The Directors present Twenty Seventh Annual Report of the Company
together with the audited statement of accounts for the financial year
ended 31st March 2012.
For the year For the year
Rs. Million Rs. Million
Gross Sales 11,351 10,163
Sales (Net of Excise) 10,362 9,274
(Loss)/Profit (before (691) 51
exceptional and Extraordinary
items and Tax)
Exceptional items 26 -
(Loss)/Profit for the year before Taxation (717) 51
Tax Expenses 5 31
(Loss)/Profit for the year (722) 20
MANAGEMENT DISCUSSION AND ANALYSIS:
The year under review was not only a difficult year for the Company, it
was a challenging year for the Indian economy as well. The Indian
economy substantially slowed down during 2011-12, as compared to the
previous year. Overall GDP growth rate dropped from 8.4% in 2010-11 to
6.5% for the year 2011-12. The growth rate which had dropped down to
6.7% in 2008-09 was expected to rebound and be around 9% or more during
2011-12. However, contrary to expectation, with every passing month in
2011, it became more and more evident that the rate of growth was on
the decline. Index of Industrial Production (IIP) growth declined from
8.2% in 2010- 11 to 2.8% in 2011-12. Growth rate of eight core
industries declined from 6.6% during 2010-11 to 4.4% in 2011-12.
Diverse factors lead to this unforeseen down turn. The global factors
like the Euro zone crisis, recession in Europe, sluggish growth rate in
industrialized nations like USA, stagnation in Japan, political crisis
in the Middle East also contributed to the slowdown. Such drastic
reversal from the upward swing to global melt down and consequent
weakening of India economy led to a general negative outlook and
depressed market sentiments.
During 2011-12 the Rupee depreciated by over 14% against the US$, 13%
against the Sterling Pound, 8% against the Euro and 15% against the
Japanese Yen. The cascading effect of Rupee depreciation was sorely
felt on the already high imported commodity prices. The Indian markets
also saw a large decline in the in-flow of funds from the Foreign
Institutional Investors partly due to the concerns over the longer term
impact of higher current account deficits and partly due to risk
aversion to invest in volatile markets. The flight of capital by
foreign investors was also influenced by the melt down in Europe.
Sovereign debt problem of euro area weighs heavily on global recovery.
Concern about sustainable solution to the sovereign debt problem and
vulnerability of the banking sector still persist. Heightened risk
aversion and the resultant slowing of capital flows will have a
significant adverse impact on emerging and developing economies
Spiraling oil prices, high inflation, rising interest rates severely
dampened business sentiments thereby contributed to the slowdown. The
year 2011-12 started with 9.7% inflation which touched double digits in
September 2011 and thereafter declined to 7.7% in March 2012. The major
factors contributing to such inflation were high prices of vegetables,
eggs, meat and fish due to change in dietary pattern of rural
households, increasing global commodity prices leading to higher cost
of production and continuous high prices of crude oil.
The factors which led to general negative outlook and depressed market
sentiments affected the Company adversely. The margins of the Company
remained under severe pressure during the year due to rising input
costs, adverse foreign exchange scenario and weakening rupee,
disturbances and labour unrest with major customers, fluctuating
economic growth and fierce competition causing a loss of Rs. 722
million after tax.
The margins and profits are under pressure not only in the Company but
the situation is more or less same with competitors and other Auto
components supplier as well. Same is the scene with car manufacturers.
The end customers are continuously demanding better features, higher
specifications at lower cost in the new cars and in new models of the
present cars. The margins are therefore under pressure with car
manufacturers also. The car manufacturers in turn pass on this pressure
to the components suppliers.
The problem was worst confounded due to labour unrest at Manesar plat
of Maruti Suzuki India Limited (MSIL), which is our biggest customer.
This severely disturbed production schedule of the Company putting
inventory and imports out of sync with production. The Company faced
challenges of erratic demand due to fluctuating economic scenario
affecting growth in automobile sector during the year. It was therefore
necessary to import more material & components and carry higher
inventory to ensure 100% committed supply to the customers. This was
necessary to retain market share. Even though these put pressure on
profit margins and enhance working capital exposure, nevertheless are
imperative to retain market share and customer confidence.
