The Director’s have the pleasure of presenting their 45th Annual Report and audited statements of accounts for the year ended 31st March, 2017.
(Rs. in crore)
1. Financial Results
Other operating income
Total income from operations (Net)
Profit before finance cost, depreciation and amortisation
Profit before depreciation and amortisation
Depreciation and amortisation
Profit/Loss before tax
Provision for taxation:-
Income tax for earlier years
Loss for the period
EPS (Basic) Rs.
2. OVERALL PERFORMANCE
The Company recorded net sales of Rs.869.15 Crore during the financial year 2016-17 as compared to Rs.888.82 Crore in the previous financial year. The Net loss during the financial year 2016-17 was at Rs.50.10 Crore as compared to a net loss of Rs.7.55 Crore in financial year 2015-16 translating to basic earning per share at Rs.(12.54) for the financial year 2016-17 as against Rs.(1.92) in financial year 2015-16.
3. STATE OF COMPANY’S AFFAIRS
The analytical review of the Company’s performance and its businesses, including initiatives in the areas of Human Resources and Corporate Social Responsibility have been presented in the section of Management Discussion and Analysis of this Annual Report.
Significant reduction in EAF denominated steel making globally during the year under review coupled with increased exports of steel from China, forced the pertinent industry players to operate below 55% capacity in the first half of 2016-17. Situation improved for the better towards the second half, when the steel industry witnessed significant reduction in their inventories of electrodes, envisaging fall in prices to continue. There was another year in succession where the pressure on prices continued unabated. Towards the end of the financial year, fall in prices were majorly arrested and the new orders for the following year, showed signs of slight improvement as well. It can safely be said, that the worst is over for the industry and the Company is ready to ride through with the reversal cycle of demand and growth.
Major consolidation in the Graphite Electrode Industry, the process of which started in 2014, seems to have ended this year, with the acquisition of world’s second largest producer by an existing Graphite Electrode producer. This coupled with permanent closure of nearly 2,00,000 metric tonne of inefficient and high cost manufacturing facilities globally, adjusted the supply side favorably for the industry, thus making way for the industry to adjust prices, going forward.
With enhanced capacity utilization levels witnessed in recent past due to demand growth particularly in India and closure on ground of polluting steel manufacturing units in China, the Company stands on a firm footing to reap the benefits as a result of improved demand and prices, going forward.
Power business comprises of facilities, which are primarily run for meeting captive requirement of manufacturing graphite electrodes and in the process, also sells surplus power in the open market.
The power segment, which comprises of both hydro generation facility and also a thermal generation facility performed exceeding well this year, especially the hydro segment. Both India and Madhya Pradesh, where the hydro plant is located witnessed above average rainfall during the year, which helped the Company in generating one of the highest number of units in past decade.
Since the generation in Thermal power generating facilities is primarily to meet production requirement of graphite electrodes, the improvement in levels of capacity utilization for the year as a whole, improved overall efficiency of the segment and in turn bottomline. Long term tie up with the state run coal company continue to keep the coal cost under check and immune from volatile market forces. This has not only optimized the SHR of coal, but also helped improve this segment’s results for the year under review.
4. MATERIAL CHANGES AND COMMITMENTS
No material changes and commitments, affecting the financial position of the Company have occurred between the end of the financial year of the Company to which the financial statements relate and the date of the report.
5. CHANGE IN THE NATURE OF BUSINESS
There is no change in the nature of business during the financial year 2016-17.
6. SUBSIDIARY, ASSOCIATE COMPANIES OR JOINT VENTURES
(i) Subsidiary Company
In terms of provisions of Section 136(1) of the Companies Act, 2013, the audited financial statements of HEG Graphite Products and Services Ltd, the wholly owned subsidiary of the Company, have been placed on the website of the Company and are not being annexed in this Annual Report.
The financial statements of the subsidiary Company are kept for inspection by the shareholders at the registered Office of the Company. The Company shall provide, the copy of the financial statements of its subsidiary Company to the shareholders upon their request.
There were no business operations in the subsidiary Company. The subsidiary reported a net loss of Rs.32,573 in the financial year 2016-17.
The Managing Director of the Company does not receive any remuneration or commission from its subsidiary.
The Board of Directors of the Company at its meeting held on 30th May, 2017 has accorded its in-principle approval for closure of its wholly owned subsidiary i.e. HEG Graphite Products and Services Limited. This wholly owned subsidiary was incorporated in the year 2009 but has never carried out any commercial operation.
