The Directors have pleasure in presenting the Seventeenth Annual Report
on the operations of your Company, together with the audited accounts
for the 18 months period ended on 30th June 2005. The Company has
extended its financial year by a period of 6 months, to end on 30th
June 2005. Hence the figures for the period under review are not
strictly comparable with those of the previous year, which was for the
period of 12 months.
Particulars Period Year Ended
Net Turnover and Other Income 1416967 1041245
Profit before Financial Expenses,
Depreciation and Tax 81528 58307
Financial Expenses 25022 22915
Profit after Financial Expenses but
before Depreciation and Tax 56499 35392
Depreciation 5468 3576
Profit before Tax 51031 31816
Current Tax 4550 2775
Fringe Benefits Tax 714 -
Deferred Tax Charge/(Credit) (1538) 13883
Net Profit 47305 15158
Balance brought forward from previous year 22083 6925
Profit available for appropriation 69388 22083
Proposed final dividend 11196 -
Tax on dividend 1570 -
Surplus carried to Balance Sheet 56622 22083
The Board of Directors are pleased to state that during the period
ended on 30th June 2005 the Company has made best use of the market
forces and has taken advantage of the business opportunities that has
come its way. During the period (18 months) under review, the net sales
of the Company was Rs. 1395 million as against last years (12 months)
net sales of Rs. 1031 million. The pretax income has risen from 31.82
million to Rs. 51.03 million. The performance of the Company has been
improving steadily and this may be attributed to greater focus on
achieving operating efficiencies, cost containment and concentration on
products with high margins.
The Directors are pleased to recommend a dividend @ 10% on the paid up
equity share capital of the Company for the period ended on 30th June
Change of Name of The Company From Spice Net Limited To Spice
During the period under review the Company expanded its business
avenues and diversified its activities to include Mobile Handsets
business. Since, the name of the Company was not reflecting the
business activities being pursued by the Company, it was decided to
change the name of the Company from `Spice Net Limited' to `Spice
The necessary approval regarding the change of name of the Company by
way of Special Resolution was accorded by the Shareholders through
Postal Ballot effective on 2nd July 2005 and the fresh Certificate of
Incorporation consequent upon change of name was issued by the
Registrar of Companies, Uttar Pradesh and Uttaranchal on 4th July 2005.
Setup of an Industrial Establishment at Baddi, Himachal Pradesh
In order to avail of various tax and other benefits being offered by
the Himachal Pradesh State Government, the Company has established an
industrial undertaking at Baddi, Himachal Pradesh. This will enable
the Company to perform more efficiently and thus resulting in an
increased competitiveness and raising the returns on deployed capital.
Entry into a new Business Segment-Mobile Handset
Encouraged by the strong growth and the huge opportunity that exists in
the low & mid end segments, Spice Limited has decided to enter into the
business of Mobile Handsets and build a strong mobile phone brand with
a nationwide sales & distribution network. As the cellular coverage
expands to smaller towns the Company will focus on leveraging this
opportunity and it will be our strategic intent to grow the mobile
phone business and try to achieve a significant market share within the
next four years.
Industry Structure and Developments
* Mobile Handset Division
At the end of 2004 cumulative mobile subscriber base stood at 47
million & had overtaken fixed landlines. In the year 2005 mobile
subscribers are expected to grow to a cumulative subscriber base of
over 80 Million. By 2006 India will have over 115 Million subscribers
with a compounded annual growth rate of over 60-70%. Also by 2007,
operators will invest in expanding capacity & building networks to take
cellular coverage from the existing 1500 towns to over 5000 towns. The
Indian wireless market is nearing an inflection point in terms of
ramping subscriber growth, as favorable demographics, strong economic
growth, and improving availability of lower-end handsets position the
country to deliver strong growth over the next several years. India is
a key market for handset volume over the next several years. In fact,
as per market estimates handset volume in India can approach 10% of
global handset sales by the end of 2006.
* IT Division
The first quarter of the current fiscal began on a buoyant note in the
IT Sector as the PC (Desktops & Laptops) crossed 1 million units. In
the Institutional segment, it was primarily the Banks, Financial
institutions, Insurance Companies, Educational Institutes and ITES
Sector which provided the growth momentum whereas in the small & medium
enterprises and household segment, the reduced prices coupled with
applications for entertainment and education have fuelled the market.
