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Directors Report of Lloyd Electric and Engineering Ltd.

Mar 31, 2015

The Members,

The Directors have pleasure in presenting the 28th annual report on the business and operations of the Company along with the Standalone and Consolidated Audited Accounts for the Financial Year ended on March 31, 2015.


` in crores except per share data

PARTICULARS STANDALONE CONSOLIDATED for the year ended for the year ended March 31, 2015 March 31, 2014 March 31, 2015 March 31, 2014

Revenue from Operations (net of excise) 1834.96 1439.69 2172.67 1775.96

Other Income 4.57 12.03 12.73 49.05

Earnings before Interest, Depreciation & Tax (EBIDTA) 229.83 189.58 245.59 214.29

Finance Expenses 92.85 84.02 94.31 85.50

Depreciation 33.96 23.79 40.17 31.76

Profit before tax 103.02 81.77 111.11 97.03

Less: Current Tax 21.60 17.50 22.20 21.40

Deferred Tax (0.22) (11.82) 0.50 (13.49)

Profit for the year 81.64 76.09 88.41 89.12

Add: Balance brought forward 205.65 155.32 206.10 142.74

MAT credit receivable 3.61 1.36 3.61 1.35

Depreciation Adjustment 1.33 - 2.33 -

Excess FBT provision adjusted - 0.02 - 0.02

Amount available for appropriation 292.23 232.79 300.43 233.23

Less: Proposed Dividend 4.59 3.53 4.59 3.53

Tax on proposed dividend 0.92 0.60 0.92 0.60

Transfer to General Reserve 20.00 23.00 20.00 23.00

Balance Carried Forward 266.72 205.66 274.92 206.10

Basic Earning Per Share (EPS) 23.11 21.54 25.03 25.23


On the standalone basis, revenue of your Company stood at Rs.1837.96 crore as against Rs.1439.69 crore during the previous year, registering an increase of 27%. Earnings before Interest, tax, depreciation and amortization (EBITDA) were Rs.229.83 crore as against Rs.189.58 crore, higher by 21%. The Profit before tax(PBT) was Rs.103.02 crore as against Rs.81.77 crore in the previous year, registering a growth of 26%.Profit after tax (PAT ) for the year was Rs.81.64 crore registered a growth of 7.3% over the PAT of ' Rs.76.09 crore in previous year.

On consolidated basis, revenue from operations for the financial year 2014-15 at Rs.2172.67 crore as against Rs. 1775.96 crore for FY 2013-14, registering an increase of 22 %. EBITDA was Rs.245.59 crore as against Rs.214.29 crore, higher by 14.6%. The PBT was Rs.111.11 crore as against Rs.97.03 crore in the previous year, registering a growth of 14.5%.However, the PAT for the year was Rs.88.41 crore as against Rs.89.12 crore in previous year. The marginally lower PAT was mainly on account of extra tax provisioning as against the previous year, wherein due to deferred tax credit, the aggregate tax expense was reduced.


The Indian air conditioners market is projected to grow at a CAGR of around 15% during 2014-19. The market for air conditioners in India has been on a steady growth ever since, apart from certain exceptions. The perception of people towards the category of this product has witnessed a paradigm shift over the years from a luxury product to becoming a necessity in hot humid weather conditions of India. With extremely low penetration, rising per capita income and hot and humid climatic conditions in most part of the country are boosting the sales of air conditioners. In addition to the growing demand for room air conditioners on account of the improving lifestyle of expanding middle-class households, the central air conditioning systems are also anticipated to grow due to the growing construction market in the country.

During the year, your Company organized its revenue stream into three reportable business segments a) Consumer Durable Segment b) OEM & Packaged Air conditioning Segment c) Heat Exchangers & Components Segments

The Consumer Durable Segment catering to the branded product portfolio reported robust growth of 37% in revenue over the previous year. During the year, Company has invested approx. Rs. 35 crores on marketing, advertisement and brand building exercise, which has helped the company to gain considerable market share in Lloyd branded air conditioners and other consumer products. As part of our brand building strategy, the company has also launched a sub-ordinate brand "Lloyd Luxury" which offers products in the premium market. During the year, company has increased its market penetration in Tier-2 and Tier-3 towns and is aggressively focusing in larger cities. Your Company is constantly strengthening its service network and operating through 307 authorised service centers and 81 company owned service centers. We have developed an integrated after sales service solution, which includes three customers touch points a) Regional Multi-language in house call centers b) interaction through company's portal c) through an SMS to a pan India number and call back facility.

Your Company is vertically integrated across HVAC value chain, right from manufacturing physical components, to Air Conditioners , to selling to OEM suppliers as well as under own Brand.

