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Directors Report of Sanghvi Forging & Engineering Ltd.

Mar 31, 2014

To the members of the Company,

The Directors have the pleasure in presenting the 26th Annual Report of the Company along with the audited financial statements for the year ended March 31,2014, for your perusal, consideration and adoption.

FINANCIAL HIGHLIGHTS

The financial performance for the fiscal 2014 is summarised in the following table

(RsIn lac) Particulars 2013-2014 2012-2013

Income from Operations 5,292.09 4,404.93

Other Operating Income 89.79 117.63

Other Income 43.65 86.66

Total Income 5,425.53 4,609.22

Operating & Administrative Expenses 4,766.39 3,875.17

Operating Profit before Interest, Depreciation and Tax 659.14 734.05

Interest and Financial Charges 941.33 352.23

Depreciation and Amortisation 714.51 192.72

Profit Before Tax (996.70) 189.10

Current Tax 0.23 11.06

Deferred Tax (218.46) 41.41

Short Provisions for Taxes -- --

Profit After Tax (778.47) 136.63

FINANCIAL AND OPERATIONAL PERFORMANCE

The Company has successfully started commercial production of its new plant having installed capacity of 15,000 MTPA. Your Company has achieved a turnover of Rs. 5,381.88 lac and a net loss of Rs. 778.47 lac for the financial year ended March 31, 2014 as against a turnover Rs. 4,522.56 lac and net profit of Rs. 136.63 lac respectively during the previous year, representing a topline growth of 19%.

Depreciation and amortisation charge increased from Rs. 192.72 lac in 2012-13 to Rs. 714.51 lac on account of the capitalisation of the new project cost during the FY 2013-14.

Interest charges increased from Rs. 352.23 lac to Rs. 941.33 lac due to repayment of loan in relation to the new project.

Raw material consumed for manufacturing increased from Rs. 2465.85 lac in 2012-13 to Rs. 2810.27 lac, resulting an increase of 13.96%. Total sales increased by 17.71% whereas raw material consumption increased by 13.96%.

Employee benefit expenses increased from Rs. 290.95 lac in 2012-13 to Rs. 376.22 lac, resulting an increase of 29.31%. This increase in intellectual capital indicates the investment by the Company in attracting experienced professionals in the organisation.

The performance of the Company during the year indicate the future-preparedness of the organisation and strength in its business model, towards a sustainable future.

OUTLOOK

The Company continued its focus on strengthening local manufacturing capabilities. However, it also analyzed the trends in the steel industry and adapted to rapid development occurring in the world of steel. The Company has adopted strategic measures to minimise the adverse macro economic implications.

The Company has taken a number of steps to sustain its leadership position in the market and has been strengthening its relationships with its customers. In addition it is also making constant efforts to add new customers and widen its customer base.

Your Company has also been in touch with major supplies so to ensure availability of all critical inputs on time does not pose any problem in future.

The combination of additional capacity of our new plant and integration has had a positive impact on the Company''s operating margins. Our new plant becomes fully operational this year and your Company believes to strengthen its topline and margins in the coming years. We have received all approvals from different customers that validate our product quality.

SHARE CAPITAL

The Company on February 19, 2014 allotted 600,000 Equity Shares of nominal value of Rs. 10/- each at a price of Rs. 37.50/- per equity share, including premium of Rs. 27.50/- per equity share to Promoters of the Company against an option attached to the Warrants to convert each warrant into fully paid up Equity Share, exercised by them with respect to 600,000 Warrants out of 1,200,000 Warrants allotted to them on May 28, 2013 on preferential basis in accordance with approval of shareholders under Section 81, 81(1A) of the Companies Act, 1956 in the Extraordinary General Meeting held on April 2, 2013.

DIVIDEND

The Directors of your Company express their inability to recommend any dividend for the FY 2013-14 due to the current financial situation of the Company. However your Company is harbouring a positive outlook for the next fiscal with the commencement of commercial production and good returns in terms of revenue and profitability.

