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Panasonic Energy India Company Ltd.

BSE: 504093 | NSE: LAKHNNATNL | Series: NA | ISIN: INE795A01017 | SECTOR: Dry Cells

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Annual Report

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

Director’s Report

Dear Shareholders,

The Directors have great pleasure to report you at the end of another challenging year, and presenting the forty sixth annual report together with the audited financial statement for the year ended March 31, 2018.

1. Financial Results Summary (Rs. in Lakhs)

Particulars

As at March 31, 2018

As at March 31, 2017

Sales Turnover

21083.24

24132.70

Profit/(Loss) before tax

1367.87

990.17

Less: Provision for taxation (Net of deferred tax)

456.72

357.39

Less: Provision for taxation of earlier years (Net of refund/demand)

(68.59)

5.63

Profit/(Loss) after tax

979.74

627.15

Add: Profit brought forward from previous year

671.75

676.48

Net available surplus for appropriation

1651.49

1303.63

Appropriations

Dividend paid during the year

412.50

525.00

Dividend Distribution Tax paid

83.98

106.88

Surplus carried to Balance Sheet

1155.01

671.75

1651.49

1303.63

The Company adopted Ind AS from April 01, 2017 and accordingly the financial results of the previous year have also been restated in accordance with Ind AS 101 - “First-time Adoption of Indian Accounting Standards” prescribed under Section 133 of the Companies Act, 2013 (the ''Act'') and rules issued thereunder. Refer Note No. 40 for an explanation of how the transition to Ind AS has affected the previously reported financial position, financial performance and cash flows attached to Financial Statements.

2. Transfer to Reserve

The Company does not propose to transfer any amount to the general reserve out of the amount available for appropriation.

3. Dividend

Keeping in view the current profitability of the Company, your Directors are pleased to recommend payment of a dividend of Rs. 7.00 per equity share (@ 70% at par value of Rs.10/- each) (previous year Rs. 5.50 per equity share), subject to the approval of shareholders at the forthcoming Annual General Meeting. The dividend, when approved, will entail payment to shareholders of Rs.525.00 lakhs. It will be tax free income in the hands of recipients. However, the Company''s outflow towards dividend distribution tax would be to the tune of Rs.107.92 lakhs.

4. Operational Review

The constitutional amendment for implementation of revolutionary Goods and Services Tax, w.e.f. July 01, 2017, created a great deal of confusion in the trade, which dented the sales in first quarter though the Company recovered quickly to normalize sales during the two subsequent quarters.

However, GST rates on Dry batteries and torches were reduced from 28% to 18% w.e.f. November, 2017, which once again disturbed the trade and largely restricted the sales in the last quarter, as the market witnessed price corrections, which prompted the wholesale market in particular to reduce their stocking, envisaging MRP corrections and downwards price points.

Under such adverse challenging situations faced during the year, your Company registered net sales amount of Rs.21083.24 lakhs as against Rs.24132.70 lakhs of the previous year.

The profit before tax in the year stood at Rs.1367.87 lakhs registering a growth of 38% as against Rs.990.17 lakhs registered in the last year.

Batteries and Flashlights

The overall battery industry in the organized sector remained unpredictable, from the beginning of the fiscal year due to implementation of GST. The industry was further impacted due to further reduction in GST in November, 2017, keeping the markets sluggish due to uncertainty in pricing strategies and change in MRP of batteries, in line to the government''s requirement to pass on the GST benefits to the consumer.

Flash light market continued to be dominated by unorganized players and intrusion of cheap rechargeable torches, which saw the flashlight demand dip southwards by about 8-10% v/s previous year. During the year, your Company could achieve the volume sales at 82% v/s. the previous year.

Prospects

Imports of cheap imported batteries in Indian market, is a great challenge faced by organized battery sector. However, your Company registered a growth in sales of Dry batteries - General Trade segment, Alkaline, Lithium coins and Eneloop rechargeable batteries over the last year. Change in approach and sales/marketing strategies during the year is likely to enhance the performance going ahead.

5. Change in Nature of Business

There is no material change in the business as was reported last year.

6. Product Profile

The Company, with its market share of about 19% in Zinc Carbon batteries, has now increased its focus into various other product range to leverage its overall sales quantity and turnover viz.; Rechargeable batteries under the brand name of ''Eneloop'', range of Alkaline batteries, Lithium coins, LED and elite white range of torches.