(ii) Associate Companies or Joint Ventures
There are two Associates of the Company namely Bhilwara Infotechnology Ltd. and Bhilwara Energy Ltd. Bhilwara Infotechnology Ltd. had a turnover of Rs.40.77 Crore and Net Profit was Rs.3.96 Crore in the financial year 2016-17. Bhilwara Energy Ltd had a consolidated turnover of Rs.383.43 Crore and Net Profit was Rs.14.85 Crore for the financial year 2016-17. The Company has no Joint Ventures.
No Company has become/ceased to be a Subsidiary, Associate or Joint Venture during the financial year 2016-17.
Pursuant to the provisions of Section 129(3) of the Companies Act, 2013, a statement containing the salient features of financial statements of the Company’s subsidiary and associate Companies in Form AOC-1 is attached to the Consolidated Financial Statements of the Company.
7. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements have been prepared by the Company in accordance with the applicable Accounting Standards. The audited consolidated financial statements together with Auditors’ Report form part of the Annual Report.
The Auditor’s Report does not contain any qualification, reservation or adverse remarks.
In view of absence of net profits, no dividend is being recommended for the financial year 2016-17.
9. CORPORATE GOVERNANCE
A report on Corporate Governance forms part of the Annual Report along with the Auditors’ Certificate on Corporate Governance as required under SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015. The Auditor’s Certificate for the financial year 2016-17 does not contain any qualifications, reservations or adverse remarks.
10. MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report as required under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 forms part of the Annual Report.
11. INTERNAL CONTROL / INTERNAL FINANCIAL CONTROL SYSTEMS AND ADEQUACY THEREOF
The Company has an adequate internal control system commensurate with the size and nature of its business. An internal audit programme covers various activities and periodical reports are submitted to the management. The Company has a well-defined organisational structure, authority levels and internal rules and guidelines for conducting business transactions.
Besides, the Companies Act, 2013 has put primary responsibility of implementing a robust Internal Financial Control framework and is under consistent supervision of Audit Committee, Board of Directors and also independent Statutory Auditors. During the year, no reportable material weakness in the design or operation were observed.
a) Industrial relations
The industrial relations during the period under review generally remained cordial at all the plants of the Company.
b) 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, is annexed herewith as Annexure - I.
13. PUBLIC DEPOSITS
Your Company has not invited any deposits from public/ shareholders in accordance with Chapter V of the Companies Act, 2013.
14. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS
There were no significant material orders passed by the Regulators/ Courts/ Tribunals during the financial year 2016-17 which would impact the going concern status of the Company and its future operations.
15. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
The information with regard to Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and outgo in accordance with the provisions of Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is given as Annexure II forming part of this Report.
16. DIRECTORS AND KEY MANAGERIAL PERSONNEL
Your Directors inform you about the resignation of Shri Dantuluri Satyanarayana Ravindra Raju from the Directorship and Executive Directorship of the Company w.e.f. 31st August, 2016. The Board appreciates the valuable contribution and guidance extended by Shri Dantuluri Satyanarayana Ravindra Raju during his short- tenure as an Executive Director of the Company.
Shri Satish Chand Mehta was appointed as an Independent Director of the Company w.e.f. 23rd June, 2016.
Pursuant to the recommendation of the Nomination and Remuneration Committee, Shri Raju Rustogi, Chief Financial Officer of the Company has also been appointed as the Chief Operating Officer of the Company w.e.f. 1st September, 2016.
Shri Ashish Sabharwal, Company Secretary and Compliance Officer of the Company has resigned and relieved from the services of the Company w.e.f. 30th November, 2016.
Shri Vivek Chaudhary, a member of the Institute of Company Secretaries of India (Membership No. ACS 13263), has been appointed as Company Secretary and Compliance Officer of the Company w.e.f. 30th May, 2017.
One of your Directors namely Shri Shekhar Agarwal, shall retire by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. The Board recommends his re-appointment.
The brief profile, pursuant to Regulation 36(3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, of the Director eligible for appointment / re-appointment forms part of the Corporate Governance Report / Notice of Annual General Meeting.
All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Regulation 16 of the. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
17. BOARD EVALUATION
The Board has carried out an annual evaluation of its own performance, the directors individually as well as the evaluation of the working of its Committees. The exercise covered various aspects of the Board’s functioning such as composition of the Board & Committee(s), their functioning & effectiveness, contribution of all the Directors and the decision making process by the Board.