CAPACITY

The total installed capacity of the 15,000 MTPA for new plant and 3,600 MTPA for old plant. With this upgradation, the Company is among the few in its industry to be able to manufacture a single-piece forging up to 40 MT. The

Company''s new production facility is equipped with state- of-the-art technology from renowned suppliers which has resulted into enhanced superior quality of the products, reduced dependency on human labour, lower production costs and higher capacity utilisation which gives the Company a much needed competitive advantage over the other players.

WARRANTS

During the year the Company has converted 600,000 Warrants out of 1,200,000 Warrants allotted to Promoters into 600,000 Equity Shares under preferential allotment at meeting held of Allotment Committee of the Company on February 19, 2014. The Company has obtained In Principal approval for listing of the Shares from National Stock Exchange of India Limited on March 21,2014 and BSE Limited on April 7, 2014. The Company has also completed necessary formalities from Central Depository Services (India) Limited and National Securities Depository Limited in these regard.

The Board of Directors of your company has its meeting held on July 14, 2014, inter alia has decided to issue 1,000,000 (Ten Lac only) convertible equity warrants of Rs. 45 each which are convertible into one Equity Share of the Company of Rs. 10 each per equity warrants at a price of Rs. 45 per Equity Share (i.e. premium of Rs. 35 per Equity Share) to the promoters and promoter group on preferential allotment basis. Subsequently Extra ordinary General Meeting held on August 14, 2014 for shareholders'' approval.

CREDIT RATING

The credit rating of the Company has been revised from CARE BB to CARE BB- for its long-term bank facilities and reaffirmed CARE A4 for its short-term bank facilities. The revision in the credit rating arises due to delay and cost overruns in the new project. With the stabilised production in the existing as well as in the new plant the Company has started getting healthy orders for new and existing plant, the Company expects to improve its ratings in the coming year.

INVESTORS'' RELATIONS AND GRIEVANCES

All the shareholders''/investors'' complaints/grievances received during the financial year have been resolved and there were no investor grievances pending, as on March 31, 2014. A confirmation to this effect has been obtained from the Company''s Registrar and Share Transfer Agent and authentication of the same can be verified from the SCORES website at http://scores.gov.in. The details regarding investor complaints received and resolved during the year are mentioned in the report on Corporate Governance annexed to this report.

CONSERVATION OF ENERGY

The Company has taken several steps towards conserving energy through its ''Sustainability'' initiatives, disclosed separately in the Annual Report. The information on Conservation of Energy as required under Section 217(1)(e) of the Companies Act, 1956 read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is provided in ''Annexure A'' of this Annual Report.

The Company has continuously exercised effective safety, health and environment policies. Water and air pollution control measures are successfully operated and industrial trade effluents are used for gardening. The tree plantation at the factory site is maintained properly and the same shall be duly taken care of at our new plant.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

A detailed review of operations, performance and future outlook of the Company is covered under a separate Annexure to this report as Management''s Discussion & Analysis.

REPORT ON CORPORATE GOVERNANCE

A separate Section on Corporate Governance is included in the Annual Report and the Certificate from M/s Samdani Kabra and Associates, Company Secretaries, Vadodara, the Company''s Secretarial Auditors confirming the compliance of conditions on Corporate Governance as stipulated in Clause 49 of the Listing Agreement with Stock Exchanges is annexed thereto.

FIXED DEPOSITS

Your Directors report that the Company has not accepted any deposits during the current financial year.

INSURANCE

Your Directors confirm that all the properties and insurable interests of the Company, including buildings, plant and machinery and stocks have been adequately insured.

DIRECTORS

In terms of Section 149, 152 and any other applicable provisions of the Companies Act, 2013, effective from April 01, 2014, Independent Directors are not to be included in the total number of directors of the Company for the purpose of determining the directors liable to retire by rotation. Accordingly, Shri Jayanti B. Sanghvi retires at the forthcoming Annual General Meeting and being eligible offers herself for re-appointment.