As on March 31, 2015, a) Consumer Durable Segment accounted to 47% of the Standalone Revenue, whereas b) OEM & Packaged Air conditioners accounted to 23% and c) Heat Exchangers & Components accounted to 30% of the standalone revenue.

To bolster our service quality, we have started ad campaign with "Khushiyon Ki Guarantee" which is in sync with Company's focus on customer's satisfaction. We are also developing our own website www.mylloyd.com for online selling of our products.

In the OEM segment, your company has developed room air conditioners with CB certifications for UAE market. New products have been developed for T3 conditions for Saudi Arabia Market with SASO certification.


Your Directors are pleased to recommend a final dividend of Rs.1.3 per equity share of face value Rs.10 each i.e. @ 13% for the year ended March 31, 2015, subject to approval of shareholders of the Company (previous year Re.1 per equity share of Rs.10 each i.e. @10 %).

The total dividend payout would be Rs.5.51 Crore, including dividend distribution tax of Rs.0.92 Crore.


The Company proposes to transfer Rs.20 crore to the general reserve out of the amount available for appropriation and an amount of Rs.266.72 crore is proposed to be retained in the profit and loss account.


During the period under review, the Company has increased its authorized share capital from Rs.50 crore to Rs.70 crore, divided into 7crore equity shares of Rs. 10 each. The issued, subscribed capital of the Company stood at Rs.35.33 Crore and paid-up capital stood at Rs.35.32 Crore as at March 31, 2015.

During the year, the Company has issued 60 lac warrants to Promoters /Promoters Group on 13.03.2015 at a price of Rs.152/- each entitling them for subscription of equivalent number of Equity Shares of Rs.10/- each (including premium of Rs.142/- each Share) in accordance with chapter VII of SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009.


The Company has two overseas wholly owned subsidiaries viz; Lloyd Coils Europe s.r.o. ("LCE") and Janka Engineering s.r.o. ("Janka"), both incorporated in Prague, Czech Republic. There are no associate companies within the meaning of Section 2(6) of the Companies Act, 2013 (Act). There has been no material change in the nature of the business of the subsidiaries and there is no company which have become or ceased to become subsidiary, joint-venture or associate company during the year.

In accordance with Section 129(3) of the Companies Act, 2013, the Company has prepared consolidated financial statements of the Company and all its subsidiaries, which form part of the Annual Report. Further, a statement containing the salient features of the financial statement of our subsidiaries in the prescribed format AOC 1 is attached to the financial statements of the Company.

In accordance with Section 136 of the Companies Act, 2013, the audited financial statements, including the consolidated financial statements and related information of the Company and audited accounts of each of its subsidiaries, are available on our website www.lloydengg.com.These documents will also be available for inspection during business hours at our registered office.

During the current year, LCE contributed to impressive EBITDA at Euro 3.4 million and PAT of Euro 2.62 million as against Euro 1.6 million and Euro 1.82 million respectively. During the year LCE has substantially increased market shares in the segment of close control air-conditioning and became a key partner to customers like Emerson, carrier and Stulz, which are top leaders in this segment.

Whereas, Janka suffered a loss of Euro 1 million at EBITDA level, mainly because of low margin level on Air handling Units (AHUs), reduced share of Industrial cooling segment (ICL), as well as increased cost for sales and marketing activities across the AHU range, which is effective for all new projects. In the segment of Rail HVAC, Janka has secured two prestigious projects from Skoda Transportation and will deliver HVAC units to Skoda's trams for city Bratislava and Prague, Czeh Republic.

The total Revenue from overseas wholly owned subsidiaries was euro 50 million for the FY 2014-15 and profit after tax of Euro 0.90 million.


The Company has 8,000 GDRs underlying 16,000 equity shares outstanding for conversion as on March 31, 2015.The GDRs are listed on the Professional Securities Market of London Stock Exchange. The Bank of New York acts as the Depository and ICICI Bank as the domestic custodian in respect of GDRs issued.


During the year under review, the Company has not accepted any deposits from the public under Section 73 of the Companies Act, 2013 and rules made thereunder.


Your Company has always laid a strong emphasis on transparency, accountability and integrity and believes that good governance is the basis for sustainable growth of the business and for enhancement of shareholder value. We keep our governance practices under continuous review and benchmark ourselves to the best governed Companies across the globe.

The report on corporate governance forms an integral part of this report and is set out as separate section to this annual report. The certificate of M/s. Suresh C. Mathur & Co., Chartered Accountants, the statutory auditors of the Company certifying compliance with the conditions of corporate governance as stipulated in clause 49 of the listing agreement is annexed with the report on corporate governance.