7. Management Discussion and Analysis

Business Overview

The FMCG sector witnessed various headwinds in the first half of the year, namely, tough macro scenario, absence of price hike (deflation in majority of inputs), an aftershock of demonetization, and various difficulties pertaining to the implementation of the Goods and Service Tax (GST). Demonetization and GST implementation disrupted trade channels, particularly the wholesale channel, which is the back bone of the rural distribution channel. Further, antiprofiteering measures restricted any major benefits to companies so far as the benefits of GST rates were to be passed to the consumers.

However, this has improved the affordability of a number of daily use products, but affected adversely the margins for Dry batteries due to spiraling rates of zinc and other key raw materials consumed in the manufacture of Dry batteries.

Quarter 3 financial year 17-18 witnessed revival: In Quarter 3, the FMCG space reported better performance owing to weak base and partial normally in the wholesale and trade channels. Further, GST rates were cut in November, 2017 across various daily use products categories such as detergents, skin care, shampoo, noodles, etc. including Dry batteries. Moreover, Companies started signaling some green shoots for the recovery of the rural market in the quarter.

Companies with higher wholesale and rural exposure were hit the most. However, Companies with better distribution still managed to sail through and recover at a much faster pace than others.

Sector to be back on trade soon: After witnessing a challenging time so far in the year, we expect demand revival in the coming quarters, driven by;

a) expected rural recovery

b) improving consumer sentiment

c) supportive base

d) improved affordability post GST rate revision and

e) normally in trade channels.

Further, the focus of your Company on improving its direct reach and promotion strategy would be a major supporter of its recovery.

Zinc carbon batteries

Zinc carbon share of organized manufacturers is estimated to have remained same. The GST related market apprehensions dented the purchase and sales which lead to reduction in its production quantity due to its impact on secondary sales to some extent in the last quarter.

Your Company has successfully maintained its market share. Significant factor which has affected the sales turnover is the shift in consumer preference from high value D size batteries towards low priced AA / AAA size batteries due to change in usage pattern in various appliances. Maintaining its trend in financial year 2017-18 also, D size share continues to drop, AA size continues to dominate the volume share and AAA size continues to be fast-growing segment.

Alkaline batteries

Battery industry in India is dominated by zinc carbon batteries, unlike in other parts of the world which is dominated by Alkaline battery market. Alkaline is a category for future growth.

In India, Alkaline batteries contribute only 4-5% of the total battery demand in the country. However, its contribution to value amounts to be in double digits. Considering this, your Company is aggressively concentrating its activities towards improvement of sales in this category.

In the financial year 2017-18, your Company has successfully clinched orders of Alkaline AA for the Electronic Voting Machine (EVM) which have been successfully executed. Your Company also envisages a sizeable business in the forthcoming year in this segment.

Flashlights

Flashlight market is shared equally by organized and unorganized sectors. Coupled with weak monsoon and cash liquidity crunch faced by consumers and traders in rural markets, flashlight segment is estimated to have degrown by approximately 8-10% in the organized sector.

Rechargeable batteries

Rechargeable battery market is stagnant and contributes around 1% to total battery demand. This segment is dominated by imported low priced rechargeable batteries.

Your Company has successfully marked its presence in marketing and sales of high quality “eneloop” brand of rechargeable batteries and chargers.

Dealers and consumers appreciate the quality and superiority of our rechargeable batteries. Your Company registered a good growth of about 127% in terms of quantum.

Industry Structure and Development

Organized battery industry continues to witness slowdown of R20 and R14 segment in absence of new applications / appliances consuming this segment of products.

However, the Company foresees positive impacts due to implementation of GST and steady shift towards Alkalization of Indian market. The Company also witnessed growing trend of other categories of rechargeable, cylindrical and lithium coin batteries.

Your Company continued sales of Zinc Carbon batteries in the neighboring country, Nepal. Your Company shall continue its efforts in this direction to enhance exports.

Marketing and Distribution

The Company has also taken many steps to enhance its customer reach and widen its penetration for expanding the distribution and coverage. It was also a good year for the Company in the modern trade segment, which is expanding year on year and your Company is maximizing on this channel by introducing it products on various wholesale and retail outlets.

Your Company is also pleased to inform of having extensive promotional activities through television commercials, cinema advertisements as well as e-media, endorsed by Olympic Silver Medalist, Badminton player, Ms. P. V. Sindhu for promoting Panasonic brand of Alkaline batteries in the financial year 2017-18 and are likely to continue this campaign in financial year 2018-19.