Shri Ram Swaroop Kaushal, Dr. Baba Karnire Pai, Dr. Ram Chandra Prasad and Shri Shantaram Surya Prakasarao Yarlagadda, Directors, whose present term of office is liable to determination by retirement of Directors by rotation under the applicable provisions of the Companies Act, 1956, being eligible, offer themselves for appointment, in terms of Section 149 and other applicable provisions of the Companies Act, 2013, as Independent Directors of the Company. Necessary notices have been received from members proposing them as candidates for the office of Directors of the Company.

Dr. Jyoti V. Menghani has appointed as additional director of the Company at Board Meeting held on August 13, 2014 pursuant to Sections 149, 150, 152,161 and other applicable provisions of the Companies Act, 2013.

DIRECTORS'' RESPONSIBILITY STATEMENT

Pursuant to the requirements under Section 217(2AA) of the Companies Act, 1956, with respect to Directors'' Responsibility Statement, your Directors confirm that:

(i) In the preparation of the accounts for the financial year ended March 31, 2014; the applicable accounting standards have been followed along with proper explanation relating to material departures, if any

(ii) The accounting policies selected have been applied consistently and judgments and estimates made 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 the year under review

(iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 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

AUDITORS AND THEIR REPORT

The comments of the Auditors in their report and the notes forming parts of the accounts are self explanatory and need no comments.

M/s Shah & Bhandari, Chartered Accountants, the Company''s Statutory Auditors who retire at the conclusion of the ensuing Annual General Meeting and being eligible, offer themselves for reappointment.

The Directors recommend the reappointment of M/s Shah & Bhandari and shall seek the approval of the members at the Annual General Meeting to authorise the Board to Directors to fix their remuneration.

COST AUDITOR

The Board of the Directors after reviewed by the Audit Committee has appointed M/s Diwanji & Associates, Cost Accountants as Cost Auditors for the FY 2013-14 for carrying out the cost audit of the product of the Company.

INTERNAL AUDITOR

Your Company has appointed M/s Jain & Hindocha, Vadodara, Chartered Accountants as Internal Auditors of the Company for the FY 2013-14. The Audit Committee of the Company periodically reviews the reports of the Internal Auditors.

CORPORATE SOCIAL RESPONSIBILITY

The Company, having regard to its size and scope, is generally compliant with relevant guidelines on Corporate Social Responsibility (CSR), even though not presently applicable to the Company. The Board has also constituted a committee at their Board Meeting held on May 26, 2014 in accordance with Section 135 of the Companies Act 2013 to mentor and monitor CSR activities.

The call of fulfilling our CSR activities has sincerely been taken by us and we accord as much significance to CSR as any business project and the results are there for everyone to see. Dedicated need-based interventions have been initiated in areas where we operate. Enabling local people by fostering self-reliance is the motive behind our community development efforts.

Therefore, our interventions are structured around promoting education as well as informal education of Tribal Children, generating livelihood, empowering women and overall, social mobility.

Your Company is also constantly making efforts to maintain a greener planet and reduce its carbon footprint as much as possible. Through financial contributions and active participation of employees, your Company provides support to non-profit organisation that address community sustainability. Your Company contributed through donations, rain water harvesting sponsorship and by participating in various activities.

HUMAN RESOURCES

The Company''s strength lies in its team of competent and motivated personnel. This made it possible for your Company to make significant improvements and progress across all areas of its working. The employees have from time to time taken up the challenge to improve the performance of plants through efficiency, productivity and economy. Your Directors are happy to place on record their sincere appreciation for the unstinted efforts and contribution put in by the employees of the Company.

The Company has also continued its endeavour to impart appropriate and relevant training to its employees at various levels with a view to equip them to take up challenges and to enhance their performance, in the overall interest of the Company.

During the year, the Company maintained harmonious and cordial industrial relations. No person-days were lost due to strikes, lock-outs among others.

