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Directors Report of Pricol Ltd.

Mar 31, 2017

The Directors have pleasure in presenting the Sixth Annual Report and audited accounts for the financial year ended 31st March, 2017.

FINANCIAL RESULTS

The summarized financial results are:

'' Million

Net Sales & Services

2016-17

2015-16

- Domestic

11,305.666

11,002.971

- Export

840.961

1,017.929

Other Operating Revenue

501.968

460.611

Other Income

35.671

99.306

Total Revenue

12,684.266

12,580.817

Profit from Operations before Finance Cost, Depreciation and Amortization Expense & Exceptional Items

1,362.583

1,235.792

Less : Finance Costs

78.270

97.671

: Depreciation

375.859

368.048

Profit from Operations before Amortization Expense, Exceptional Items &Tax

908.454

770.073

Less : Amortization Expense

284.074

60.169

Add : Exceptional Items

5.337

(17.662)

Profit Before Tax

629.717

692.242

Less : Tax Expense

Current Tax

137.000

166.840

Deferred Tax

172.000

(24.000)

MAT Credit

(137.000)

—

For earlier years

—

28.003

Profit After Tax

457.717

521.399

Note: For 2015-16, merged entity figures are given for comparative purposes.

DIVIDEND

Your Directors recommend a dividend of '' 1/- per share of '' 1/- face value for the year ended 31st March 2017 and the total dividend payout is '' 114.095 Million including dividend distribution tax.

AUTO INDUSTRY

During the year, the Auto Industry''s domestic market grew by 6.81% and exports decreased by 4.50%. The overall growth was 5.09% as against 3.49% in the previous financial year.

The performance as per Society of Indian Automobile Manufacturers (SIAM) is :

Vehicles Sold

Growth

Category

2016-17 2015-16 In numbers

2016-17

%

Passenger Car / Utility Vehicle

3,621,487

3,263,044

10.99

Vans

184,070

179,217

2.71

Medium & Heavy Commercial Vehicle

346,248

337,594

2.56

Light Commercial Vehicle

476,255

451,234

5.55

Motor Cycles / Scooters / Mopeds

19,928,784

18,938,727

5.23

Three Wheelers

783,552

942,649

(16.88)

Total

25,340,396

24,112,465

5.09

OPERATIONS

The segments in the domestic market our Company primarily caters to are Two wheelers, Commercial Vehicles, Tractors and Off-road vehicles.

Consequent to market share reduction for some of our key domestic customers, our domestic sales grew marginally. Further due to reduction in our export sales, our overall revenue growth was only 0.82%.

The profit from operations before Amortization Expense, Exceptional Items & Tax increased from '' 770.073 Million to '' 908.454 Million increase of 17.97 %, due to several operational improvements, cost reduction measures and reduction in finance cost.

Due to amalgamation, the company purchased the assets of the erstwhile Pricol Limited (transferor company) at the respective fair values, which lead to higher depreciation & amortization expense for the year, resultant in decrease of Profit before tax to '' 629.717 Million from '' 692.242 Million.

For the ensuing year 2017-18, the Company''s business is expected to grow higher than the market, mainly due to new business generated.

SUBSIDIARY COMPANIES PT Pricol Surya Indonesia

The Company is supplying Instrument Clusters to the Two Wheeler manufacturers in Indonesia & Thailand.

In the financial year 2016-17, the company has achieved a Sales of Indonesian Rupiah 186,339 Million ('' 922.378 Million) as against the previous year sales of Indonesian Rupiah 172,406 Million ('' 848.236 Million) an increase of 8.08% in Indonesian Rupiah & 8.74% in INR terms. The difference in % is on account of exchange fluctuations.

The increase in sales is mainly on account of growth in the model that we are present in the Indonesian & Thailand markets. The cost control measures initiated by the Company has paid off well and resulted in turning around. The Company has achieved a Profit before Tax of Indonesian Rupiah 1,986 Million ('' 9.829 Million) as against the loss of Indonesian Rupiah 5,679 Million ('' 27.941 Million) of previous year.

Pricol Asia Pte Limited, Singapore

This purchasing arm of our Company mainly assists in global procurement of raw materials and components to supply our Company and associate companies.

In the financial year 2016-17, the Company achieved sales of USD 22.877 Million ('' 1,500.798 Million) as against the previous year sales of USD 18.844 Million ('' 1,236.453 Million).

The company made a Profit after Tax of USD 762,345 ('' 50.011 Million) during the year 2016-17 as against USD 350,289 ('' 21.808 Million) in 2015-16.

Pricol Espana Sociedad Limited, Spain

It is an investment arm of Pricol to acquire companies in Europe and South America. During the financial year, the company has incurred a loss of EURO 0.120 Million ('' 8.665 Million).

Pricol do Brazil Components Automotives LtdA, Brazil

Pricol do Brazil Components Automotives LtdA (PdB) manufactures and sells Pumps & Mechanical products to wide range of Domestic and International customers such as Volkswagen, Fiat, Fiat Power train, General Motors, Mack Trucks etc. PdB has a strong backward integrated facility with diverse manufacturing capabilities (Die Casting,

Machining and Assembly) and extensive Testing and Validation facilities to provide end to end solution and add value to the Customer.