The Directors express their satisfaction with the evaluation process.
18. FAMILIARIZATION PROGRAMMES FOR THE INDEPENDENT DIRECTORS
In compliance with the requirements of the SEBI (LODR) Regulations, 2015, the Company has put in place familiarization programme for the Independent Directors to familiarize them with their role, rights and responsibility as Directors, the working of the Company, nature of the industry in which the Company operates business model, etc. It is also available on the Company website and a weblink thereto is as under: http://www.hegltd.com/pdf/Details_of_Familiarisation_Programmes_imparted_to_Independent_Directors.pdf
19. NOMINATION AND REMUNERATION POLICY
The Nomination & Remuneration Policy of the Company is in place and is attached as Annexure - III to this Report.
20. MEETINGS OF THE BOARD
The Board of Directors met 4 (four) times in the financial year 2016-2017. The details of the Board Meetings and the attendance of the Directors are provided in the Corporate Governance Report.
21. CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES
All related party contracts/arrangements/transactions that were entered into during the financial year were on an arm’s length basis and were in the ordinary course of business.
All Related Party Transactions are placed before the Audit Committee for approval. Prior omnibus approval of the Audit Committee was obtained for the transactions which are of a foreseen and repetitive nature. The statement of transactions entered into pursuant to the omnibus approval so granted is placed before the Audit Committee for its review on a quarterly basis. The statement is supported by a Certificate from the CFO.
The policy on Related Party Transactions as approved by the Board is uploaded on the Company’s website, the weblink of which is as under: http://www.hegltd.com/pdf/Policy_on_Related_Party_ Transactions_HEG_ Limited.pdf
There are no pecuniary relationships or transactions of Non-Executive Directors vis-a-vis the Company that have a potential conflict with the interests of the company.
No material Related Party Transactions i.e. transactions exceeding ten percent of the annual consolidated turnover as per the last audited financial statements were entered during the financial year by the Company. Accordingly, the disclosure of Related Party Transactions as required under 134 (3) (h) of the Companies Act, 2013 in Form AOC-2 is not applicable.
22. AUDIT COMMITTEE
The composition of the Audit Committee is stated in the Corporate Governance Report. All the recommendations of the Audit Committee were accepted by the Board during the financial year 2016-17.
M/s. Doogar & Associates, Chartered Accountants and M/s. S.S. Kothari Mehta & Co., Chartered Accountants, Auditors of the Company, will mandatorily retire from their office at the ensuing Annual General Meeting. They are, however, not eligible for re-appointment in terms of provisions of Section 139 of the Companies Act, 2013 and rules thereunder. The Auditors’ Report read along with notes to accounts is self-explanatory and therefore does not call for any further comments. The Auditors’ Report does not contain any qualification, reservation or adverse remark.
During the year under review, the Auditors had not reported any matter under Section 143 (12) of the Companies Act, 2013; therefore, no detail is required to be disclosed under Section 134 (3) (ca) of the Companies Act, 2013.
Your Directors have recommended the appointment of M/s. S.C. Vasudeva & Co. Chartered Accountants (Firm Registration No. 000235N) as Statutory Auditors of the Company to hold office for a period of 5 consecutive years from the conclusion of the 45th Annual General Meeting of the Company scheduled to be held in the year 2017 till the conclusion of 50th Annual General Meeting to be held in the year 2022 subject to the approval of the shareholders in the ensuing Annual General Meeting and subject to ratification by members at every subsequent Annual General Meeting. They have furnished a certificate to the effect that their appointment will be in accordance within the applicable provisions of the Companies Act, 2013.
24. BUSINESS RISK MANAGEMENT
The objective of risk management at the Company is to protect shareholders value by minimizing threats or losses, and identifying and maximising opportunities. An enterprise-wide risk management framework is applied so that effective management of risk is an integral part of every employee’s job.
The Risk Management Policy of the Company is in place for Risk Assessment and Mitigation. It is periodically reviewed by the Audit Committee / Board of Directors. The Company’s risk management strategy is integrated with the overall business strategies of the organization and is communicated throughout the organisation. Risk management capabilities aide in establishing competitive advantage and allow management to develop reasonable assurance regarding the achievement of the Company’s objectives.
The annual strategic planning process provides the platform for identification, analysis, treatment and documentation of key risks. It is through this annual planning process that key risks and risk management strategies are communicated to the Board. The effectiveness of risk management strategies is monitored both formally and informally by management and process owners. There is no major risk which may threaten the existence of the Company.
