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Directors Report of Kernex Microsystems (India) Ltd.

Mar 31, 2015

Dear Members,

The Directors present herewith, the Twenty third Annual Report together with the audited accounts of the company for the year ending 31 March 2015.

Financial Results

Rs. in lacs

2014-15 2013-14

Total Revenue 2,300.11 3,312.16

Profit/Loss before Depreciation, Finance (284.36) 412.33 Cost and Tax

Less: Finance Cost 267.28 219.52

Less: Depreciation 416.56 403.18

Profit/Loss after Depreciation, Interest and before Tax (968.20) (210.37)

Tax Expense (28.91) (39.93)

Profit/Loss after Tax (939.29) (170.44)

Balance brought forward 867.00 1,976.74

Less: Adjustments consequent to revision of useful life of certain assets pursuant to Schedule II of Companies Act, 2013 (68.00) -

Balance carried forward to Balance sheet 799.01 1,806.30

Year in Retrospect

The year 2014-2015 was a difficult year and company has incurred a loss of Rs 9.39 crores. The main reason is the slow progress of the ENR project 136LX gates due to difficult working conditions, innumerable technical problems, gate accidents that diverted man power. The dropping of 75 gate contract by ENR, local law and order problems in Egypt, slow decision making and shortage of adequate working capital, etc., compounded our difficulties and drastically curtailed the earnings expected from Egypt. In the domestic area Kernex could not obtain any new projects and all projects are either that of Railways or Defence which have long gestation period and need heavy Investment.

Kernex is required to complete the TCAS project along with other competitors, which requires a lot of working capital. In the absence of any bank credit, company has to spend on R&D work from their revenue. Owing to lack of orders, switch over from ACD to TCAS, a number of properties of Kernex could not be put to use. However, the depreciation cost has to be provided for. Despite best efforts, Kernex could not obtain a large amount of pending receivables from KRCL. The matter Arbitration and the Arbitration award is awaited. In view of the adverse circumstances, the overall earnings decreased from Rs 33.00 crores to Rs 23.00 crores this year. The expenditure could not be reduced, as it would have severely affected our working in Egypt, NFR Railways and TCAS Projects. In order to raise funds to meet the urgent requirements of capital for pursuing running projects, your Board of Directors have taken a decision to dispose of the non essential assets not generating viable revenues to meet the capital and operational requirements and complete the work on ENR and TCAS.

The Company's Business and Operational Results

1. With the dropping of ACD project by KRCL/Indian Railways, The Train Collision Avoidance System which was awarded in April' 2013 for development was continued in the modular development mode during 2014-2015 and has now reached a level of design and functional capability demonstration. Design has been approved and type test have been successfully completed. Production was taken up by your company in November'2014 and continued upto 31st March' 2015. Onsite work including erection of towers and wiring is in progress and is likely to be completed shortly. The breaking Interface unit, including test bench work was completed and Type and user testing is likely to be completed by the end September'2015.

2. New Certification agency as approved by RDSO, Lucknow for Safety Integrity Independent Level by an Independent Safety Assessment Agency (ISA) is being appointed in place of the earlier agency who has expressed its inability to continue. New ISA is likely to be finalized shortly out of the RDSO's panel..

3. The User trials are scheduled for September - October'2015 and on successful trials, TCAS may be used by Railways for deployment in Indian Railway Network.

4. The Annual Maintenance Contract and OMC of ACD System in N F Railways has been successfully carried out during the year and continued in the current year. The extension of the same upto 31st March'2016 is awaited.

5. Your company has entered into an MoU with M/s MRT Signals Limited, Kolkata, to jointly bid for the TCAS Project in Indian Railways. This will help to synergize the resources and capabilities of both companies to mutual advantage.

International Operations

Egypt

6. The progress of installation of 136 Gates of ENR Project has been affected due to accidents caused by uncontrolled traffic in Egypt and difficult working conditions, 80 gates have been installed so far and work on the remaining gates is continuing. Due to delayed payments and lack of additional working capital, the project completion date is now revised from December'2015 to June 2016. Other remaining works of the contract is in progress like Internal and External Training, supply of over 400 new booms, supply of spare parts for 2 years, PHO and warranty maintenance works, etc. The proposal of ENR for a contract for further 75 gates has been dropped.

7. MNC Enquiries: In Egypt a number of MNCS like M/s Thales, M/s Alstom, etc., who are working there have shown interest in using Kernex LXS in their signaling contract for interlocked gates. Kernex is pursuing the matter.

8. Defence Production Department, Government of Egypt is seeking technical collaboration with your company for supply of ECM module, Digital Axle Counter, Sensors, Mechanical Locks etc to be supplied in knock down condition to be assembled in Egypt. Negotiations are in progress on the scope and scale of the work.

Future Prospects

International- South Africa

1. Your company has submitted a bid to Richard Bay, Coal Terminal of Johannesburg for Supply of Collision Avoidance System to coal unloading terminal yard with tippler assemblies costing over1.28 million US $. The order for Phase - I has been received.

New Areas of business in India

2. Kernex is working at a fast pace to complete the development of TCAS and also secure Certification for SIL, so that it is ready for sale.

3. We have given an offer to KRCL and NFR to provide new breaking Interface for EMD. Loco's that are being run in NF Railway routes.