As required pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a detailed Management Discussion and Analysis Report is attached herewith and forms a part of the Annual Report.


The equity shares of the company are listed at Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange of India Ltd. (NSE) The GDR's are listed on London Stock Exchange.

Annual Listing fees to above Exchanges for the Financial Year 2015-16, as applicable have been paid well before the due date.


Lloyd has always endeavored to promote education. Your Company believes that education is a basic human right that must be provided to all. The vision is the force behind the group's involvement in a number of educational programs. Well rounded holistic development of children today is essential for building the leaders of the next generation. In recognition of this, Lloyd concentrates most of its sustainability / CSR efforts by actively supporting the education and social initiatives of the "Pandit Kanahaya Lal Punj Trust", the philanthropic arm of the Lloyd Group.

In accordance with the requirements of Section 135 of Companies Act, 2013, your Company has constituted a CSR Committee. The composition and terms of reference of the CSR Committee is provided in the Corporate Governance Report.

Further, details about the CSR policy and initiatives taken by the Company on CSR during the year are available in our website. The annual report on our CSR activities is appended as Annexure 1 to the Board's Report.


In accordance with Section 134(3)(a) of the Companies Act, 2013, an extract of the annual return in the prescribed format is appended as Annexure 2 to the Board's Report.


The Board met five times during the financial year viz; on May 29, 2014, August 8, 2014, November 10, 2014, December 22, 2014, and January 28, 2015.The necessary quorum was present in all the meetings. The intervening gap between any two meetings was not more than one hundred and twenty days as prescribed by the Companies Act, 2013.


The policy of the Company on directors' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Sub section (3) of Section 178 of the Companies Act, 2013, adopted by the Board, has been disclosed in the corporate governance report, which forms part of the Board's Report.


In pursuance to the provisions of the Companies Act,2013 and clause 49 of the Listing Agreement, the Board has carried out annual performance evaluation of its own performance, the directors individually as well the evaluation of the working of committees. The performance of the Board was evaluated by the Board after seeking inputs from all the directors on the basis of the criteria such as the Board composition and structure, board meetings and effectiveness of board processes, information and functioning, etc. The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of the criteria such as the compliance with the terms of reference of the committees, composition of committees, functions and duties, committee meetings & procedures, etc.

The Board and the Nomination and Remuneration Committee ("NRC") reviewed the performance of the individual directors on the basis of the criteria such as the contribution of the individual director to the Board and committee meetings, attendance, independent judgement etc. In addition, the Chairman was also evaluated on the basis of criteria such as leadership, managing relationship, conducting board meetings etc.

In a separate meeting of independent directors, performance of non-independent directors, performance of the board as a whole and performance of the Chairman was evaluated, taking into account the views of executive directors and non-executive directors. The same was discussed in the board meeting that followed the meeting of the independent directors, at which the performance of the Board, its committees and individual directors was discussed.


The Board has six committees viz;the sub-committee, audit committee, nomination and remuneration committee, corporate social responsibility committee, stakeholders' relationship committee and Special Committee for issueand allotment of shares.

The details pertaining to composition of above committees are included in the Corporate Governance Report, which forms part of this report.


During the period under review, Mr. Gopal Kacker was appointed as an additional Director in the category of non-executive independent director by the Board of Directors in its meeting held on May 29, 2014 after the sad demise of Mr. Krishan Lall on March 09, 2014. The appointment of Mr. Kacker was confirmed by shareholders in the 27th AGM held on July 21, 2014.

Further, pursuant to the provisions of Section 149 of the Act, which came into effect from April 1, 2014, independent directors shall hold office for a term of up to 5 consecutive years on the board of a company and shall be eligible for re-appointment on passing a special resolution by the shareholders of the Company. Accordingly, all existing independent directors previously appointed in terms of listing agreement were confirmed by the shareholders through postal ballot.

Also, pursuant to the provisions of Section 203 of the Act, effective from April 1, 2014, the appointments of Mr. Brij Raj Punj, Chairman & Managing Director, Mr. Bharat Raj Punj, Executive Director, Mr. Achin Kumar Roy, Whole Time Director, Mr. Nipun Singhal, Whole Time Director, Mr. Mukat Behari Sharma, Whole Time Director & Chief Financial Officer and Ms. Anita K. Sharma, Company Secertary as key managerial personnel of the Company were formalised.

As per the provisions of the Companies Act 2013, Mr. Achin Kumar Roy (DIN: 01475456), retires at the ensuing Annual General Meeting and being eligible, seeks re-appointment. The Board recommends his re appointment.