The auto components industry is facing the pressure of erratic economic
growth. With the increase in competition, this pressure is likely to
increase further in the coming years. The Company is therefore aiming
to bring in more efficient, cost effective and newer technology
products where price realization could be better.
FACTORY AT HARIDWAR
Your Company had established a factory at Haridwar in year 2009, mainly
to cater to the needs of M/s Hero MotoCorp Ltd. plant at Haridwar as
well as to avail tax incentives being offered by the Government of
Uttarakhand. The Company''s factory at Haridwar is fully operational
and performing satisfactorily. M/s Hero MotoCorp Ltd. (previously
Honda Honda Motors Ltd.) is witnessing positive growth and has sold 6.2
million two wheelers in 2011-12 up from 5.4 million vehicles sold in
previous year. This trend augur well for Haridwar factory of your
NEW FACTORY AT BANGALORE
Your Company will set up a new factory at Bangalore during 2012-13.
This proposed factory at Bangalore will cater to the requirements of
two wheelers manufacturers in southern India and mainly supply to Honda
Motorcycle and Scooter India Pvt. Ltd. (HMSI) which is one of the main
customers for two wheelers products of the Company. HMSI plans to put
two plants in South. To secure HMSI growing business in South, in the
presence of strong competition, the company has decided to establish
this new factory. The Company is in process of taking suitable premises
on lease at Bangalore to set up the Factory.
SMALL MOTOR BUSINESS
Pursuant to the Special Resolution passed by the Shareholders of the
Company in terms of the provisions of Section 293(1)
(a), of the Companies Act, 1956, under postal ballot system, the
Company has sold Small Motor Business i.e Front/ Rear Wiper, Power
Window Motors, Blower Motors, Electric Fan Motors and Engine Cooling
Modules to DENSO Haryana Private Limited, a DENSO group company, on a
going concern basis, by way of slump sale. The consideration for the
sale on a slump sale basis is Rs. 1,477 million, out of which 90%
amount i.e. Rs. 1,329 million has been received on signing the
agreement and balance 10% will be received on closing date, along with
the adjustments on account of changes in working capital position and
additional capital investment, relatable to Small Motor Business up to
the closing date, which is scheduled to be in October 2012.
The Company''s Electrical Parts Business for four wheeler segment i.e
Alternator and Starter and Electrical Parts Business for two wheeler
segment i.e CDI and Magneto hold the key to growth and profitability in
future. Alternator/ Starter (in case of four wheelers) and CDI/ Magneto
(in case of two-wheelers) businesses constitute the core businesses of
the Company since they contribute to vehicle engine performance by
optimizing fuel cost and reducing emissions. With increased fuel costs
and regulatory drive towards reduction in emissions, and with the
DENSO''s inherent strengths in technical innovation, these two
businesses are expected to be the growth engine for Company''s
success. Accordingly, the Company has decided to focus and concentrate
on these two businesses (i.e. Alternator/ Starter and CDI/ Magneto
businesses). From an operational perspective also, the transfer of
Small Motor Business would improve capacities within the existing
manufacturing facility, which would be used for expansion and growth of
other two businesses.
OPPORTUNITIES AND THREATS:
Though there are projections of good growth of the Indian car and two
wheelers market in the medium to long term based on growth in household
income of burgeoning middleclass in India, there are challenges also
for the industry. The market will be subject to economic cycles and its
sensitivity to fuel prices and interest rates, can cause huge
fluctuations. These growth prospects will lure more local and
international players, the competition will intensify and
predictability of volumes and product mix will be increasingly
The vehicle manufacturers expect component industry to improve
scalability and develop a reliable and robust manufacturing foundation
for growth. To deliver global levels of technology and quality
products, the vehicle manufacturers require their suppliers to be able
to localize the systems or components supplied by them. The balance
will have to be imported and to that extent vehicle manufacturers and
component suppliers will be exposed to foreign exchange movements and
higher costs. The ability to localize components and systems will open
up vast opportunities for component suppliers and to the extent the
component suppliers depend on imports, they will be exposed to ever
increasing threat of exchange rate fluctuations. The Company is making
constant endeavors for localization of various parts and components and
identifying cost effective ways of manufacturing them in- house or
The other threat or growth bottleneck to which component manufacturers
are exposed is in the area of human resources. Good talent is critical
for technology absorption, quality manufacturing and cost management.