25. COST AUDITORS
The Cost Audit for financial year ended March 31, 2016 was conducted by M/s. N.D. Birla & Co. (Firm Registration No. 000028). The said Cost Audit Report was filed on 27th August, 2016.
Based on the Audit Committee recommendations at its meeting held on 30th May, 2017, the Board has approved the re-appointment of M/s. N.D. Birla & Co. (Firm Registration No. 000028), as the Cost Auditors of the Company for the financial year 2017- 2018 on a remuneration of Rs.2 lacs plus service tax and out of pocket expenses that may be incurred by them during the course of audit. As required under the Companies Act, 2013, the remuneration payable to the cost auditor is required to be placed before the Members in a general meeting for their ratification. Accordingly, a Resolution seeking Member’s ratification for the remuneration payable to M/s. N.D. Birla & Co., Cost Auditors is included in the Notice convening the Annual General Meeting.
26. SECRETARIAL AUDITOR
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company had appointed M/s. GSK & Associates, a firm of Company Secretaries in Practice to undertake the Secretarial Audit of the Company for the Financial year 2016-17. The Secretarial Audit Report is annexed herewith as Annexure IV. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. The Board has re-appointed M/s. GSK & Associates, Company Secretaries in practice as Secretarial Auditor of the Company for the financial year 2017-18.
27. CORPORATE SOCIAL RESPONSIBILITY (CSR)
As part of its initiatives under Corporate Social Responsibility (CSR), the Company has undertaken projects in the areas of promotion of education, eradicating hunger & poverty, initiatives towards Community Service and Rural Development, Healthcare, Plantation & Environment Development, Protection of National heritage, Art, Culture etc. These projects were in accordance with the CSR Policy of the Company and Schedule VII of the Companies Act, 2013.
The CSR Committee comprises Shri Ravi Jhunjhunwala (Chairman), Shri Dharmendar Nath Davar and Smt. Vinita Singhania.
The CSR policy may be accessed on the Company’s website at the link mentioned below: http://hegltd.com/pdf/Corporate_Social_Responsibility_Policy.pdf
The Annual Report on CSR activities is enclosed as Annexure V, forming part of this report.
28. INTERNAL AUDITORS
Based on the Audit Committee recommendations at its meeting held on 30th May, 2017, the Board has approved the re-appointment of M/s. S.L. Chhajed & Co, as the Internal auditors of the Company for the financial year 2017-2018.
29. DIRECTORS RESPONSIBILITY STATEMENT The Directors confirm that:
i) In preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures from the same;
ii) They have 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 ended 31st March, 2017 and of the loss of the Company for the year under review;
iii) They have taken proper and sufficient care for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safe guarding the assets of the Company and for preventing and detecting frauds and other irregularities;
iv) They have prepared the annual accounts on a going concern basis;
v) They have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and
vi) They have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.
30. VIGIL MECHANISM /WHISTLE BLOWER POLICY
The Company has a vigil mechanism named “Whistle Blower Policy” in place. The details of the Whistle Blower Policy are explained in the Corporate Governance Report and the policy is also posted on the website of the Company, the weblink of which is as under: http://hegltd.com/pdf/Whistle_Blower_Policy_HEG.pdf
The policy provides for adequate safeguard against victimization of director(s) / employee(s) who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee. It is affirmed that no person has denied access to the Audit Committee.
31. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS
Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 form part of the notes to the financial statements provided in the Annual Report.
32. EXTRACT OF ANNUAL RETURN
The extract of the Annual Return in form MGT-9 as required under Section 92(3) and Rule 12 of the Companies (Management and Administration) Rules, 2014 is appended as Annexure VI to this report.
33. GENERAL DISCLOSURE
The Company has a group policy in place against Sexual Harassment 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. The Company has undertaken four workshops / awareness programs against sexual harassment at workplace. No complaint of sexual harassment was received during the financial year 2016-17.
Your Directors wish to place on record, their appreciation for the valuable assistance and support received by your Company from banks, financial institutions, the Central Government, the Government of Madhya Pradesh, the Government of Uttar Pradesh and their departments. The Board also thanks the employees at all levels, for the dedication, commitment and hard work put in by them.
For and on behalf of the Board of Directors
Place: Noida (U.P.) Ravi Jhunjhunwala
Dated: 30th May, 2017 Chairman, Managing Director & CEO