Your Company has been continuously making efforts not only to strengthen its distribution network but simultaneously also concentrating on improving the productivity of each and every member of its sales team through training and educational programs.

Opportunities and threats

Opportunities

Presently, per capita consumption of batteries in India continues to remain quite low as compared to other developed countries. It indicates potential for higher future growth. Batteries are the cheapest source of portable power and its consumption is always expected to grow as it is a product of recurring use. Changing usage patterns, arrival of new appliances, shift towards miniaturization of appliances, growing income levels and changing life style promises growth especially in AA / AAA size of batteries.

Threats

Import of huge quantity of low performance cheap Chinese batteries poses a big threat to the organized sector of the Industry. It not only exerts more pressure on the pricing of economy range of batteries but also augments price competition giving lower operating margins which leaves less scope for any enhancement.

Risks and Concerns

During financial year 2017-18, the average prices of major materials have remained upward. However, the substantial cost impact was seen from zinc metal mainly on account of strong zinc LME market. The average rates of zinc metal have remained higher around 135% v/s. financial year 2016-17.

The average prices of other key materials viz. NMD, EMD, ACB, tin plates, metal components, resin, zinc chloride have continued to stay higher from around 103% to 120% v/s. financial year 2016-17, which have not only displayed larger influence on the direct materials cost but also severely disrupted estimates on profits.

Outlook

The current trend of battery usage pattern in India is gradually moving in line with global trend. It is a positive sign and first step towards moving up with the global per capita consumption which at present is much higher than the per capita consumption in India. We also hope that the Indian consumers shall gradually move toward higher end of batteries such as, Alkaline and Rechargeable batteries which shall generate additional revenues for your Company and strengthen its revenues in the coming years.

Further, the reduction of GST during November, 2017 is likely to simulate and boost rural income which will also have positive impact on consumer purchasing power in rural Indian markets.

Internal Financial Controls

The Company has an internal control system commensurate with the size and scale of its operations. The internal financial controls are adequate and operating effectively so as to ensure orderly and efficient conduct of business operations.

The internal staff monitors and evaluates the adequacy of internal control system in the Company, its compliances with operating systems, accounting procedures and policies at all locations of the Company. Based on the Reports, the Company undertakes corrective actions, thereby strengthening the controls. Significant observations and corrective actions thereon are presented to the Audit Committee of the Board for their review.

Development in Human Resource and Industrial Relation

Your Directors wish to place on record their appreciation to all its employees for their sustained efforts and valuable contribution. Your Company is very much concerned of the employees to provide them safe and accident free environment with a motto “Safety First” at the working place. The total employee strength of the Company as on March 31, 2018 stood at 817.

Research & Development

As a part of continual improvement, this year your Company had introduced one more variety of product in R03 category. Besides this the performance of existing R03NDG Panasonic GOLD PLUS has also been upgraded as per the need and usage pattern in current scenario of gadgets by our valued customers. During the year, performance of R6 & R03 product was improved by usage of new ingredient.

During the financial year, your Company introduced all varieties of zinc carbon products with eco-friendly features by removal of heavy metal lead and thereby contributed to society to improve the environment. In addition, the Company had also installed sophisticated testing equipment for testing and removal of heavy metal and improve all raw material and components.

8. Corporate Governance

As per requirement of SEBI (LODR) Regulations, 2015, a separate section on corporate governance practices followed by the Company, together with a certificate from the Company Secretary in Practice confirming compliances, forms an integral part of this Report.

9. Extract of Annual Return

The details forming part of the extract of the Annual Return in Form MGT- 9 are annexed herewith. (Ref. “Annexure-A”)

10. Board Meetings

Schedules of Board and Committee meetings are prepared and circulated in advance to the Directors. During the year, four Board Meetings and four Audit Committee meetings were convened and held. The details of which are given in the corporate governance report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013.

11. Directors'' Responsibility Statement

To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013.

(a) that in the preparation of the annual accounts for the year ended March 31, 2018 the applicable accounting standards have been followed along with proper explanation relating to material departures; if any;

(b) that the Directors had 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 as at March 31, 2018 and of the profit and loss of the Company for the year ended on that date;

(c) that the Directors 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) that the Directors had prepared the annual accounts on a going concern basis;

(e) that the Directors, in the case of a listed Company, had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

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

12. Declaration by Independent Directors

The Company had received declarations from all Independent Directors that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and requirements of SEBI (LODR) Regulations, 2015.