4. Your company proposes to take part in Defence projects covering Microwave, RF Radar Technologies and take up out sourced manufacturing of Electronic components from Defence vendors for DRDO, DRDL, BDL, HAL Etc. or directly from them

Research and development

Your company has been working, in the focused areas like R&D, especially for Railways and Defence, design and supply of collision avoidance system for coal unloading yards, 'Fog Pass' for helping locos to move in poor visibility, unmanned gate warning system, universal loco break Interface unit, Balises and Balises transmission, indigenous radio modem in UHF frequency, RFID tags and readers , development of online data and operational display units etc.

Progress achieved on the IPO and company expansion projects

As part of IPO related work, acquiring of some land and approaches to the main road are in progress. This work will be completed shortly. The balance proceeds of Rs.160 lakhs is deposited with the monitoring agency State Bank of Hyderabad.

Overseas Subsidiary and consolidated financial statement

The Company has one 100% wholly owned subsidiary Avant Garde Infosystems Inc, USA and there were no joint ventures or associate Companies as at 31st March 2015. In accordance with section 129(3) of the Companies Act, 2013 the Company has prepared Consolidated financial statement of the Company and the subsidiary in the form and manner as that of its own in compliance with the accounting standards and the listing agreement with the stock exchanges which forms part of the Annual Report for laying before the Annual General Meeting. A report on the performance and financial position of the subsidiary forms part of the consolidated statement in Form AOC-I.

Dividend and Reserves

The company has incurred losses in the financial year, as the expected dues were not received, work progress on ENR was tardy and new orders did not materialize. As such, your directors regret their inability to declare any dividend on the paid up capital of the company.

Material changes and commitments

No material changes and commitments affecting the financial position of the Company occurred between the end of the financial year to which the financial statements relate and the date of this report. There was no change in the nature of business of the Company during the financial year ended 31st March 2015

Directors and Key Managerial Personnel

In accordance with the provisions of Section 152 of the Companies Act, 2013 Ms Jyoti Raju and Mr Raju Narasa Mantena, Directors retire by rotation and being eligible offer themselves for re-appointment. Col L.V.Raju is proposed for re-appointment as Managing Director of the Company The brief profile of the Directors who are to be appointed/re-appointed forming part of the notes and explanatory statement to the notice of the Annual General Meeting is furnished. Mr K.Subash and Mr K.Suman Kumar were appointed as Company Secretary and Chief Financial officers during the year. The CS and CFO resigned during the current year and the company is looking for suitable persons for appointment.

Declaration by Independent Directors

All 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 rules framed there under

Nomination and Remuneration Policy of Directors, Key Managerial Personnel and other Employees

In terms of section 178 (1) of the Companies Act 2013 the Board on the recommendation of the Nomination and remuneration committee approved the criteria and policy for selection and appointment of directors, key managerial persons and their remuneration. The remuneration policy forms part of the report on corporate governance.

Board Evaluation

Pursuant to the provisions contained in the Companies Act 2013 and clause 49 of the listing agreement the Board has carried out annual performance evaluation of its own performance, The chairman of the Board ,the individual directors as well as the evaluation of the working of the Audit, Nomination and Remuneration committee and other committees. The evaluation was based on the attendance, contribution, independence of judgment and preparedness for the meetings

Number of Meetings of the Board of Directors

During the financial year 2014-15 the Board of Directors of the Company met 10 times on 24.05.2014, 11.08.2014, 20.08.2014, 09.09.2014, 25.10.2014, 10.01.2014, 14.11.2014, 07.02.2015, 10.03.2015 and 24.03.2015. A separate meeting of the Independent Directors of the Company was also held on 20.08.2014 to discuss items enumerated under Schedule IV to the Companies Act 2013 and clause 49 of the listing agreement

Directors' Responsibility Statement

Pursuant to section 134 (3) (c) of the Companies Act, 2013 the Directors to the best of their knowledge hereby state and confirm that

a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures

b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period

c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities

d) the Directors had prepared the annual accounts on a going concern basis and

e) the internal financial controls to be followed by the Company were laid down and such financial controls were adequate and were operating effectively

f) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and were operating effectively

Internal Financial Controls

The Company has laid down policies and procedures to be adopted 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. An independent audit committee of the Board reviews the adequacy of internal controls

Particulars of Loans, Guarantees and Investments.

The details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 forms part of the financial statements

Audit Committee of Board:

The Audit Committee of the company comprises four (4) Directors including three (3) independent Directors and One (1) Managing Director and the Chairman of the Audit Committee was present at the Board Meeting where Annual accounts have been approved.

Corporate Social Responsibility (CSR)

The Company having regard to the net profit/turnover/ net worth is not covered under the provisions of Section 135 of the Companies Act 2013 to constitute a committee and spend the amount towards CSR activities

Related Party Transactions

All the related party transactions by the Company during the year 2014-15 were on an arms length basis and were in the ordinary course of business and as such the provisions of section 188 are not attracted. There are no materially significant Related Party Transactions with Promoters, Directors, Key Managerial Persons or other designated persons during the year.