Mr. Mukat Behari Sharma (DIN:02942036) was appointed whole time director of the Company for a period of five years with effect from January 28, 2010. He is also acting as Chief financial Officer of the Company. The Board of Directors at its Meeting held on November 10, 2014, has re-appointed him as Whole time & Chief Financial Officer of the Company for a further period of two years from January 28, 2015, subject to the approval of the members.

The brief profile of the Directors who are to be re-appointed / appointed, are furnished in the notice of annual general meeting. The Board recommends re-appointments of above said directors.


The Company has received necessary declaration from each independent director that he/she meets the criteria of independence as laid down in Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.


The Audited Accounts for the financial year ended March 31, 2015 are in conformity with the requirements of the Companies Act, 2013. Pursuant to Section 134(5) of the Companies Act, 2013, your directors hereby confirm that:

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed alongwith 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 and 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 preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis;

(e) 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; 'and

(f) 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.



Pursuant to the provisions of Section 139 of the Act and the rules framed thereunder, M/s. Suresh C. Mathur& Co., Chartered Accountants, were appointed as statutory auditors of the Company from the conclusion of the 27th Annual General Meeting (AGM) of the Company held on July 21, 2014 till the conclusion of the 30th AGM, subject to ratification of their appointment at every AGM. Accordingly, the appointment of M/s. Suresh C. Mathur& Co., Chartered Accountants, as statutory auditors of the Company, is placed for ratification by the shareholders. In this regard, the Company has received a certificate from the 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.

Auditors' Report and the Notes on financial statement referred to in the Auditors' Report are self-explanatory and do not call for any further comments. The Auditors' Report does not contain any qualification, reservation or adverse remark.


The Board appointed M/s. Jain Sharma & Associates, Cost accountants, as cost auditors of the Company for thefinancial year 2015-16 at a fee of Rs.50,000 plus applicable taxes and out of pocket expenses subject to the ratification of the said fees by the shareholders at the ensuing annual general meeting.

The cost audit report of the financial year 2014-15 would be filed with the Central Government within the prescribed time.


Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board had appointed Mr. Sanjay Chugh Practising Company Secretary, to conduct Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report for the financial year ended March 31, 2015 is appended as Annexure 3 to this Report.

The Board has appointed Mr. Sanjay Chugh, Practising Company Secretary, as secretarial auditor of the Company for the financial year 2015-16.

The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.


The particulars of loans, guarantees and investments have been disclosed in the notes to the financial statements.


All contracts / arrangements / transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis. The Company has not entered in any material related party transaction during the year.

Information on transactions with related parties pursuant to Section 134(3)(h) of the Act read with rule 8(2) of the Companies (Accounts) Rules, 2014 are given in Annexure 4 in Form AOC-2 and the same forms part of this report.

Please refer Note No. 36 to the financial statement which sets out related party disclosures as prescribed under Accounting Standard 18.


The Audit Committee in supervision of Board of Directors is responsible for identifying, evaluating and managing all significant risks faced by the Company. The detailed statement indicating the development and implementation of risk management policy including identification therein of elements of risk has been covered in the management discussion and analysis, which forms part of this report.


The Company has in place adequate internal financial controls with reference to financial statement, including adherence to the Company's policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures.

The detailed information about internal controls is set out in the Management Discussion & Analysis report which is attached and forms part of this Report.


The Company has implemented a Whistle Blower Policy and has established a vigil mechanism for employees and directors to report their genuine concerns. The Policy provides for a mechanism to report genuine concerns to Whistle Counselor or the Whistle Blower Committee and in exceptional cases, Chairman of the Audit Committee of the Company. The functioning of the Vigil mechanism is reviewed by the Audit Committee from time to time. None of the Whistle Blowers have been denied access to the Audit Committee of the Board. The Whistle Blower Policy complies with the requirements of Vigil mechanism as stipulated under Section 177 of the Companies Act, 2013. The details of establishment of the Whistle Blower Policy/ Vigil mechanism have been disclosed on the website of the Company.


There are no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company's operations in future.


The particulars relating to conservation of energy, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under the Act, are given in Annexure 5 to this Report.


The information required under section 197 of the Act Rule 5(1) &(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, in respect of employees of the Company is appended as Annexure 6 to the Board's report.


We thank our customers, vendors, investors and bankers for their continued support during the year. We place on record our appreciation for the contribution made by our employees at all levels. Our consistent growth was made possible by their hard work, solidarity, cooperation and support.

We also place on record deep appreciation to various statutory authorities, Central and State Governments and Government of various countries where we operate for their continued assistance, co-operation and encouragement they have extended to the Company and look forward to their continued support in future.

For and on behalf of the Board of Directors

Date: May 28, 2015 Brij Raj Punj

Place: New Delhi Chairman & Managing Director

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