Pursuant to The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 notified on December 9, 2013, the Company has set up a Committee to look into complaints under the said Act. The Company has not received any complaints relating to sexual harassment at work place from any woman employee during the year.

DISCLOSURE BY SENIOR MANAGEMENT PERSONNEL i.e. ONE LEVEL BELOW THE BOARD INCLUDING ALL HODs

None of the senior management personnel have undertaken financial and commercial transactions with the Company, where they have personal interest that would have a potential conflict with the interest of the Company at large.

PARTICULARS OF EMPLOYEES UNDER SECTION 217

There were no employees coming within the purview of the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975.

ACKNOWLEDGEMENT

Your Directors express their sincere appreciation for the wholehearted and continued support assistance and cooperation extended by the shareholders banks, suppliers, customers, employees, and all concerned towards the Company during the year under review.

On the behalf of the Board of Directors

Place: Vadodara Babulal S Sanghvi Date : August 13, 2014 Chairman


Mar 31, 2012

The Directors have pleasure in presenting the 24th Annual Report of the Company together with the Audited Financial Statements of the Company for the year ended on March 31, 2012 for your perusal, consideration and adoption.

Financial Highlights

A summarised statement of the standalone financial results of the current year and that of the previous is given below:

(Rs. in Lacs)

Particulars 2011-12 2010-11

Income from Operations 4,204.76 3,426.13

Other Operating Income 868.36 595.43

Other Income 52.06 27.38

Total Income 5,125.18 4,048.94

Operating & Administrative Expenses 4,216.55 3,222.00

Operating Profit before Interest, Depreciation and Tax 908.63 826.94

Interest and Financial Charges 141.82 155.72

Depreciation and Amortisation 71.17 64.88

Profit Before Tax 695.64 606.34

Current Tax 213.00 207.19

Deferred tax 7.01 5.66

Profit After Tax 475.63 393.49

Excess/(Short) Provision of taxation and tax payments - 0.21

Surplus Brought Forward from Previous Year 790.07 683.28

Balance available for Appropriation 1,265.71 1076.77

Appropriation

Issue of Bonus Shares - 286.92

Carried Forward 1,265.71 790.07

Financial and Operational Performance

Your Company has achieved a turnover of Rs. 5,073.12 lacs and a net profit of Rs. 475.63 lacs for the financial year ended March 31, 2012 as against a turnover of Rs. 4,021.56 lacs and net profit of Rs. 393.49 lacs respectively during the previous year, representing an increase in turnover y-o-y of 26.15% and an increased net profit y-o-y by 20.87%. Your Company had performed at par with the expectations of directors during the fiscal year 2011-12, considering the overall forging industry performances in India. We hope that the Company will do the same in future as well since the Company has having good orders pipeline for the next year from both the domestic as well as overseas markets. Further it is a constant endeavor to obtain additional orders and emerge as a leading supplier in the forging industry.

Operational Progress of the New Expansion Project

The Company has been constantly expanding its operations, keeping in sight the demands of the forging industry, market receptiveness and other economic factors and evaluations. The Company is expanding its business by setting up a new plant at Waghodia, Vadodara. Currently, the project is progressing as planned and is on full swing. All the requisite plant and machineries have been received at the site and erection work is in full swing. As of now, 80% of the work has been completed. Your Company has faced a few challenges like shortage of funds due to the change in suppliers which increased the total project cost to Rs. 132 crores. The Company has changed supplier of furnaces for the project in order to improve fuel efficiency. The furnaces which were earlier proposed to be purchased from the Korean supplier have been now purchased from German supplier which has increased the project cost by Rs. 13 crores. To meet the requirements of a fund shortage, the Company had to take a fresh term loan to the tune of Rs. 8 crores aggregating Rs. 80 crores. There are other various challenges which the Company will have to face in the near future, but we believe that we will overcome these bottlenecks and will commission the project soon.

Dividend

In order to conserve the resources for meeting the Company's expansion plans, the Directors of your Company express their inability to recommend any dividend for the Financial Year 2010- 2011.