However growth and emerging opportunities in other sectors of Indian
economy is making this vital resource scarcer day by day.
The prevalent governance slowdown caused by delayed response of the
Government machinery to the vital issues requiring immediate attention
and quick disposal remains an area of concern. Fiscal Deficit has
continued to expand and is estimated to cross 5.9% of GDP by analysts,
contrary to budget estimates of 4.6%. Continually high oil prices, the
possibility of having to import coal at higher-than estimated rates to
meet the rising power gap and the continuing subsidy burdens do not
augur well for the economy.
SEGMENT WISE PERFORMANCE.
The Company''s operating business is organized and managed according
to the nature of product, with single Primary Reportable Segment
comprising of manufacturing and supply of electrical automotive
Market Survey and current trends indicate strong possibilities of high
growth rate in automotive market in coming years. However presently
the automobile industry is faced with the challenging times with
uncertainties on the demand side in coming months, which hopefully is
only a short term phenomenon. The total automobile market is expected
to grow by double digits annually for the next 5 years. India is
emerging as a small car hub in the Asia Pacific region. This is evident
from the fact that almost all the major international automobile
manufacturers have registered their presence in India and have started
manufacturing small cars in this country. These companies are either
setting up or expanding their existing manufacturing base not only to
enter the domestic market but also for exports. India is gradually
becoming a major manufacturing base for export of passenger cars as
well as other utility vehicles. Recession in the industrialized
nations, stagnation in Japan and China and a relatively large domestic
market is making India a much more attractive destination. It is
forecast that by 2020 India would be one of the top five automobile
manufacturing countries in the world. These positive developments in
the automobile sector would augur well for the auto component industry
and your company.
Customer trends indicate that the local design & development as well as
expansion of production facilities is moving towards South & Mid West
areas of India. It is expected that fuel price parity shall see higher
growth rate in diesel based vehicles. The Competition will become
intense and adopt strategy of price differentiation to gain market
share. Awareness and regulation on fuel efficiency will become a big
trend in India in the next few years as it helps both the economy and
the environment. The Company is conscious of these developments and
poised to take advantage of these trends. Setting up a factory in
Bangalore and decision to focus on Alternator/ Starter (in case of four
wheelers) and CDI/ Magneto (in case of two-wheelers) businesses, which
contribute to vehicle engine performance by optimizing fuel cost and
reducing emissions, are the steps in that direction. The Company has
chalked out mid term plan up to year 2015 and has targeted CAGR of 21%
in two businesses Alternator/ Starter as well as CDI/ Magneto.
INTERNAL CONTROL SYSTEMS:
The Company has an adequate system of internal controls to ensure that
transaction are properly recorded, authorized and reported apart from
safeguarding Company''s assets. Well-experienced Chartered Accountant
firm appointed by the Company for internal audit, reviews operations at
all the establishments of the Company. All significant internal audit
observations and follow up actions thereon are reported to the Audit
Committee. The Audit Committee reviews the adequacy and effectiveness
of the internal audit.
Your Directors wish to place on record their appreciation for the
commitment and dedication shown by the employees at all the areas of
operation of the Company. Various HR initiatives are taken to align the
HR policies to the growing requirements of the business. The Industrial
Relations remained cordial during the year. As on 31st March 2012 your
company had 1057 employees.
All the assets of your Company including Plant & Machinery, Building,
Equipment, and Vehicles etc. have been adequately insured.
Certain statements in the Management Discussion and Analysis
section may be forward looking and are stated as required by applicable
laws and regulations. Many factors may affect the actual results, which
could be different from what the Directors'' envisage in terms of the
future performance and outlook.
The Company has not invited or availed Fixed Deposits from the public
during the year under review.
During the year the Audit Committee Meetings were conducted as per the
provisions of listing agreement with the stock exchange (s). The
details about the functioning of the committee are being enumerated in
the Corporate Governance report section, which is part of the Annual
Report for the year ended March 31, 2012.
M/s. Price Waterhouse, Chartered Accountants, retire at forthcoming
Annual General Meeting and have requested for not to be considered for
reappointed as Statutory Auditors. Observations made in the
Auditors'' Report read with Notes to the Financial Statements are self
explanatory and therefore, do not call for any further comments under
Sec. 217 (3) of the Companies Act, 1956.