Vigil Mechanism

The Company in compliance with the provisions of Section 177(9) of the Companies Act, 2013 and clause 49 of the listing agreement framed a whistle Blower Policy/Vigil Mechanism for reporting illegal or unethical behavior. The employees are free to report violations of applicable laws and regulations and the Code of Conduct. The Audit Committee reviews reports received from the employees who may also report to the Chairman of the Audit Committee. During the year under review, no employee was denied access to the Audit Committee. The Directors and senior management staff are to maintain confidentiality of the reporting and ensure that the whistle blowers are not subjected to any kind of discrimination. The whistle blower policy is also posted on the Company's website.

Familiarization Programme for Independent Directors,

In terms of clause 49(II)(B)(7) of the Listing Agreement with the Stock Exchanges the Company familiarizes all the independent directors about their roles, rights and responsibilities in the Company, nature of Industry, Risk Management, Board evaluation process and procedures, financial controls and management, Board effectiveness, strategic direction etc., The Directors also were explained in detail the compliances required from them under the Companies Act, Clause 49 of the Listing Agreement and other relevant regulations and their affirmation taken with respect to the same. With a view to familiarize with the Company's operations, the Directors also were given detailed presentations giving the organizational set up of the Company, the functioning of various divisions / departments, the Company's market share and the markets in which it operates, governance and internal control processes and other relevant information pertaining to the Company's business. The Managing Director also has personal discussions from time to time with the Independent Directors. The above initiatives help the Directors to understand the Company, its business and the regulatory framework in which the Company operates and equips them to effectively fulfill their role as Independent Directors of the Company.

Extract of Annual Return

The extract of the Annual Return in Form No MGT-9 forms part of the Director's Report and is annexed as Annexure-A

Risk Management

During the year under review the Audit Committee of Directors was entrusted with the responsibility of identification, assessment and addressing of various risks which may threaten the existence of the Company and to assist the Board in Overseeing and approving the risk management framework and to manage, monitor and report on the principal risks and uncertainties that can impact its ability to achieve its strategic objectives. The Company has put in place internal control systems and processes to optimize the risk mitigation measures for review by the audit Committee and approval by the Board. The executive management is guided from time to time by the Board to improve the risk mitigation measures and initiate timely action

Transfer of unclaimed dividend

The unclaimed dividend for financial year 2006-07 was transferred to Investor Education and Protection Fund and the sum for the financial year 2007-08 is due for transfer

Auditors

Statutory Auditors

M/s GMK Associates, Chartered Accountants, Hyderabad were appointed as statutory auditors at 22nd AGM of the Company held on 27th September 2014 for a period of three years subject to ratification at every AGM They have confirmed their eligibility to the effect that their re-appointment, if made, would be within the prescribed limits under the Act and that they are not disqualified for re-appointment

Secretarial Audit

In terms of section 204 of the Companies Act2013 and the Companies (Appointment and Remuneration of Managerial Personnel ) Rules 2014 the Company has appointed M/s A.J.Sharma & Associates, Company Secretaries to conduct Secretarial Audit for the year 2014-15 and their report is annexed as Annexure-D to this report

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and outgo:

The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo as required under section 134 (3) (m) of the Companies Act 2013 read with Rule 8 (3) of the Companies (Accounts) Rules 2014 is furnished in Annexure-B and forms part of this report

Particulars Relating to Remuneration of Directors/Key Managerial Personnel and Employees.

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in the Annual Report as Annexure C.

There were no employees drawing remuneration in excess of the limits contained in Rules 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014,

General

No disclosure or reporting is required of the following

1. The Company has not accepted any deposits covered under Chapter V of the Act.

2. No equity shares with differential rights as to dividend, voting or otherwise were issued

3. No sweat equity shares were issued

4. No remuneration or commission was received by the Managing Director/ Whole-time Director of the Company from subsidiary Company.

5. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future.

6. No cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

Corporate Governance Report

The Company is committed to adhere to the corporate governance requirements set out by SEBI. The report on Corporate Governance as stipulated under the Listing Agreement forms an integral part of this Report. The requisite certificate from the Auditors of the Company confirming compliance with the conditions of corporate governance is attached as Annexure-E to the report on Corporate Governance.

Management Discussion & Analysis (MDA)

Management's Discussion and Analysis Report for the year under review, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is presented in a separate section forming part of the Annual Report.

Acknowledgements:

Your Directors would like to express their sincere appreciation for the guidance, assistance and co-operation received from the Indian Railways, RDSO, Egyptian Railways, Konkan Railway Corporation Ltd., State Bank of Hyderabad, Government authorities and members during the year under review. Your Directors also wish to place on record their deep sense of appreciation for the commendable and dedicated contribution of all employees.

By order of the Board For Kernex Microsystems (India) Limited

Col. L.V.Raju (Retd) Place: Hyderabad Managing Director Date: 10-08-2015 (DIN.00052102)




Mar 31, 2014

Dear Members,

The Directors present herewith, the Twenty Second (22nd) Annual Report together with the audited accounts of the company for the year ending 31st March 2014.

Financial Results Rs in Lakhs 2013-2014 2012-2013

Sales and Other Income 3312.16 3144.26

Profit before interest and 412.33 696.25

depreciation

Interest 219.52 245.45

Depreciation 403.18 275.95

Profit before Tax

Provision for Taxation (39.93) 110.17

Profit after Tax (170.44) 64.68

Add: Balance brought 1976.74 1912.06

forward from

previous year

Profit available for 1806.30 1976.74

appropriation

Earnings Per Share (Rs.)

