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Updated:06 Aug, 2020, 14:04 PM IST

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Disclosure in board of directors report explanatory

DIRECTORS REPORT

Dear Shareholders,

1. Your Directors have pleasure in presenting the 42nd Annual Report of your Company along with the audited accounts for the year ended 31st March 2014.

Financial Performance

2. The Performance of Cochin Shipyard Limited continued to be good during the year 2013–14. The turnover for the year was at Rs. 1637.45 crores as compared to Rs 1554.16 crores in the year 2012–13. The net profit was Rs 194.24 crores as compared to Rs 185.27 crores for the previous year. This performance is creditable considering the continuing recessionary conditions in the shipping and ship building sector.

Financial Highlights (`Crs)

Sl No

Particulars

2013–14

2012–13

(i)

Gross Income

1712.78

1642.33

(ii)

Profit Before Finance cost, Depreciation & Tax

337.52

317.90

(iii)

Finance Costs

19.77

23.13

(iv)

Depreciation & Write off

26.79

19.21

(v)

Profit Before Tax (Net)

290.96

275.55

(vi)

Provision for tax (Net)

96.71

90.28

(vii)

Net Profit

194.24

185.27

Dividend

3. Your Directors are pleased to recommend a dividend of Rs 1.5 per share on the 11,32,80,000 fully paid Equity shares of Rs 10 each. The total outgo for dividend and dividend tax would be approximately Rs 19.88 crores.

Reserves and Surplus

4. As on 31st March 2014, the Company has Reserves and Surplus amounting to       Rs. 1239.25 crores which reflects the inherent financial strength of the Company.

Contribution to Exchequer

5. The total contribution made during the year by way of Value Added Tax, Income Tax, Excise Duty, Customs Duty and Service Tax was Rs.162.10 Crores.

Shipbuilding

6. The Company achieved a total shipbuilding income of Rs.1409.56 crores during 2013–14 as against Rs.1267.59 crores in 2012–13. During the year 2013–14, the yard delivered seven ships i.e five Fast Patrol Vessels (FPV) for the Indian Coast Guard and two Platform Supply Vessels for international owners.

7. On 12th August 2013, CSL launched the first Indigenous Aircraft Carrier, the most prestigious warship of the Indian Navy which marks a watershed event in the history of Indian shipbuilding. With this, India becomes the fifth nation besides US, UK, France and Russia that has the capability to design and build aircraft carriers of this size.

Shiprepair

8. During the year, the Company achieved a total shiprepair income of Rs. 227.88 crores as compared to Rs.286.57 crores during the financial year 2012–13. The dip in the shiprepair turnover compared to last year is due to lack of availability of shiprepair dock which was occupied by the Indigenous Aircraft Carrier for a major part of the year and the Company could not take more shiprepair orders. The key repair projects undertaken during the year includeTSHDCauvery, MVSagarDeep II,INS Tir (Phase II), MVKavaratti, MV Thinnakkaraand Tug Thiruvalluvar.

Shipbuilding Order Book Position

9.         The Order book position as on 31 March 2014 was as follows:–

Vessel Type

Nos

STX NOD Platform Supply Vessels, BY 92

01

Indigenous Aircraft Carrier for the Indian Navy, P 71

01

Fast Patrol Vessel for the Indian Coast Guard 506–520

15

Buoy Tender Vessel for Director General of Lighthouses and Lightships

01

International Shiprepair Facility (ISRF) at Cochin Port Trust

10.       CSL had identified shiprepair as an area of good potential for  future growth in the short and medium term. Accordingly, the Company ventured into its first major expansion through the ISRF Project at Cochin Port Trust Area (CoPT). CSL had taken over the ship repair facility of Cochin Port for a lease period of 30 years. Lease deed for the land and water area (Phase–1) was executed on 12th April 2013. Subsequently, existing facilities in the leased area has been made operational and the first ship was docked in the dry dock on 25th May 2013. Repair activities of 10 nos. vessels have been completed till 31st March 2014. As a part of obtaining environmental clearance from the Ministry of Environment & Forests (MoEF) for the proposed expansion, CSL had submitted Terms of Reference (ToR) for conducting Environment Impact Assessment (EIA) study for approval on 19th October 2013. The same was taken up in the Expert Appraisal Committee (EAC) meeting of MoEF held on 21st November 2013 and approval was issued on 10th December 2013. Accordingly, EIA study is presently being carried out by our EIA consultant, M/s Consulting Engineering Services, New Delhi. CSL had also entrusted the Project Management Consultancy of the ISRF project on the consortium of M/s Inros Lackner, Gernmay & M/s Tata Consultancy Engineers, Mumbai and they are in the process of preparing Detailed Project Report.