Further, the Notebook segment registered a phenomenal growth with sales
touching 80,000 units recording 123% Y-o-Y growth and 137% sequential
growth. This high growth can be attributed to the steep drop in
The period also witnessed the entry of new players and led to extremely
aggressive pricing by manufacturers in a bid to corner market share.
* Mobile Handset Division
On the basis of the current market construct, which comprises mostly
of larger towns & urban in nature, over 69% of the mobile phones fall
in the low end. Another 19% fall in the mid end segment. It is clearly
evident that as the cellular coverage expands into smaller & smaller
towns, which will be largely rural in nature, the need for durable
entry-level handsets will grow. Such markets will require phones that
offer basic voice & SMS capability & not handsets with fancy features.
In 2005 itself we are looking at an addressable market of 17.9 Million
in the low end & another 4.9 Million in the mid end segments!!
* IT Division
Since IT Sector is going to be an item of utmost priority on Government
agenda, huge opportunities exist in all product categories and industry
segments. The Government is committed to increase PC penetration from
1.4% to 6.5% in the next 3 years. The trend of increased PC purchase
in households, smaller towns and cities as witnessed last year,
continues steadfast. A huge opportunity exist for Spice to sell its
branded PCs in the consumer segment. Close liasoning with Intel and
Microsoft can also, be leveraged to address e-governance opportunities
in select states.
With the check truncation system stated to be adopted by Banks for
faster clearing of cheques, an opportunity for selling related hardware
and software exists since the Company is already positioned well in
almost all reputed banks.
Threats, Risk and Concern
* Mobile Handset Division
Intense competition from large Multinational Players having deeper
pockets and economies of scale in the mobile business. These companies
plan to set up a manufacturing bases in India which could help them
offer mobile phones at much lower rates. Rapidly falling chipset
prices and the advantage, large players have in introducing such cost
benefits may pose a threat for n while.
* IT Division
Intense competition from MNC and large Domestic Player having economies
of scale is a huge threat in the PC business. The entry of Chinese
competitor, LENOVO, selling the IBM brand, and leveraging their volumes
with high operational efficiency will push the PC prices southwards.
New entrants in the domestic circuit are keen on cornering a part of
the pie and are offering very aggressive prices. The Company has also
decided to enter the Consumer PC Segment through channels in order to
build PC volumes and attain the. economies of scale required for
competitive prices and international sourcing.
The passbook printer still remains a very strategic and critical part
of the business plan and the Company still remains fully dependent on
its principal, Olivetti for the supply.
* Mobile Handset
The products launched in the Northern and Eastern parts of the Country
have been accepted extremely well. These products have been launched
and have redefined the value to the customer at the entry level. These
mobile phones have been designed and customized specifically for the
Indian Market and Customers requirements which include a louder
ringtone volume, high memory capacity, speaker phone. Music Player,
* IT Division
In the systems & solutions business, the Company focussed largely on
consolidating and concentrating more on broadbasing the client's
profile and developing strategic accounts for long term gains. In the
passbook printer business, the Company achieved new heights earning the
revenue of over Rs. 54 Crores up from Rs. 35.5 Crores during the
previous accounting period.
* Mobile Handset Division
Spice Limited will market a full range of mobile phones covering all
the segments but will predominantly focus on the entry level Black &
White as well as color segments. Key LISP would be affordability
without compromising on the reliability & functionality of the phones.
Pre embedding local content such as popular Bollywood ring tones, Tru
tones, games etc will be a critical differentiating factor incorporated
in the phones launched for the Indian market. Customization of phones
due to the regional character of the markets we will be focusing on,
would provide us competitive positioning. Moreover, we will launch
phones in all three-design formats, i.e. bar type, clamshell & slider.
* IT Division
In the year 2005-06 the IT market is slated to grow in a robust manner
since the Government and Industry is committed to increase the PC
penetration from 1.4% as of now to 6.5% by 2008. Entry level PC looks
set to breach the Rs. 10,000 mark since a number of vendors are already
making all out efforts in this direction. The demand for Notebooks will
continue unabated and the growth will be steeper than witnessed for
Desktops in terms of percentage. PC sales in the first half of current
fiscal are expected to touch 2 million units and in the coming quarters
sales will be further fuelled through lower PC prices, lower bandwidth
rates and impetus for local language software and applications.