Basic (1.36) 0.52

Diluted (1.36) 0.52

Appropriations:

Transfer to General - -

Reserve

Proposed Dividend - -

Income Tax on proposed - -

Dividend

Balance carried to the 1806.30 1976.74

Balance sheet

Dividend

In view of the company making losses in comparison with the previous years that is 2010-2011, 2011-2012 and 2012-2013, your Directors are not in a position to recommend any dividend on the paid up capital of the company for the financial year 2013-2014. As many orders in the pipeline are not finalized, existing reserves are required to sustain the company''s business and provide seed capital to enable the company to take up new R&D and other projects which are profitable.

Year in Retrospect

The year 2013-2014 was a very difficult year owing to financial constraints of the Indian Railways, KRCL keeping on hold and dropping of ACD Project and Indian Railways opting for the new TCAS Project. With reduced revenues from the main sources of income, combined with the slow progress of ENR Project, have lead to a drop in our turnover. The Country''s economic slow down, Railway constraints and hold up of investments have sevearly affected your Company operations and proposals of diversification.

The Company''s Business and Operational Results

1. KRCL has dropped the ACD Version 1.0, developed over 6 years and Ver 2.0, developed over a period of 4 years on instructions of Indian Railways and the same was informed to Kernex towards the end of 2011-2012.

2. Taking account of the inadequacies of ACD System, Indian Railways and RDSO have come out with New Development Notification for development of TCAS System (Train Collision and Avoidance System) in place of ACD System.

3. Kernex which allowed keen interest to develop the TCAS System in conjunction with RDSO was short listed for receiving the competitive tender in the IIIrd quarter of 2011-2012, after thorough evaluation of our Strengths.

4. Kernex submitted tender to RDSO in response and was awarded, Package B of the contract for development of TCAS System valued at Rs.5.80 crores, in the Vikarabad-Bidar sector.

5. The development work started in July 2013 and continued up to year end. The primary functionality of Inter-communications, logics, Braking Interface, SPAD Protection, use of RFID Tags and RF reader interoperability with the other vendors, design according to SIL specifications, documentation and partial certifications have been completed satisfactorily.

6. The equipment is presently being evaluated for type testing, environmental screening and site acceptance trials, as aprelude for final user''s evaluation and certification criteria testing. We expect all related development, testing, approval and certification to be completed by the end of January 2015.

7. Kernex, successfully executed CMC agreement for operational and comprehensive maintenance of ACD System, in NF Railway, which involved over 1250 ACDs and 8 Loco sheds including 200 Guard and SLR ACDs.

8. Egyptian National Railways Project has progressed satisfactorily, and over 73 Gates were installed. As on 31 March 2014, more than 50% Gates have been completed and balance gates are being installed despite difficult local, administrative problems and financial constraints.

9. The project delays are due to many forced stoppages of work because of avoidable accidents which necessitated diversing of manpower, local difficulties and delay in power supply, shortage of materials like booms etc, which are to be provided by ENR. ENR has also delayed payments and is withholding substantial payments. At present, the PHO is also held up by ENR. With provision of sufficient funds and strengthening the protect team, the project is expected to move faster.

International Operations Egypt

Over 50% of Gates have been completed and the remaining gates are expected to be completed by 31 March 2015. We have separately submitted a new tender for over 75 gates, which is being evaluated by ENR and is likely to be finalized shortly.

Sale of additional Lx Gate materials to Egyptian Govt. Ministry of Defence Production

Egyptian Govt. of Defence Production is seeking technical collaboration with us to supply ECM Modules, Digital Axle Counter, Sensors, Mechanical locks to be supplied to them in knock down conditions with final assembling to be done in Egypt. Quotations have been submitted and final terms and conditions of supply are being negotiated.

Supply of additional items as part of spares for ENR as part of original contract

Action is in hand to supply 500 booms, if ordered as part of 5 year spares along with 96 control panels and supply of two years maintenance costing over 2.00 million dollars to ENR.

Work tender submitted to Richards Bay Coal Terminal, South Africa

The work is under technical evaluation and the complete South African Railway team is likely to visit India in September 2014.

Domestic Market

Kernex plans to complete the development of TCAS project in about 6 month''s time and be ready to bid for tenders in Railway market. Digital Axle counters are greatly in demand and we are pursuing our association with other companies to secure approvals from RDSO and market the product in India and abroad.

New areas of business in India

Your company proposes to take part in Defence projects, in Microwave, RF and Radar technologies and accept outsourced manufacturing orders from Defence vendors or jointly manufacture Electronic Components required by DRDO and Defence Ministry to utilize our infrastructure and expertise.

Research & Development

Your company intends to take up R&D work in Defence related projects and GIS projects, besides new projects of Railways which are being tendered by RDSO. Kernex also explore scope for Joint Ventures in emerging areas of interest.

Progress achieved on the IPO and Company Expansion Projects

As part of IPO related work, acquiring of some land and approach stretches is in progress. All efforts are being made to complete the revised project works during the year 2014-15.

