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Johnson Controls -Hitachi Air Conditioning India Ltd.

BSE: 523398 | NSE: JCHAC |

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Series: EQ | ISIN: INE782A01015 | SECTOR: Consumer Goods - White Goods

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Annual Report

For Year :
2018 2017 2016 2015 2014 2013 2012 2011 2010

Director’s Report

DIRECTORS'' REPORT AND MANAGEMENT DISCUSSION & ANALYSIS

Dear Members,

The Directors have pleasure in presenting the Thirty Third Annual Report and the Audited Financial Statements, for the year ended March 31, 2018.

FINANCIAL HIGHLIGHTS

The highlights of financial results of the Company for the year under review are given below:

(Rs, In Million)

For the year ended March 31, 2018

For the year ended March 31, 2017

Revenue from operations (gross)

22,582.7

20,985.5

Other Income

73.9

67.8

Total Revenue

22,656.6

21,053.3

Profit before finance cost, depreciation and tax

2062.6

1745.4

Finance Cost

19.8

43.9

Depreciation and amortization expenses

529.2

518.5

Profit before Tax

1513.6

1183.0

Tax expense

512.1

369.7

Profit for the year

1001.5

813.3

DIVIDEND

Your Directors recommend a dividend of Rs, 1.50 per Equity Share for the year ended March 31, 2018. This is subject to the approval of the Members at the ensuing Annual General Meeting.

COMPANY REVIEW

On 1st October, 2015, Johnson Controls Inc. and Hitachi Appliances, Japan formed a global joint venture and commenced the operations under ‘Johnson Controls-Hitachi Air Conditioning’ providing a whole range of customized and innovative air conditioning products to global customers. Johnson Controls-Hitachi Air Conditioning India Limited is the subsidiary of the joint venture and a leading air conditioner Company in India. Backed by an experience of over 30 years, the Company offers reliable air conditioners to the customers at the right price to meet their expectations, thereby fostering growth and innovation.

The business of the Company revolves within a single business segment, i.e. Cooling Products. Apart from manufacturing room and commercial air-conditioners, the Company also forays into trading of Refrigerators, Air Purifiers & Washing machines within the country. Additionally, the Company has a total installed capacity of manufacturing 900,000 Room Air conditioners (in a single shift), 120,000 Tons of Ductable units, 9,000 VRFs ODU and 300 Chillers per annum. The company also has a nationwide distribution network consisting of 5 regional offices, 20 branch offices, 203 exclusive sales and service dealers and over 8000 sales points. The company provides aftermarket service through 1235 service points.

With a strong belief in simplifying life, Johnson Controls-Hitachi Air Conditioning India Limited adopts world-class technologies to constantly innovate and inculcate newer concepts and advanced features in its products for a comfortable and relaxed life.

Diversity & Inclusion

To develop a culture of Diversity & Inclusion (D&I) across the organization has been the mission of the Company since long backed by a strong belief in achieving operational excellence, growth and employee engagement as a result of this mission. Increased collaboration and empowering engagement with all employees of the organization is highly essential to attain progress in the area of Diversity & Inclusion. Over the next year, several programs and initiatives are planned to imbibe the importance of D&I mission among all the employees. As a part of the D&I activities, the Company has also created a WISE (Women’s Interaction, Support and Engagement) Forum.

The International Women’s Day 2018 was celebrated at the Company as Press for Progress theme. This day was celebrated by conducting various activities like Workshop on Basic Awareness on Diversity & Inclusion, Workshop on Prevention, Prohibition & Redressal of Sexual Harassment of Women at Workplace and Outbound Training activities for all female workforce across the organization.

Talent Retention

Retaining talent is highly important for any organization to ensure steady growth and timely execution and achievement of organizational objectives. Various talent retention initiatives were conducted by the Company last year to ensure reduction in attrition effectively.

For New Joiners, programs like New Employee Orientation (NEO) and New Employee Experience Intervention (NEXINT) were rolled out to capture their early post-joining feedback. These initiatives enabled the Company to succeed in its agenda of helping new employees to settle down in the organization and provide proper on boarding training to them. Furthermore, a High Growth Potential (HGP) Hotline process was streamlined to retain talented employees with high potential from leaving the organization.