Listing of Securities
The Equity Shares of the Company are presently listed on The Stock
Exchange, Mumbai. The Annual Listing Fee for the Year 2004-05 and
2005-06 have been paid to The Stock Exchange, Mumbai.
The Equity shares of the Company was delisted from The Calcutta Stock
Exchange Association Limited w.e.f. 9th December 2004. Further in
accordance with the approval of the shareholders at the 16th Annual
General Meeting held on 30th June 2004, the shares of the Company were
delisted from The Uttar Pradesh Stock Exchange Association Limited
w.e.f 27th August 2004. The delisting will not adversely affect the
shareholders of the Company as the equity shares continued to be listed
on The Stock Exchange, Mumbai.
During the period, Graphtech India Limited became a subsidiary of the
Company. As on 30th June 2005 the Company owned 50.11% stake in its
subsidiary viz. Graphtech India Limited. As required under Section 212
of the Companies Act 1956 the Accounts of the Subsidiary is attached.
However, now the Company has divested its entire investment in such
During the period under review, the Company has not accepted any
deposit from the public within the meaning of section 58A of the
Companies Act, 1956.
Consolidated Financial Statements
As required by Accounting Standard AS - 21 read with Accounting
Standard AS - 23 on Accounting for Investments in Associates, the
audited Consolidated Financial Statements of the Company are annexed
and form an integral part of this report.
Mr. Krishan Lal Chugh, Dr. Surendra A. Dave, Mr. Dilip Modi and Mr
Vikram Talwar resigned from the Board w.e.f. 1st January 2005, 7th
January 2005, 21st January 2005 and 5th May 2005 respectively. The
Board wishes to place on record its sincere appreciation for the
guidance and assistance provided by them during their tenure.
Mr.Ram Nath Bansal, who retires by rotation at the ensuing Annual
General Meeting and being eligible, offers himself for re-appointment.
Mr. Radha Krishna Pandey was appointed as an Additional Director and
Chairman on the Board of the Company on 21st January 2005. He holds
office tipto the conclusion of this Annual General Meeting and is
eligible for appointment as the Director of the Company. The Company
has received notice as required under Section 257 of the Companies Act,
1956, alongwith the requisite deposit from the shareholder proposing
his candidature for the office of the Director of the Company, not
liable to retire by rotation.
Directors' Responsibility Statement
Pursuant to Section 217 (2AA) of the Companies Act. 1956, the Directors
hereby confirm that:
(i) in the preparation of annual accounts, the applicable accounting
standards have been followed along with proper explanation relating to
(ii) the Directors have selected such accounting policies and applied
them consistently and made judgements and estimates that are reasonable
and prudent so as to give a true and fair view of the state of affairs
of the company for the period ending 30th June 2005 and of the profit
or loss of the Company for that period.
(iii) the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of this Act for safeguarding the assets of the Company and
for preventing and detecting fraud and other irregularities.
(iv) the Directors have prepared the annual accounts on a going concern
M/s. S.R.Batliboi & Co., Chartered Accountants, New Delhi, retire at
the conclusion of the ensuing Annual General Meeting and being
eligible, offer themselves for reappointment. The Company has received
notice from them stating that if appointed, they are within the limits
laid down under (1-B) of Section 224 of the Companies Act, 1956.
Notes on Accounts
With regard to the comments in para (vii) of the annexure referred to
in para no. 3 of the Auditors' Report, the Board of Directors hereby
explain that the Company is in the process of strengthening the Internal
Audit System. All other observations/comments of the Auditors and Notes
on Accounts are self explanatory.
Internal Control System and their Adequacy
The Company has a reasonable control system in place, which is
commensurate with the size of the Company and the nature of service
activities and this is periodically reviewed for effectiveness. These
internal controls are supplemented by internal audit conducted by
independent auditors. The internal audit function is empowered to
examine the adequacy, relevance and effectiveness of control systems,
compliance with policies, plans and statutory requirements. The Company
has an Audit Committee, which regularly reviews the findings and
recommendations of the internal audit panel and follows up on the
implementation through action taken reports.