R & D capabilities are another strong area of PdB and several new programs are on the advanced stage of development, such as :- Electric Coolant Pump, Electric Vacuum Pump, Electric Coolant Valve, Variable Flow Oil Pump, Variable Flow Water Pump, Solenoid Valve and Electric Oil Pump.

The Brazilian economy that has started declining couple of years back continued through 2016-17. During the year 2016-17, the economy has reduced by 3.6% & the Automotive market ended up with 20.20% reduction. During the year, PdB has increased its market share with key customers and thereby contained the reduction to 8.86%. In the current year, PdB has worked on to reduce and contain the expenses, production & labour costs through organizational restructuring.

Latest economic indicators show a slow recovery in Brazil for 2017. The stabilization of Brazilian economy and solution of political matters will also help PdB reversing current financial results situation. The company was awarded with a contract to supply water pump to General Motor''s new engine - The CSS project - which will be put in place at the end of 2019 and will represent an additional business of BRL 70 Million ('' 1,450 Million) per year.

In the financial year 2016-17, PdB has achieved a sales of BRL 62.940 Million ('' 1,233.804 Million) as against the previous year sales of BRL 69.060 Million ('' 1,303.135 Million). PdB incurred a loss of BRL 22.224 Million ('' 435.654 Million) during the year 2016-17 as against BRL 24.362 Million ('' 459.682 Million) in 2015-16.

The Company is continuously working on improving the sales of both domestic and export.

AMALGAMATION

Amalgamation of Pricol Limited, listed entity (Pricol) with Pricol Pune Limited, wholly owned subsidiary of Pricol Limited, unlisted entity (Pricol Pune) pursuant to the Order dated 6th October 2016 of Hon''ble High Court, Madras, was made effective from 1st November 2016. Upon amalgamation, Pricol ceased to exist. Subsequent to the amalgamation the name of ''Pricol Pune Limited'' changed to ''Pricol Limited'' with effect from 18th November 2016.

By integrating the related auto component businesses of Pricol and Pricol Pune, the Company would be in a position to offer a wider portfolio of products and services to its customers. The amalgamation would provide a high level of synergistic integration of operations, better operational management and provide value addition to existing and future orders of both the companies by integrating the respective technical, financial and other expertise and resources.

As part of the Amalgamation, all assets (including intangible assets not recorded by Pricol) and liabilities of Pricol as on the Appointed Date (1st April 2015) stand transferred to and vested with Pricol Pune. By amalgamation of Pricol into Pricol Pune, the combined entity would be able to reflect the true net worth in the financial statements (as all assets, tangible and intangible, including those not recorded in the books of Pricol would be recorded in the books of Pricol Pune at their respective fair values). This would enable greater realization of potential of the businesses of both the companies and result in enhanced value creation for the Company, shareholders, lenders and employees.

SHARES & LISTING

As consideration of amalgamation, on 7th December 2016, Company issued 94,796,721 new shares of face value '' 1 each (in ratio of 1:1) to shareholders of erstwhile Pricol Limited as on record date (6th December 2016). New shares issued were not additional shares. The shares (ISIN : INE605A01026) of erstwhile Pricol were debited and new shares (ISIN : INE726V01018) were issued to the shareholders. Pursuant to amalgamation, equity shares of Pricol Pune held by Pricol were cancelled. The shareholding pattern of the company stands as a mirror image of erstwhile Pricol''s shareholding pattern.

On 9th December 2016, the said shares were credited to the demat account of shareholders holding shares in demat form and on 14th December 2016, physical share certificates were dispatched to the shareholders holding shares in physical form.

Company obtained necessary approvals from SEBI & Stock Exchanges (BSE & NSE) and the new shares were listed & started trading in stock exchanges from 10th February 2017.

RELATED PARTY TRANSACTIONS

All related party transactions that were entered into during the financial year were on arm''s length basis and were in the ordinary course of the business. During the year, there were no materially significant related party transactions made by the Company with Promoters, Key Managerial Personnel or other designated persons which may have potential conflict with the interest of the Company at large.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS

There are no significant and material orders passed by the Regulators / Courts / Tribunals which would impact the going concern status and the Company''s operations in future.

DIRECTORS

As per the provisions of Section 149 of the Companies Act,

2013, Regulation 25 of the SEBI (Listing Obligations and

Disclosure Requirements) Regulations, 2015 and the Company''s Directors retirement policy at the age of 70, the Members of the erstwhile Pricol Limited, appointed the independent directors as mentioned below:

Name of Independent Director

Period of Appointment

Mr. C. R. Swaminathan

Up to 28th February 2018

Mr. K. Murali Mohan

Up to 31st March 2018

Mr. Suresh Jagannathan

Up to 31st July 2019

Mr. R. Vidhya Shankar

Up to 31st July 2019

Mr. G. Soundararajan

Up to 31st July 2019

Mrs. Sriya Chari

Up to 26th May 2021

All Independent Directors have given declarations that they meet the criteria of independence as provided in Section 149(6) of the Companies Act, 2013.