Subsidiary company and consolidated financial statements

The Company had one Wholly Owned subsidiary in USA as on March 31, 2014. There has been no material change in the nature of the business of the subsidiaries. As required under the Listing Agreements entered into with the Stock Exchanges, consolidated financial statements of the Company is also attached.

The consolidated financial statements have been prepared in accordance with the relevant accounting standards as prescribed under section 211(3C) of the Companies Act, 1956. The consolidated financial statements disclose the assets, liabilities, income, expenses and other details of the Company and its subsidiaries.

The members may refer to the statement under section 212 of the Companies Act, 1956 for further information on this subsidiary. The Balance Sheet of the said company is also attached herewith as required under Section 212 of the Companies Act, 1956.

Corporate Governance Report, Management Discussion & Analysis Report and Business Responsibility Report

As per clause 49 of the Listing Agreements entered into with the Stock Exchanges, Corporate Governance Report with auditors'' certificate thereon and Management Discussion and Analysis are attached and form part of this report.

Directors'' Responsibility Statement:

As required under Section 217 (2AA) of the Companies Act, 1956 it is hereby stated that:

a) . In the preparation of the Annual Accounts for the year ended March 31, 2014 the applicable Accounting Standards had been followed along with proper explanation relating to material departures

b) The directors had selected such Accounting Policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the company for that period.

c) The directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

d) The directors had prepared the annual accounts on a going concern basis.

Audit Committee of Board:

The Audit Committee of the company comprises four (4) Directors including three (3) independent Directors and One (1) Managing Director, The Chairman of the Audit Committee was present at the Board Meeting where Annual accounts have been approved.

Fixed deposits

The company has not accepted any deposits from the public and therefore, the provisions of section 58A of the Companies Act, 1956 are not applicable.

Conservation of Energy, Technology Absorption, etc.:

The particulars prescribed under 217 (1) (e) of the Companies Act, 1956 read with the Companies (Disclosure of particulars in the Report of Board of Directors) Rules 1988, in respect of technology absorption, foreign exchange earnings and outgo are set out in the annexure forming part of this report.

Employee Relations:

Relations between the employees and the management continued to be cordial during the year.

Particulars of Employees:

None of the employees are covered under section 217(2A) read of the Companies Act, 1956 read with the Companies (particulars of employees) Rules, 1975.

Directors:

Inductions

On 14th February, 2014, the Board Appointed Sri. Venkata Ratnam Anugolu as Independent Non-Executive Additional Director.

Re-Appointments

Dr Anji Raju and Dr Janardhana Reddy Vinta, Directors retire by rotation and being eligible, offer themselves for reappointment.

Details regarding Directors proposed to be appointed at the Annual General Meeting to be held on 27th September, 2014, due to changes arising from the implementation of the Companies Act, 2013 are provided in the annexure to the Notice convening the Annual General Meeting.

Auditors:

M/s. GMK Associates, Chartered Accountants, Hyderabad the Statutory Auditors of the Company retire at the conclusion of this Annual General Meeting and are eligible for re-appointment.

Acknowledgements:

The Directors take this opportunity to thank all share holders, investors, Indian Railways, RDSO, Konkan Railway Corporation, NF Railway, Egyptian National Railways, Embassy of India, Egypt, our local agents in Egypt, Eagle Aviation Resources, State Bank of Hyderabad for their continued support during the year. Your Directors would like to place on record their appreciation of the contribution made by employees at all levels for their commendable team work, dedicated and whole hearted efforts made during the year.

We thank the governments of various countries where we have our operations. We also thank the Government of India, particularly the Ministry of Railways (Railway Board), Ministry of Corporate Affairs, the Customs and Excise Departments, the Income Tax Department, the Reserve Bank of India, the Software Technology Parks (STPs) for and other government agencies for their support, and look forward to their continued cooperation in the future.

The directors appreciate and value the contributions made by every member of the KERNEX family locally and globally.

By order of the Board For Kernex Microsystems (India) Limited

B. Murali Mohan Col. L.V.Raju (Retd.) Technical Director Managing Director

Place: Hyderabad Date: 20-08-2014


Mar 31, 2013

To The Members of Kernex Microsystems (India) Ltd.

The Directors present herewith, the Twenty first Annual Report together with the audited accounts of the company for the year ending 31 March 2013.

Financial Results Rs in Lakhs

2012-2013 2011-2012

Sales and Other Income 3144.26 4598.42

Profit before interest and 696.25 1135.26 depreciation

Interest 245.45 369.68

Depreciation 275.95 80.54

Profit before Tax 174.85 685.08

Provision for Taxation 110.17 238.11

Profit after Tax 64.68 446.97

Add: Balance brought 1912.06 1610.37 forward from

previous year Profit available for 1976.74 2057.34 appropriation

Earnings Per Share (Rs.)

Basic 0.52 3.58

Diluted 0.52 3.58

Appropriations:

Transfer to General

Reserve

Proposed Dividend 125.00

Income Tax on proposed 20.28

Dividend

Balance carried to the 1976.74 1912.06 Balance sheet

Dividend

In view of the reduction in turnover of the company Your directors are not in a position to recommend any dividend on the paid up capital of the company for the financial year 2012-2013. Due to recession and withdrawal of orders in process existing reserves are required to sustain the company''s business and seed capital to take up new R&D projects.