Industrial Relations

Amicable and friendly industrial relations throughout the organization are a prerequisite for overall growth and development. The Company has always endeavored to maintain industrial harmony amongst its employees, one example of it being timely negotiations and closure of Charter of Demands (COD). Last year the COD of both the registered unions of the Company were successfully completed for a period of 3 years.

JCMS - Empowered People

The Johnson Controls Manufacturing System, or JCMS, is the one way of manufacturing to attain world-class performance. The entire JCMS encompasses 9 principles which are required to be adhered to various stringent standards, practices and processes that are essential to achieve various Maturity levels from Level 1 (Unmet) to Level 5 (Distinguished). Out of these 9 principles, one of the principles is Empowered People. Led by the Human Resources department, the Empowered People (EP) Principle caters to the Integrated Goals, High Performance Teams, Employee Performance Assessment, Talent Management and Employee Engagement Strategy.

Learning & Development:

As part of our ongoing efforts in developing and enhancing skills of our employees and making them target oriented, various initiatives have been rolled out for organizational talent development.

For the Senior Management Team - Under the “Shikhar” program, 3 Leading Business activities, through the Learning Lab aligning the Senior Management team’s performance in Leading the Business were carried out.

For the Middle Management Team - Under the “Samarthya” program, the Functional Overview for Business Alignment (FOBA) workshops were conducted to provide them Inter-Functional learning.

For the Field Technicians - Under the “Kaushalya” program, On-the-Job Trainings (OJTs) and Classroom Trainings (CRTs) were administered at pan-India locations. These trainings included basics of Product Installation, Troubleshooting and Customer Handling Skills.

Organizational Talent Review (OTR)

OTR is the comprehensive process for reviewing organizational talent. Various activities such as Succession Planning, High Potential (HiPot) Identification and Individual Development Plans (IDP) were carried out for the Management Team under this program.

The overall objective of the OTR process is to ensure alignment between organization’s growth strategies and employee’s skills and career aspirations and thereafter, anticipate talent needs, fill talent gaps and offer development experiences to the employees that support the business.

AUDITORS

Pursuant to the provisions of Section 139 of the Companies Act, 2013, Members of the Company, at the Annual General Meeting held on July 25, 2016, appointed M/s. Price Waterhouse & Co. Chartered Accountants LLP (Firm Registration No. 304026E / E300009) as Auditors of the Company to hold office from the conclusion of Annual General Meeting held on July 25, 2016 till the conclusion of the sixth consecutive Annual General Meeting.

DIRECTORS’ RESPONSIBILITY STATEMENT

Your Directors confirm that:

a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanations relating to material departures;

b) Such accounting policies selected 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 and of the profit of the Company for that period;

c) Proper and sufficient care has been taken 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

d) Annual accounts have been prepared on a going concern basis;

e) Internal financial controls which are to be followed by the Company have been laid down and that such internal financial controls are adequate and were operating effectively; and

f) Proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

BOARD OF DIRECTORS

During the year under review, following changes have been made:

1. Mr. Gurmeet Singh, Managing Director of the Company has been appointed as Chairman of the Company effective from 30th January, 2018. Subsequent to this change:

a. Mr. Gurmeet Singh holds position of Chairman & Managing Director of the Company.

b. Mr. Franz Cerwinka holds position of Non-Executive Non-Independent Director of the Company.

2. Mr. Yoshikazu Ishihara has been appointed as a Director of the Company effective from 30th January, 2018.

3. Ms. Indira Parikh has been re-appointed as an Independent Director by passing a Special Resolution during the year under review.

4. Following Directors have tendered resignation as a Director of the Company:

a. Mr. Varghese Joseph has resigned as an Executive Director of the Company with effect from 30th January, 2018.

b. Mr. Vinay Chauhan has resigned as an Executive Director of the Company with effect from 30th January, 2018.

c. Mr. Devender Nath has resigned as an Independent Director of the Company with effect from 30th January, 2018.

d. Mr. Ravindra Jain has resigned as an Independent Director of the Company with effect from 30th January, 2018.

e. Mr. Ramachandran Subra Mani has resigned as an Independent Director of the Company with effect from 30th January, 2018.

f. Mr. Vinesh Sadekar has resigned as an Independent Director of the Company with effect from 30th January, 2018.

Board do place on record its sincere appreciation for Support, Inspiration, devoting valuable time and the significant contribution of all above Independent Directors and Executive Directors of the Company, made during their tenure in development and progress of the Company by giving their mature advice and guidance.