Credit Rating

Your Company continues to have credit rating of CARE BBB for its long-term bank facilities and CARE A3 for its short-term bank facilities.

Investors' Relations and Grievances

All the shareholders'/investors' complaints/grievances received during the financial year have been resolved and there were no investor grievances pending as on March 31, 2012. A confirmation to this effect has been obtained from the Company's Registrar and Share Transfer Agent. The details regarding investor complaints received and resolved during the year are mentioned in the report on Corporate Governance annexed to this report.

Conservation of Energy

Energy saving in terms of electricity consumption is our prime concern. The Company utilises several means to conserve energy. Well-planned preventive maintenance measures improved our operational efficiency. The details relating to the same is annexed in "Annexure A" to the report.

Water and air pollution control measures are optimum and industrial trade effluents are used for gardening. Tree plantation at the factory site is maintained properly and the same shall be duly taken care in our new plant.

Management Discussion and Analysis Report:

A detailed review of operations, performance and future outlook of the Company is covered under a separate Annexure to this report as Management discussion and analysis.

Report on Corporate Governance

A separate Section on Corporate Governance is included in the Annual Report and the Certificate from M/s. S. Samdani & Associates, Company Secretaries, Vadodara, and the Company's Secretarial Auditors confirming the compliance of conditions on Corporate Governance as stipulated in Clause 49 of the Listing Agreement with Stock Exchanges is annexed thereto.

Fixed Deposits

Your Directors report that the Company has not accepted any deposits during the current financial year.

Insurance

Your Directors confirm that all the properties and insurable interests of the Company, including buildings, plant and machinery and stocks have been adequately insured.

Directors

At the forthcoming Annual General Meeting, Shri Babulal Sanghvi and Shri Vikram Sanghvi will retire by rotation and being eligible; offer themselves for reappointment in terms of the Articles of Association of the Company. A brief resume/particulars relating to them are given separately under the report on Corporate Governance. Your Directors recommend their reappointment at the forthcoming Annual General Meeting.

Directors' Responsibility Statement

Pursuant to the requirements under Section 217(2AA) of the Companies Act, 1956, with respect to Directors' Responsibility Statement, your Directors confirm that:

(i) In the preparation of the accounts for the financial year ended March 31, 2012; the applicable accounting standards have been followed along with proper explanation relating to material departures, if any

(ii) The accounting policies selected have been applied consistently and judgments and estimates made 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 the year under review

(iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 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

Auditors and Their Report

Except of the following, comments of the auditors in their report and the notes forming part of the accounts are self- explanatory and needs no comments:

Auditors have qualified their report regarding 'classification of certain liabilities into current and non-current' which is a different view. In light of the revised schedule VI of Companies Act; this being the first year of implementation of revised Schedule VI due to lack of clarification and management

perception, there was a difference of opinion on current vs. non-current classification only which would be resolved in current financial year, as such the classification does not have any material impact on the financials of the Company, which auditors have also pointed out in their report.

M/s. Shah Bhandari and Associates, the Company's Statutory Auditors who retire at the conclusion of the ensuing Annual General Meeting and being eligible, offer themselves for reappointment.

The Company has received a certificate from the auditors to the effect that their reappointment if made, would be in accordance with the provisions of Section 224(1B) of the Companies Act, 1956.

The Directors recommend the reappointment of M/s Shah Bhandari & Associates and shall seek the approval of the members at the Annual General Meeting to authorise the Board to Directors to fix their remuneration.

Cost Auditor

The Central Government vide its order dated June 30, 2011 directed that audit of cost accounts maintained by the Company relating to the steel product for the year ended March 31, 2012 be conducted by the Auditors having qualification as prescribed in Section 233B(1) of the Companies Act, 1956. Accordingly the Board had appointed M/s Diwanji & Associates as Cost Auditor for carrying out the cost audit for the FY 2011-12.