Year in Retrospect

The year 2012-13 was a difficult year due to funds constraints of the Indian Railways, their switchover to TCAS from ACD and put the R & D Work of the company on ACD on hold and in suspension. This has adversely affected the turnover of the Company and receipt of regular payments.

The Company''s Business and Operational Results

1. Your company has successfully developed Anti Collision Devices System Ver 1.0 along with Konkan Railways Corporation and commissioned the systems in Konkan Route over 730 KMS and 730 KMS in N.F Railway during 2004-2007.

2. The changes suggested by the Railway Board and RDSO, have been incorporated in the new product ACD Ver 1.1.1. An advanced version 2.0 was also tested and tried out.

3. In the meantime Indian Railways and RDSO has gone ahead with their Train Collision and Avoidance System (TCAS), with their new specifications RDSO, has floated tender in December 2012-January 2013 with TCAS specifications for product development. Your company has been qualified in 1st stage approval process Kernex has been qualified to develop the TCAS system on 14 June 2013. The Work order for Rs.584.00 lakhs with some conditions has since been received.

4. According to the work order, KMIL has been awarded package "B" to develop, install, carry out trials of TCAS and prove inter operability in Vikarabad- Sadasivapet-Bidar track over 80 KMS. This work has been planned for Oct-Nov-Dec 2013 and if required, further trials will be taken up.

5. Comprehensive Maintenance Contract operations for the year 2012-2013 have been successfully carried out, in NF Railway over 1800 KMS from Katihar to Dibrugarh and 12 Loco sheds. The ACD system was maintained successfully in the year 2012-2013, which involved over 575 Loco ACDs, 750 Static ACDs at Stations, at Gates and 245 Mobile ACDs, over forward repair centers located at 4 places that is at Guwahati, Jalpaiguri, Burdwan and Tinsukia and has functioned well.

6. Our R&D work, on TCAS related work, and Lx System, continued during the year along with work on Multi Axle Digital Counter System (MSDAC).

7. Apart from R & D Work on development of Ver1.1.2 of ACD, the software for ACD System Ver 1.1.2 involving new design without Repeaters between Stations has been successfully tested and is ready for deployment.

Cross Approvals, New Designs and Indigenization

Our efforts for obtaining approvals for MSDAC, has been tardy due to change of specifications and rules. New work has to be undertaken. As far as our Lx System is concerned, it has been fully developed with Remote Diagnostic Monitoring System and work for obtaining accredition certification is in progress.

International Operations and Exports

Your company has completed development and shipment of 136 Lx Systems to Egyptian National Railways during 2011-2012. Installation work is in progress and by the year end only. Over 44 Gates have been installed due to dispersed sites. local problems of stores and delayed payments from ENR. Expected progress could not be achieved due to disturbed political, security and law and order problems in Egypt. We are seeking time and with situation improving, we may be in a position to achieve the targets. We are however exploring the scope to market Lx Gates and our technology in new export markets.

New areas of business in India

Your company has been participating in all R&D tenders being floated by RDSO as far as Railways are concerned. It proposes to take part in Defence projects, in Microwave, RF and Radar technologies, by accepting outsourced manufacturing orders from Defence vendors or jointly manufacture Electronic Components required by Defence to utilize our infrastructure and Manpower skills.

Domestic Market

Kernex plans to complete the development of TCAS project in about 10 to 12 months and be ready to bid for tenders in Railway market. Digital Axle Counters are greatly in demand and we are pursuing our association with M/s Altpro to secure approvals from RDSO and market the product in India and abroad.

Research & Development

Your company intends to take up work in Defence related projects and GIS projects, besides new projects of Railways which are being tendered by RDSO. Kernex is planning to take up projects for indigenization and also local manufacturing on Transfer of Technology basis.

Progress achieved on the IPO and Company Expansion Projects

As part of IPO related work, acquiring of the few pockets of land and approach stretches and part of conversion work is in progress. All efforts are being made to complete the revised project works during the year 2013-14

Overseas 100% Owned Subsidiary

Your company has one Wholly Owned Subsidiary in USA as on 31st March 2013. The members may refer to the statement under section 212 of the Companies Act, 1956 for further information on this subsidiary. The Balance Sheet of the said company is also attached herewith as required under Section 212 of the Companies Act, 1956.

Directors'' Responsibility Statement:

As required under Section 217 (2AA) of the Companies Act, 1956 it is hereby stated that:

a) In the preparation of the Annual Accounts for the year ended March 31, 2013 the applicable Accounting Standards had been followed along with proper explanation relating to material departures

b) The directors had selected such Accounting Policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the company for that period.

c) The directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

d) The directors had prepared the annual accounts on a going concern basis.

Audit Committee of Board:

With the resignation of the Independent Non-Executive Chairman of the Audit Committee, the Audit Committee of the company now comprises two Independent Directors and will be suitably strengthened. The Chairman of the Audit Committee was present at the previous Annual General Meeting.

Corporate Governance Report and Management Discussions and Analysis Report:

Separate reports on Corporate Governance along with Auditors'' Certificate on its compliance as well as Management Discussion and Analysis Report forming part of this report is annexed.

Fixed Deposits:

The company has not accepted any deposits from the public and therefore, the provisions of section 58A of the Companies Act, 1956 are not applicable.