Mr. M. Adachi was appointed as Director to fill casual vacancy created
due to resignation of Mr. H. Wakabayashi on 29.07.2011.
Mr. N. Takamura was appointed as Alternate Director to Mr. M. Adachi
in the Board Meeting held on 29.07.2011.
Mr. M. Ono was appointed as Alternate Director to Mr. K. Arima in the
Board Meeting held on 13.02.2012. Mr. Ono is in the whole time
employment of the Company. His Appointment as Whole Time Director with
effect from 13th February 2012 by the Board of Directors is subject to
the approval of the shareholders at the ensuing Annual General Meeting.
The present tenure of Mr. Koji Shiga, Managing Director will expire on
27th July 2012. The reappointment of Managing Director with effect from
28th July 2012 by the Board of Directors is subject to the approval of
the shareholders at the ensuing Annual General Meeting.
Mr. H. Wakabayashi, Mr. T. Aoyama and Mr. K Sugita resigned from the
Board during the year under report. Your Directors take this
opportunity to place on record their deep appreciation for the valuable
guidance and unstinted support given by them during their association
with the Company
Mr. E. Seto and Mr. R. K. Bhatnagar retire from the Board of Directors
by rotation in accordance with the provisions of the Articles of
Association of the Company and are eligible for reappointment.
Considering the present financial condition and current market
situation no dividend is recommended for the year ended March 31, 2012.
PARTICULARS OF CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION & FOREIGN
EXCHANGE EARNINGS AND OUTGO.
The Statement pursuant to Section 217( 1) (e) of the Companies Act,
1956 read with the Companies (Disclosure of Particulars in the Report
of the Board of Directors) Rules, 1988 is given in the Annexure forming
part of this Report.
PARTICULARS OF EMPLOYEES
As per the existing salary limits of Section 217(2A) of the Companies
Act, 1956 read with the Companies (Particulars of Employees) Rules,
1975 as amended, as on 31st March, 2012, no employee of the Company is
DIRECTORS RESPONSIBILITY STATEMENT AS PER SECTION 217(2AA) OF THE
COMPANIES ACT, 1956.
1. The Financial Statement for the year ended 31.03.2012 are prepared
to comply in all material aspects with all the applicable accounting
principles in India, the applicable accounting standards notified under
Section 211(3C) of the Companies Act, 1956 and the relevant provisions
of the Companies Act, 1956.
2. The Directors of Denso India Ltd. accept the responsibility for the
integrity and objective of these Financial Statement as reflected
through the consistent application of the Accounting Policies as well
as for the estimates made and the judgment exercised relating to
matters not concluded by year-end.
3. The Directors believe that the Financial Statements reflect fairly
the form and substance of the transactions concluded and reasonably
present the Company''s financial condition and true and fair view of
the results of the operation for the year and the state of affairs of
the business as at 31st March, 2012.
4. The Company has installed an accounting system and the financial
statements have been prepared on a going concern basis along with a
system of controls which are reviewed, evaluated and updated on an on
5. Our internal Auditors have conducted periodic audits to provide
reasonable assurance that the established policies and the procedures
of the Company have been followed for safeguarding the assets of the
Company and for preventing any form of fraud and other irregularities
subject to the inherent limitations in any system and procedure and
coverage thereof that should be recognized in weighing the assurance
provided by any system of internal controls. These have been reviewed
periodically at Audit Committee Meetings.
6. The financial statements have been audited by M/s Price Waterhouse,
Chartered Accountants, the statutory auditors.
Your Directors take this opportunity to thank the customers, vendors,
shareholders, the bankers, the Central and State Governments and other
agencies for their continued support, co-operation and contribution
during the year under review. Your Directors place on record their
deep appreciation of the management of Denso Corporation, Japan,
Sumitomo Corporation, Japan, ASMO Co. Ltd., Japan, Maruti Suzuki India
Limited and Denso International India Pvt. Ltd for their assistance and
support during the year.
For and on behalf of the Board
NOIDA Koji Shiga M. Ono
4th June, 2012 Managing Director Director