Corporate Social Responsibility

The call of fulfilling our Corporate Social Responsibility (CSR) has sincerely been taken by us and we accord as much significance as any business project for CSR and the results are there for everyone to see. Dedicated need-based interventions are initiated in areas where we operate. Enabling local people by fostering self-reliance is the motive behind our community development efforts. Therefore, our interventions are structured around promoting education, generating livelihood, empowering women and overall, social mobility.

Your Company is also constantly making efforts to maintain a greener planet and reduce the carbon footprint as much as possible. Through financial contribution and active participation of employees, Your Company provides support to programmes and non-profit organisations that address community sustainability. Your Company contributed towards Corporate Social Responsibility through donations, financial contribution, and sponsorship and by participating in various such activities. Details of the some of these activities undertaken by the Company during the year are as under:

1. Donation to Vadodara GramyaJilla Traffic Education Trust Vadodara GramyaJilla Traffic Education Trust, Vadodara has organised a short film festival to increase the awareness about the traffic rules which has been sponsored by the Vadodara Traffic Police. Your company has made contribution to said trust by way of donation. Your Company has always making efforts to participate such programs for awareness of the public and reduce road accidents.

2. Donation to Hari Om Seva Trust for medical help to the underprivileged

Your company is always trying to support the socially and economically weaker section of the society. As a part of the endeavor for continuously supporting such noble works, the Company has donated a contribution to Hari Om Seva Trust for medical help to the underprivileged which is an NGO & registered Charitable Trust rendering immaculate human services for the needy patients. The Trust provides the financial help in the form of their medical expenses and guiding patients to their doctors and wards. All funds collected by the trust are fully utilised for poor patients. They mainly providing their services at SSG Hospital, Vadodara which comprise of guiding poor illiterate patients to different department of the hospital like OPDs, Wards, Laboratory, RMO office, Emergency wards etc. Supplies of medicines to needy poor patients who are not capable to buy etc. They have made arrangement with other local Charitable Medical store for medicines and same is given at subsidised rates as compared to market rates.

3. Sponsored the CEP Course on Heat Treatment and Failure Analysis of Gears

Your company has sponsored the CEP Course on Heat Treatment and Failure Analysis of Gears organised by IIT, Bombay. The objective behind to sponsor these type of course is not only to identify those failure but also to determine and correct those failure which can lead to many potentially disastrous consequences, including poor product quality, necessary repair or component or equipment replacement, production downtime losses, environment impact and even loss of life. The course also dealt with many other aspects like steel failures arising during thermal processing, such as forging casting, heat treatment, welding and other and provided detailing potential failure that may occur during thermal processing and the identification of their root cause, even if it is not specifically the thermal process being considered. This course not only discuss various causes of a failure and its identification but also integrates this discussion with the metallurgy of the process by providing one comprehensive resources.

Human Resources

The Company's strength lies in its team of competent and motivated personnel. This made it possible for your Company to make significant improvements and progress in all areas of its working. The employees have from time to time taken up the challenge to improve the performance of plants through efficiency, productivity and economy. Your Directors are happy to place on record their sincere appreciation for the unstinted efforts and contribution put in by the employees of the Company.

The Company has also continued its endeavour to impart appropriate and relevant training to its employees at various levels with a view to equip them to take up the challenges ahead and to enhance their performance in the overall interest of the Company.

During the year, the Company maintained harmonious and cordial industrial relations. No man-days were lost due to strike, lock out among others.

Disclosure by Senior Management Personnel i.e. one level below the board including all HODS

None of the Senior Management personnel has financial and commercial transactions with the Company, where they have personal interest that would have a potential conflict with the interest of the Company at large.

Particulars of Employees Under Section 217

There were no employees coming within the purview of the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975.

Acknowledgement

Your Directors express their sincere appreciation for the wholehearted and continued support assistance and cooperation extended by the, shareholders banks, suppliers, customers, employees, and all concerned towards the during the year under report.

On the behalf of the Board of Directors

Sd/-

Babulal S. Sanghvi Chairman

Vadodara August 13, 2012

 
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