PERFORMANCE EVALUATION

The Board has carried out an annual evaluation of the performance of the Board, Audit Committee, Stakeholder Relationship Committee, Nomination and Remuneration Committee, Executive Committee, Vigil Mechanism Committee and CSR Committee.

The Board has also carried out annual evaluation of the performance of individual Directors, who were evaluated considering levels of their engagement and contribution, safeguarding the interests of the Company and its minority shareholders, etc. The performance evaluation of the Chairman and the Non-Independent Directors were carried out by the Independent Directors at their separate meeting.

DETAILS OF ESTABLISHMENT OF VIGIL MECHANISM

The Company has established a Vigil Mechanism process as an extension of the Company’s Code of Conduct whereby an employee, director, customer, vendor or associate of the Company can disclose his genuine doubt in good faith to any member of Vigil Mechanism Committee about unethical behavior, actual or suspected fraud or violation of the Company’s Code of Conduct or ethics policy, so that appropriate action can be taken to safeguard the interest of the Company. In exceptional cases, a complaint can be reported by a complainant to a Chairperson of Audit Committee. This mechanism is overseen by the Audit Committee.

DISCLOSURE UNDER SECTION 197(12) OF THE COMPANIES ACT, 2012 READ WITH RULE 5 OF COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014:

Name of Director and Key Managerial Personnel (KMP)

Designation

% increase in remuneration of director and KMP

Ratio of the remuneration of director to the median remuneration of the employees of the Company for the financial year

Mr. Gurmeet Singh

Chairman and Managing Director

21.51

16.23 : 1

Mr. Franz Cerwinka

Director

NA

NA

Mr. Yoshikazu Ishihara

Director

NA

NA

Mr. Vinay Chauhan

Executive Director

Note 1

Note 1

Mr. Varghese Joseph

Executive Director

Note 1

Note 1

Mr. Ashok Balwani

Independent Director

Note 4

0.50 : 1

Mr. Mukesh Patel

Independent Director

Note 4

0.41 : 1

Ms. Indira Parikh

Independent Director

Note 4

0.15 : 1

Mr. Devender Nath

Independent Director

Note 2

0.50 : 1

Mr. R S Mani

Independent Director

Note 2

0.27 : 1

Mr. Ravindra Jain

Independent Director

Note 2

0.50 : 1

Mr. Vinesh Sadekar

Independent Director

Note 2

0.20 : 1

Mr. Rishi Mehta

Chief Financial Officer

Note 3

Note 3

Mr. Anil Shah

Chief Financial Officer

Note 3

Note 3

Mr. Parag Dave

Company Secretary

10%

2.72:1

Note 1 : Mr. Vinay Chauhan and Mr. Varghese Joseph ceased to be an Executive Director with effect from January 30, 2018.

Note 2 : Mr. Devender Nath, Mr. R S Mani, Mr. Ravindra Jain and Mr. Vinesh Sadekar ceased to be an Independent Director with effect from January 30, 2018.

Note 3 : Mr. Anil Shah retired as a Chief Financial Officer and Mr. Rishi Mehta appointed as a Chief Financial Officer with effect from January 30, 2018.

Note 4 : Sitting fees payable to Independent Directors for attending various meeting remained same.

Comparison of remuneration against Company’s performance

- Increase in remuneration of each KMP As mentioned in above table

- Increase in total remuneration of all KMP Total remuneration of KMP decreased by 6.85% due to resignation of Executive Directors

Percentage increase in the median remuneration of employees in the

15%

financial year

No. of permanent employees on the rolls of Company

1481

Average percentage increase already made in the salaries of

- Average % increase in the salaries of employees other than

employees other than the managerial personnel in the last financial

the managerial personnel 19.34%

year and its comparison with the percentage increase in the managerial

- Average % increase in the managerial remuneration 21%

remuneration and justification thereof and point out if there are any

exceptional circumstances for increase in the managerial remuneration

We hereby affirm that the remuneration given to all the employees, Directors and KMP is as per the Remuneration policy of the Company.

OTHER DISCLOSURES:

1. Number of meetings of the Board: Four meetings of the Board of Directors of the Company were held during the year under review on May 23, 2017, August 08, 2017, November 07, 2017 and January 30, 2018.