13. Auditor''s Report

No qualifications or adverse remarks have been made by any of the Auditors in their report.

14. Contracts and Arrangements with Related Parties

All contracts / arrangements entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm''s length basis. During the year, the Company did not enter into any contract / arrangement / transaction with related parties which could be considered as material.

The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board is available on the Company''s website: www. panasonicenergyindia.in

Your Directors draw attention of the members to Note No. 38 to the financial statement which sets out related party disclosures. The particulars of contracts or arrangements with related parties given in Form AOC- 2 are annexed herewith. (Ref. “Annexure-B”)

15. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

The details of conservation of energy, technology absorption, foreign exchange earnings and outgo are annexed herewith. (Ref. “Annexure-C”)

16. Corporate Social Responsibility

During the year under review, as part of its initiatives under Corporate Social Responsibility (CSR), the Company has expanded its activities and participated in the projects in the areas of health, hygiene, medical and education undertaken by various NGOs and trusts. These projects are in accordance with Schedule VII of the Companies Act, 2013. The Annual Report on CSR activities is annexed herewith. (Ref. “Annexure-D”)

17. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Company has been employing about 20 women employees in various cadres within the factory premises. The Company has constituted an Anti-harassment Policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. An Internal Complaint Committee has also been set up to redress complaints received regularly. All female employees are covered under the policy. No complaints are received from any employee during the financial year 2017-18 and hence, no complaints are outstanding as on March 31, 2018 for redressal.

18. Annual Evaluation by the Board

Pursuant to the amendments in Companies Act, 2013 and Schedule IV of SEBI (LODR) Regulations, 2015, the Board has amended the Nomination and Remuneration Policy, a structured questionnaire was prepared after taking into consideration the various aspects of the Board''s functioning, composition of the Board and its committees. The Board has carried out an annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its Committees. The Board of Directors expressed their satisfaction with the evaluation process.

19. Vigil Mechanism / Whistle Blower Policy

The Company has established a Vigil mechanism for Directors and employees and the same has been communicated to the Directors and employees of the Company and the same is also posted on the website of the Company.

20. Directors

Mr. Motoaki Shimamura and Mr. Toshihiro Nakamura had been inducted on the Board as Non-Executive Directors w.e.f. February 13, 2018.

Mr.Hosoya, Vice President, Sales and Marketing have also been inducted on the Board and have been appointed as the Executive Director of the Company with effect from September 01, 2018.

As per the provisions of the Companies Act, 2013, Mr. Kazuo Tadanobu and Mr.MikioMorikawa, retire by rotation and being eligible, offer themselves for re-appointment. Moreover, the retirement of Mr.Morikawa by rotation and his subsequent re-appointment shall not tantamount to termination of his agreement with the Company as Chairman & Managing Director.

As required by Regulation 36(3) of SEBI (LODR) Regulations, 2015, the relevant details in respect of the Directors proposed to be appointed / re-appointed are set out in the corporate governance report forming part of the Board''s Report. The Board recommends all the resolutions placed before the members relating to appointment / re-appointment of Directors for their approval.

21. Statutory Auditors

In accordance with the provisions of Companies Act, 2013, at the 45th Annual General Meeting held on August 10,2017, the shareholders had appointed M/s B S R & Associates LLP, as Statutory Auditors of the Company, for a period of 5 years i.e. up to the conclusion of 50th Annual General Meeting to be held for the adoption of accounts for the financial year ending March 31, 2022. As Companies (Amendment) Act, 2017 has done away with the requirement of ratification at every Annual General Meeting, no ratification for the appointment is required. There is no qualification or adverse remark in Auditors'' report.

22. Cost Auditor and Cost Audit Report

M/s. Diwanji& Co., Cost Accountants, have been reappointed as the Cost Auditor for the financial year 2018-19. In terms of the provisions of Section 148(3) of the Companies Act, 2013, read with the Companies (Audit and Auditors) Rules, 2014, the remuneration payable to the Cost Auditors has to be ratified by the Members of the Company. Accordingly, the Board seeks ratification at the ensuing Annual General Meeting of the remuneration payable to the Cost Auditors for the financial year 2018-19.

23. 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 has appointed M/s. J. J. Gandhi & Co., Practising Company Secretaries to undertake the Secretarial Audit of the Company for financial year 2018-19. There is no qualification or adverse remark in their report. The Report of the Secretarial Auditor is annexed herewith as “Annexure-E”.