During the year Mr. S.A.Gopalakrishnan and Mr. N.Subramanian resigned from the Board with effect from 1st November 2016. The Board appreciated the valuable services rendered by them during their tenure of office as Directors of the Company.

Mr. Vikram Mohan, a Non- Independent Director retires by rotation at the ensuing Annual General Meeting and is eligible for re- appointment.

EVALUATION BY THE BOARD

The Board has made a formal annual evaluation of its own performance, Committees of the Board, Independent Directors and Individual Directors of the Company.

The Board''s performance was evaluated based on the criteria like Structure, Governance, Dynamics & Functioning, Approval & Review of Operations, Financials, Internal Controls etc.

The performance of the Independent Directors as well as Individual Directors including the Chairman of the Board were evaluated based on the evaluation criteria laid down under the Nomination and Remuneration Policy and the Code of Conduct as laid down by the Board.

The Committees of the Board were evaluated individually based on the terms of reference specified by the Board to the said Committee. The Board of Directors were satisfied with the evaluation process which ensured that the performance of the Board, its Committees, Independent Directors and Individual Directors adhered to their applicable criteria.

M/s. Haribhakti & Co. LLP are eligible for ratification of appointment and have confirmed that their appointment, if approved, will be in compliance with Section 141 of the Companies Act, 2013.

Your Board recommends the ratification of appointment of M/s. Haribhakti & Co. LLP, as Statutory Auditors of the Company, to hold office from the conclusion of this AGM to the conclusion of the next AGM.

COST AUDITORS

The Board of Directors at its meeting held on 30th May 2017 appointed M/s. STR & Associates, Cost Accountants, as the Cost Auditors for conducting the Cost Audit for the financial year 2017-18. A resolution seeking members'' ratification of the remuneration payable to Cost Auditor is included in the AGM notice dated 30th May 2017. The Cost Audit Report will be filed within the stipulated period.

SECRETARIAL AUDIT

The Company had appointed M/s. P. Eswaramoorthy and Company, Company Secretaries to undertake the Secretarial Audit of the Company for the financial year

2017-18. The Secretarial Audit Report is annexed herewith as “Annexure A”.

CSR INITIATIVES

Pricol''s Corporate Social Responsibility (CSR) activities reflect its philosophy of enhancing value to the society and the environment around us. The contribution in this regard has been made to the registered trust which is undertaking these schemes in addition to the CSR activities directly undertaken by the Company. The Annual Report on CSR activities is annexed herewith as “Annexure B”.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS ANDOUTGO

The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 (3) of the Companies (Accounts) Rules, 2014 is annexed herewith as “Annexure C”.

EXTRACT OF THE ANNUAL RETURN

The extract of the Annual Return in Form No. MGT-9 is annexed herewith as “Annexure D”.

DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS

Management and Union Representatives meeting is being conducted every month and the issues raised in the meetings are redressed immediately. Operators'' Monthly Goodwill meeting is also being conducted every month and the shop floor issues for their day-to-day production are redressed immediately. Periodical review of the above issues are being carried out to ensure its completion. Periodical interactions with the union office bearers and the line operators have improved the conducive Industrial Relations. The number of people employed as on 31st March 2017 is 4,809.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

The Company has in place an Anti Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary and trainees) are covered under this policy. The Company has not received any sexual harassment complaint during the year 2016-17.

PARTICULARS OF EMPLOYEES

The information required pursuant to Section 197 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company is annexed herewith as “Annexure E”.

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with the provisions of Section 134(3)(c) of the Companies Act, 2013, the Directors would like to state that:

a) in the preparation of annual accounts for the financial year ended 31st March 2017, the applicable accounting standards have been followed;

b) they had selected such accounting policies and applied them consistently and made judgments and estimates that were 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 the year under review;

c) they had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) they had prepared the annual accounts for the financial year ended 31st March 2017, on a going concern basis;

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

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

CORPORATE GOVERNANCE

Your company reaffirms its commitment to good corporate governance practices. The company complies with corporate governance requirements specified in regulation 17 to 27 and clauses (b) to (i) of sub-regulation (2) of regulation 46 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Pursuant to Schedule V of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Report on Corporate Governance which forms a part of this Report, has been annexed herewith as “Annexure F”.

The Managing Director and Chief Financial Officer have certified to the Board with regard to the financial statements and other matters as required under Regulation 17 (8) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Practicing Company Secretary''s Certificate regarding compliance of conditions of Corporate Governance, is made a part of this Directors'' Report. All the board members and senior management personnel have affirmed compliance with the code of conduct for the year 2016-17.

ACKNOWLEDGEMENTS

The Board takes this opportunity to place on record its appreciation to Customers, Distributors, Dealers, Suppliers, Shareholders, Bankers and Government authorities for their continued support and co-operation during the year under review. The Directors also wish to place on record their appreciation to the employees at all levels for their continued co-operation and commitment.

For and on behalf of the Board Vijay Mohan

Coimbatore Chairman

30th May, 2017 (DIN: 00001843)

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