The Company also has a Financial Management Information System in
place, which involves preparation of a detailed Annual Business Plan
for the Company. This plan is formulated after detailed discussions at
various levels and includes borrowing plans as well as capital
expenditure plan. The Board and Management regularly review the
Performance of the Company against this budget.
Human Resource Development
The Human Resources initiatives at the Company continued during the
period, with a view to develop relevant skills and competencies in its
manpower resources. The Company treats human resources as the most
important asset. Hence apart from exposing them to an ongoing training
programme, the Company also conducts enrichment and multitasking
exercises, to groom employees for future senior positions in the
Company. The Company's appraisal system has been designed to minimize
subjectivity and to clearly chart out tangible Key Result Areas
The social security schemes of the Company are comparable to the best
in the Industry and we not only cover the employees, but their family
too, under different policies.
The Company has 249 employees on roll as on 30th June 2005.
A separate report on Corporate Governance forms part of the Annual
Report along with the Auditors' Certificate on compliance.
The statement containing the necessary information as required under
Section 217(1)(e) of the Companies Act, 1956 read with the Companies
(Disclosure of Particulars in the Report of the Board Directors) Rules,
1988, relating to conservation of energy, technology absorption,
foreign exchange earnings and outgo and the statement of employees
required under section 217(2A) of the Companies Act, 1956 read with the
Companies (Particulars of Employees) Rules, 1975, are annexed hereto
and forms an integral part of this report.
The Directors would like to take this opportunity to express deep sense
of gratitude for the valuable support and cooperation of the Company's
Bankers, Government Agencies, Customers, Suppliers, Management Team,
work force and would also like to place on record sincere appreciation
for the total commitment, dedication and hard work put in by every
member of the Spice family.
The Directors also deeply acknowledge the continued trust and
confidence that the shareholders have placed in the Company.
FOR AND ON BEHALF OF THE BOARD OF DIRECTORS
Place : Noida (R. K. PANDEY)
Date : 31st October 2005 Chairman
Statements regarding Management Discussion and Analysis describing the
Company's objectives, outlook, estimates, expectation, predictions,
belief and management perception may be forward looking statements
within the meaning of applicable securities laws and regulations.
Actual results could differ materially from those expressed or implied.
Important factors that could make a difference to Companys' operations
include, among others, economic conditions affecting demand/supply and
price conditions in domestic and overseas markets in which the Company
operates, changes in the Government Regulations, Tax Laws and other
statues and incidental factors.
Annexure- A to The Directors' Report
Statement of particulars under the Companies (Disclosure of Particulars
in the Report of Board of Directors) Rules, 1988.
(A) Conservation of Energy
The factory operations do not consume high energy. However, adequate
steps have been taken to achieve high power factors, by installation of
a shunt capacitor on the power line. A high capacity generator is used
only when required.
(B) Technology Absorption
The information that is required to be disclosed under rule 2 of the
aforesaid rules, is given hereunder in Form B :
Form of Disclosure of particulars with respect to Absorption, Research
and Development (R & D)
1. Specific area in which R&D carried out by the Company
No R & D was carried out during the period.
2. Benefits derived as a results of the above R&D
3. Future plan of action
To add some more technical skills to provide solutions to customer on
4. Expenditure on R&D
a) Capital Nil
b) Recurring Nil
c) Total Nil
d) Total R&D expenditure as a Nil
percentage of total turnover.
Technology absorption, adaptation and innovation.
1. Efforts, in brief, made towards technology absorption, adaptation
We at SPICE, are well aware of latest technology being available in our
field of operation. Necessary training is imparted to acquire latest
technology to the relevant people.
2. Benefits derived as a results of the above efforts e.g. product
improvement, cost reduction, product development, import substitution,
We are able to provide latest products available in the international
market and maintain higher standard of quality.
3. In case of imported technology (imported during the last five years
reckoned from the beginning of the financial year), the following
information may be furnished.
a) Technology imported : N. A.
b) Year of Import : N. A.
c) Has technology been fully absorbed : N. A.
d) If not fully absorbed, areas : N. A.
where this has taken place, reasons
therefore and future plan of action
(C) Foreign Exchange Earnings and Outgo
The Company used Foreign Exchange amounting to Rs. 4645.35 Lacs and
earned Foreign Exchange of Rs. 2.3 lacs during the period under review.