24. Subsidiaries

Your Company does not have any subsidiary / subsidiaries within the meaning of the Companies Act, 2013.

25. Deposits

The Company has not accepted any fixed deposits and accordingly no amount was outstanding as on the date of the Balance Sheet.

26. Particulars of Loans, Guarantees or Investments made under Section 186 of the Companies Act, 2013

There are no loans, guarantees or investments covered under the provisions of Section 186 of the Companies Act, 2013.

27. Transfer to Investor Education and Protection Fund (IEPF)

As per Section 124(6) of the Act read with the IEPF Rules as amended, all the shares in respect of which dividend has remained unpaid / unclaimed for seven consecutive years or more have been transferred to the IEPF Account.

28. Disclosure under Rule 5 of Companies (Appointment & Remuneration) Rules, 2014

Disclosures required under Section 197 of the Companies Act, 2013 read with Rule 5 of Companies (Appointment & Remuneration) Rules, 2014 have been annexed herewith. (Ref. “Annexure-F”)

29. Nomination & Remuneration Policy

The Board has, on the recommendation of the Nomination and Remuneration Committee revised a policy for selection and appointment of Directors, senior management and their remuneration. The remuneration paid to the Directors is in accordance with the Nomination and Remuneration policy. The Nomination and Remuneration policy is annexed herewith. (Ref. “Annexure-G”)

30. Compliance with all the applicable laws of Secretarial Standards

During the year, the Company has complied with all the applicable Secretarial Standards.

31. Significant and Material Orders passed by the Regulators or Courts

The Competition Commission of India (CCI) issued an order on April 19, 2018 in a matter wherein Panasonic Energy India Co. Ltd. (PECIN / Company) was a party. The matter pertained to collusion to fix prices of zinc-carbon dry cell battery in India by Eveready Industries India Ltd. (Eveready), Indo National Ltd. (Nippo), the Company and their Association of Indian Dry Cell Manufacturers (AIDCM).

The case was taken-up by the CCI based on the disclosure by the Company under Section 46 of the Competition Act, 2002 (Act) read with the Competition Commission of India (Lesser Penalty) Regulations, 2009 (Lesser Penalty Regulations). Pursuant to the Directions of the CCI, the Office of the Director General, Competition Commission of India (DG) commenced its investigation. During the investigation, in exercise of the powers vested with it under Section 41(3) of the Act, DG carried-out simultaneous search and seizure operations at the premises of Eveready, Nippo and the Company on August 23, 2016. Subsequently, while the investigation was in progress and report from the DG was pending, Eveready and Nippo, approached CCI as lesser penalty applicants.

From the evidence collected in the case, CCI concluded that Eveready, Nippo and the Company, facilitated by AIDCM, had indulged in anticompetitive conduct of price coordination, limiting production / supply as well as market allocation in contravention of the provisions of Section 3(3)(a), 3(3)(b) and 3(3)(c) read with Section 3(1) of the Act. It was observed that the conduct was continuing from 2008, which is prior to May 20, 2009, the date on which Section 3 of the Act became enforceable, and up till August 23, 2016.

Considering contravention of provisions of the Act, an amount of Rs.245.07 crore, Rs.52.82 crore and Rs.74.68 crore was computed as leviable penalty on three battery manufacturers i.e. Eveready, Nippo and the Company, respectively, in terms of proviso to Section 27(b) of the Act. Also, penalty of Rs.1.85 Lakh was levied on AIDCM at the rate of 10 percent of average of its receipts for preceding three years. Additionally, considering totality of facts and circumstances of the case, penalty leviable on individual official''s / office bearers of the three battery manufacturers and AIDCM was computed at the rate of 10 percent of the average of their income for preceding three years.

Keeping in view the stage at which the lesser penalty application was filed, co-operation extended in conjunction with the value addition provided in establishing the existence of cartel, CCI granted the Company and its individuals 100 percent reduction in the penalty and no penalty was imposed on the Company.

32. Acknowledgment

Your Directors wish to place on record their appreciation of the contribution made by employees at all levels to the continued growth and prosperity of your Company. Your Directors also wish to place on record their appreciation to the shareholders, dealers, distributors, consumers and banks for their continued support.

For and on behalf of the Board

Vadodara, MikioMorikawa

May 28, 2018 Chairman & Managing Director

Director’s Report