINGS AND OUTGO Foreign exchange inflow (actual) : Rs. 41,90,55,528/- Foreign exchange used (actual) : Rs. 1,00,47,048/- INDUSTRIAL RELATIONS Relationship with the employees/labour was cordial during the year under review. ACKNOWLEDGEMENT Your Directors take this opportunity to thank M/s. Bank of India for the support extended during the period. Your Directors also wish to thank all the suppliers, employees, Government Departments/Agencies and others for their valuable contribution and assistance during the year. FOR AND ON BEHALF OF THE BOARD SD/- A.V. PALANISWAMY DIN No. 01817391 Managing Director SD/- M. LOGANATHAN DIN No. 01936839 Director Place : Coimbatore Date : 28.05.2016 |