2. Members of the Audit Committee are as under:

a. Mr. Mukesh Patel - Chairman

b. Mr. Ashok Balwani - Member

c. Ms. Indira Parikh - Member

3. The Company has received necessary declaration from each Independent Director under Section 149(7) of the Companies Act, 2013, that he/she meets the criteria of independence laid down in Section 149(6) of the Companies Act, 2013.

4. Details about the Policy on Corporate Social Responsibility (CSR) and projects implemented by the Company during the year under review, as required under Section 134(3)(o), 135(2) read with Companies (Corporate Social Responsibility Policy) Rules, 2014 have been provided as Annexure A.

5. Formal Appointment and Evaluation Policy of the Board of Directors and Senior Management of the Company which has been formulated and recommended by Nomination and Remuneration Committee and adopted by Board of Directors covering appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Section 178(3) is attached as Annexure B.

6. No commission paid to any Director of the Company, so no disclosure is required to be made under Section 197(14).

7. The details forming part of the extract of the Annual Return in form MGT 9 as provided under sub-Section (3) of section 92 is annexed as Annexure C.

8. No loan was granted by the Company to any person to purchase or subscribe to fully paid-up shares of the Company.

9. Secretarial Audit Report: Pursuant to the provisions of Section 204 of the Companies Act, 2013, the Report of the Secretarial Auditors is annexed as Annexure D.

10. There is no fraud reported by Auditors under Section 143(12) of the Companies Act, 2013 during the year under review.

11. Particulars of loans, investments or guarantees under section 186: Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered under Section 186. Company has not made any investment in securities of other Body Corporate. Company has given guarantee of '' 150 Million against the credit facilities availed by dealers.

12. There is no subsidiary, associate and joint venture Company, so no disclosure is required on the performance and financial position of each of the subsidiaries, associates and joint venture companies in Form AOC 1.

13. There is no Company which has become or ceased to be its subsidiary, joint venture or associate Company during the year.

14. During the year, Company has not accepted deposits covered under Chapter V

15. There is no qualification, reservation or adverse remark or disclaimer made by the Auditors in their report.

16. There is no qualification, reservation or adverse remark or disclaimer made by the Company Secretaries in practice in their Secretarial Audit Report.

17. There is no significant and material order passed by the regulators or courts or tribunals impacting the going concern status and Company’s operations in future.

18. Details of complaints relating to sexual harassment during the year under review: Received during the year: 1; Pending as on 31st March, 2018: 1.

19. Information pursuant to Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014, relating to Conservation of energy, technology absorption and foreign exchange earnings and outgo is given as Annexure E to this report.

20. Statement showing particulars of employees under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is attached with this Annual Report.

21. Contract or arrangement under Section 188(1): There were no contracts or arrangements entered by the party falling under Section 188(1). Particulars of contracts or arrangements with related parties are provided in Form AOC 2 as Annexure F.

22. Policy on dealing with Related Party Transactions has been disclosed on Company’s website and a we blink is as under:

http://www.jci-hitachi.in/cms/materials/ef34acd1ff.pdf

23. Revision in Accounts or Board‘s Report: There are no revisions made in the Accounts or Board‘s Report.

24. Issue of Equity Shares with differential rights: There was no Equity Share issued with differential voting rights during the year under review.

25. Issue of Sweat Equity Shares: There was no issue of Sweat Equity Share during the year under review.

26. Employee Stock Option and Employee Stock Purchase Schemes: No Employee Stock Option and Employee Stock Purchase Schemes were launched during the year under review.

27. Disclosure under Regulation 34(3) read with Schedule V of the SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015:

a. The Equity Shares of the Company are not delisted or suspended during the year under review.

b. Equity Shares of the Company are listed on the BSE Limited and the National Stock Exchange of India Limited.

c. Annual listing fees have been paid to both the stock exchanges mentioned above.

28. Dividend Distribution Policy is given as Annexure G to this report

29. Company has complied with Secretarial Standards applicable to Company.

ACKNOWLEDGEMENT

Your Directors thank all Customers, Suppliers, Investors, Bankers and other stakeholders of the Company for their co-operation and continued support during the year. We look forward to their continued support in the future also.

We wish to place on record our sincere appreciation for the excellent work put in by the employees of the Company at all levels.

For and on behalf of the Board of Directors

Place : Ahmedabad Gurmeet Singh

Date : May 23, 2018 Chairman & Managing Director

Director’s Report