Conservation of Energy, Technology Absorption, etc.:

The particulars prescribed under 217 (1) (e) of the Companies Act, 1956 read with the Companies (Disclosure of particulars in the Report of Board of Directors) Rules 1988, in respect of technology absorption, foreign exchange earnings and outgo are set out in the annexure forming part of this report.

Employee Relations:

Relations between the employees and the management continued to be cordial during the year.

Particulars of Employees:

None of the employees are covered under section 217(2A) of the Companies Act, 1956 read with the Companies (particulars of employees) Rules, 1975.

Directors:

Dr Jyoti Raju and Dr. Raju Narasa Manthena, Directors retire by rotation and being eligible, offer themselves for reappointment. Shri S.V.Subba Raju, has resigned from the Board on health grounds. Your Board records its appreciation of the valuable services rendered by Shri S.V.Subba Raju during his tenure as Director.

Auditors:

M/s. GMK Associates, Chartered Accountants, Hyderabad the Statutory Auditors of the Company retire at the conclusion of this Annual General Meeting and are eligible for re-appointment.

Cost Auditors:

"The products classified as Electronic Products are subjected to Cost Audit in terms of Section 233B of the Companies Act, 1956 read with the central Government Rules

M/s DZR and Co, Cost Accountants have been reappointed as the Cost Auditors for the year ending 31st March 2014having been appointed for the F.Y 2012-13.

The Cost Audit for the Year ended 31st March 2013 is in progress and Cost Audit Report will be filed within the stipulated time."

Acknowledgements:

The Directors take this opportunity to thank all investors, business partners, clients, and technology partners, Company''s Bankers, State Bank of Hyderabad, Punjab National Bank, Central and State Government Authorities for their continued support during the year. Your Directors would like to place on record their appreciation of the contribution made by employees at all levels for their commendable team work, dedicated and whole hearted efforts made during the year.

For Kernex Microsystems (India) Limited

B. Murali Mohan Col. L.V.Raju (Retd)

Technical Director Managing Director

Place : Hyderabad

Date : August 14, 2013


Mar 31, 2012

The Members,

Kernex Microsystems (India) Ltd.

The Directors present herewith, the Twentieth Annual Report together with the audited accounts of the company for the year ending 31 March 2012.

Financial Results Rs in Lakhs

2011-2012 2010-2011

Sales and Other Income 4598.42 4577.12 Profit before interest and 1135.26 1124.22 depreciation

Interest 369.68 311.25

Depreciation 80.54 105.24

Profit before Tax 685.08 707.73

Provision for Taxation 238.11 249.90

Profit after Tax 446.97 457.83

Add: Balance brought 1610.37 1298.30

forward from previous year

Profit available for 2203.09 1756.12

appropriation

Earnings Per Share (Rs.)

- Basic 3.58 3.66

- Diluted 3.58 3.66

Appropriations:

Transfer to General - -

Reserve

Proposed Dividend 125.00 125.00

Income Tax on proposed 20.28 20.76

Dividend

Utilized on Issue of Bonus - -

Shares

Balance carried to the 1912.07 1610.37

Balance sheet

Dividend

Your Directors are pleased to recommend a dividend of 10 % on the paid up capital of the company for the financial year 2011-2012. The dividend if approved at the ensuing Annual General Body Meeting, will be paid to those share holders, whose names appear on the register of members of the company as on September 27th , 2012 as per the rules applicable at that time.

The Company's Business and Operational Results

1. Your company has exclusive license for Manufacturing, Installing and Commissioning of the Networked ACD System "Raksha Kavach", the IP Rights of which are held by Konkan Railway Corporation, CBD Belapur, Navi Mumbai, with whom Kernex has Agreements and MOU.

2. After being commissioned in April 2007, ACD System is deployed over 2480 KMS, that is approx. 1750 KMS in NF Railway and 730 KMS in Konkan Route. Presently the system deployed in NF Railway is being provided Operational and Annual maintenance services by your company.

3. As regards the deployment of ACD System in the rest of Indian Railways, Railways have tested the product and suggested a few changes. These changes and improvements are being implemented in NF Railway as Version 1.1.1 while advanced Version 2.0 is also ready for final trials.

4. Railways are awaiting further study and validation before it is deployed in the rest of the country. IR wants to remove unnecessary breakings and improve maintainability and operability. At present, the advanced version of ACD subject to evaluation and validation awaits release of orders over 8 Railway zones.

5. CMC operations for the year 2011-2012 have been successfully carried out in NF Railways. Over 300 installations which were affected due to theft and vandalism have been restored at a cost of over Rs.6.00 crores to make the system fully functional.

6. As part of CMC, over 1000 ACDs were repaired and recycled into the system and thereby ACD safety system was maintained uninterrupted.

7. Your company's R&D work is reaching its potential with the development of Lx Gates for Egyptian Railway Project, development of new version ACD System 2.0 and improved version of Multi-section Digital Counters.

8. In Software division we have successfully closed version 1.0 and developed a special version for NF Railway Ver 1.1.1. and an improved version 2.0 which is under evaluation.

Cross Approvals, New Designs and Indigenization

Your company was involved in the designs of Lx Gates with Safety Integrity level III for Egyptian National Railways. This has since been approved by Cairo University Consultants and ENR (Egyptian Railways) authorities, The Altpro Multi-section Digital Axle Counters, which have a major market in India, have been gone through trials in Hosur near Bangalore and Piparsand near Luck now and have performed well. Certain clarifications have been sought by RDSO which work is in progress. The cross approvals are expected shortly.

International Operations and Exports

Your company has completed development, manufacture, testing and factory acceptance tests of all 136 Lx Gates. All the Gates have also been shipped to Egypt. It is to the credit of our Engineers that an Indian product with SIL 3 standard has been accepted by Egypt. It is likely that Egypt may increase the number of Gates to be supplied by Kernex either by procurement by ENR or subcontracts from other contracting MNC's for Egyptian Railways. We may also bid for a share of the orders.

Your Company has been rigorously scanning for international markets in Malaysia, Thailand, Indonesia and Vietnam, Cambodia, Loas and Srilanka for Lx Gates market and also Multi-section Axle Counter. It has also participated in Interim tenders in some of these countries.

New areas of business in India

Your company will be participating in all related Railways tenders like TPWS or as component suppliers or Installation & Commissioning agency. Your company is also examining the scope for developing components for Defence needs and also for RDSO, like TCAS 3.10 etc.

Domestic Market

Depending upon the progress of ACD trials and acceptance, new zones like South East, East Coast, Eastern and East Central zone and three zones in the South may be authorized to deploy ACD System during 2012-2013.

Multi-section Digital Axle Counter, if approved, by Railways could provide a growing market for the Company.

The company has since completed development of Version 2.1 ACD System with software and also Lx Gates, Multi-section Digital Axle Counter System, ACD Survey software and ACD Reporting System software except for a few changes or up gradation, if required by clients.

Research & Development

You are aware that your Company's strengths are strong R&D, professionalism as well as opportunities in related technologies which are in demand.

Progress achieved on the IPO and Company Expansion Projects

As part of IPO related company's expansion projects, establishment of new manufacturing centre for ACDs, ADDs and Advanced Signal System has been completed, and acquisition for Intelligent Transport Technology Centre, planned R&D Projects has been completed. Balance work on Intelligent Transportation Technology is in progress. International marketing office and project offices have since been set up to the extent required and rest will be taken up as and when required.

Overseas 100% Owned Subsidiary

Your Company has one Wholly Owned Subsidiary in USA as on 31st March 2012. The members may refer to the statement under section 212 of the Companies Act, 1956 for further information on this subsidiary. The Balance Sheet of the said Company is also attached herewith as required under Section 212 of the Companies Act, 1956.

Directors' Responsibility Statement:

As required under Section 217 (2AA) of the Companies Act, 1956 it is hereby stated that:

a) In the preparation of the Annual Accounts for the year ended March 31, 2012 the applicable Accounting Standards had been followed along with proper explanation relating to material departures

b) The directors had selected such Accounting Policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the company for that period.

c) The directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

d) The directors had prepared the annual accounts on a going concern basis.

Audit Committee of Board:

With the resignation of the Independent Non Executive Chairman of the Audit Committee, the Audit Committee of the company now comprises two independent Directors and will be suitably strengthened. The Chairman of the Audit Committee was present at the previous Annual General Meeting.

Corporate Governance Report and Management Discussions and Analysis Report:

Separate reports on Corporate Governance along with Auditors' Certificate on its compliance as well as Management Discussion and Analysis Report forming part of this report is annexed.

Fixed Deposits:

The company has not accepted any deposits from the public and therefore, the provisions of section 58A of the Companies Act, 1956 are not applicable.

Conservation of Energy, Technology Absorption, etc.:

The particulars prescribed under 217 (1) (e) of the Companies Act, 1956 read with the Companies (Disclosure of particulars in the Report of Board of Directors) Rules 1988, in respect of technology absorption, foreign exchange earnings and outgo are set out in the annexure forming part of this report.

Employee Relations:

Relations between the employees and the management continued to be cordial during the year.

Particulars of Employees:

None of the employees are covered under section 217(2A) of the Companies Act, 1956 read with the Companies (particulars of employees) Rules, 1975.

Directors:

Dr Anji Raju and Dr Janardhana Reddy Vinta, Directors retire by rotation and being eligible, offer themselves for reappointment. Sarvashri S.V.Subba Raju and R Sankaran non executive Directors have resigned from the Board on health grounds and Sri Kishore Gottimukkala has resigned from the Board for personal reasons. Your Board records its appreciation of the valuable services rendered by Sarvashri S.V.Subba Raju, R Sankaran and Kishore Gottimukkala during their tenure as Directors.

Auditors:

M/s. GMK Associates, Chartered Accountants, Hyderabad, the Statutory Auditors of the Company retire at the conclusion of this Annual General Meeting and are eligible for re-appointment.

Acknowledgements:

The Directors take this opportunity to thank all investors, business partners, clients, and technology partners, Company's Bankers, State Bank of Hyderabad, Punjab National Bank, Central and State Government Authorities for their continued support during the year. Your Directors would like to place on record their appreciation of the contribution made by employees at all levels for their commendable team work, dedicated and whole hearted efforts made during the year.

For Kernex Microsystems (India) Limited

M Gopalakrishna

Place : Hyderabad IAS (Retd.)

Date : 28th May, 2012 Chairman

 
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