Manpower

11. The manpower strength of the Company as on 31st March 2014 was 1751, consisting of officers, supervisors and workers. The complement of CSL as on 31st March 2014 is shown in the diagram below:–

  

Reservation in Employment

12.       Out of 1751 employees, there are 211 SC's, 40 ST's, 397 OBC's, 30 Ex–Servicemen and 46 Persons with Disabilities. A Liaison Officer has been appointed specifically to look after the matters pertaining to the SC/ ST personnel. An SC/ ST cell is also functioning to assist the Liaison Officer. An SC/ ST member is nominated to all selection committees in the case of direct recruitment as well as promotion.

Integrated Management System (IMS)

13.       Cochin Shipyard continued to be an IMS compliant company covering ISO 9001:2008 (Quality Management System), ISO 14001: 2004 Environmental Management System and OHSAS 18001: 2007 (Occupational Health and Safety Management System).  

Facility Upgrade and Capital Expenditure

14. The total capital expenditure incurred in 2013–14 amounted to Rs. 44.26 crores. An amount of Rs.31.07 crores has been incurred for Renewals & Replacements and Modernization & Expansion, Rs. 1.92 crores for infrastructure facilities for the Indigenous Aircraft Carrier, Rs. 9.41 crores in connection with the setting up of International Ship repair facility at Cochin Port Trust premises and Rs. 1.22 crores for Research & Development projects.

Integrated ERP System

15.       CSL is implementing a State of Art integrated ERP solution covering all business functions in the organization at an estimated cost of Rs 23 crores.  The ERP system being implemented is SAP– the worlds leading ERP system. The system go live was on 01st July 2014.

Implementation of Official Language Policy

16. In pursuance of sub rule (4) of rule 10 of the Official Language (use for the official purposes of the Union) Rule, 1976, Govt. of India have notified CSL, in the Gazette of India. This recognizes that 80% of ministerial staff of the Company as having acquired working knowledge/proficiency in Hindi.

17. During the year Cochin Shipyard received the Rajbhasha Rolling Trophy and certificate instituted by Kochi TOLIC (PSUs) for the best implementation of Official Language for the year2012–13 among the companies having more than 200 employees.

18. Late Shankar Dayal Singh Memorial Award Scheme was introduced in CSL during 2012 as per directions from Ministry of Heavy Industries and Public Enterprises. This year the award was given to Shri Rinjo Paul, Junior Commercial Assistant of P&ADepartment.

19. Incentive scheme for doing originalwork in Hindi has been made more attractive with a view to encourage employees to do more work in Hindi. During the year, fifteen employees were awarded cash prizes under the incentive scheme.

20. As per the instructions from Hindi Salahakar Samiti of Ministry of Shipping, a competition based on Administrative terminology in Hindi was organized in connection with Hindi Fortnight celebrations in which the students of Bharatiya Vidya Bhavan schools under Kochi Kendra participated.

21. As part of implementation of Official Language Policy of Govt. of India, CSL observes first Wednesday of every month as Hindi Day. In order to enable easy understanding by employees, transliteration of 'Aaj ka shabd' in Regional Language is being displayed on the intranet and also on the notice board.

22. English– Hindi dictionaries were given to all officers with a view to encourage them to work in Hindi.

23. Fifth issue of Hindi house journal, 'Sagar Ratna' was released in the month of December 2013.

Statement of Employees Particulars

24. Particulars as required under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended:–

Nil

25. Conservation of energy, technology absorption and foreign exchange earnings/ outgo as required under Section 217 (1) (e) of the Companies (Amendment) Act, 1988 are furnished at

Annexure A.

26. The comments of the Comptroller and Auditor General of India under Section 619(4) of the Companies Act, 1956 are placed at

Annexure B.

Vigilance

27. The Company's vigilance wing continued its efforts in preventive vigilance. Annual Action plan on vigilance and anti corruption measures were prepared and implemented. Emphasis was given to vigilance sensitization programmes. Interactive sessions were conducted for the benefit of employees. Based on the recommendation of Vigilance an alternate redressal of grievance forum and a mandatory clause for Arbitration in Civil Contracts have now been included in all purchase orders and high value civil contracts respectively. Further, adoption of e–auction and e–procurement have also been initiated. The Company has implemented the Integrity Pact for all orders beyond Rs. 1 Crore. The Company has also appointed independent external monitors for all high value contracts.

Tax Free Infrastructure Bonds

28.       The Central Board of  Direct Taxes (CBDT) vide notification No. 61/2013/F. No.178/37/2013–(ITA.I) dated August 08, 2013 authorized CSL to raise Tax free, Secured, Redeemable, Non Convertible bonds (Bonds) amounting to Rs.250 crores during the financial year 2013–14. Pursuant to the above notification, CSL have issued Bonds amounting to Rs.123 crores during the financial year 2013–14 in two tranches by way of private placement. Tranche I consisting of 1000 Bonds having face value of Rs.10,00,000 amounting to Rs.100 crores was issued on December 02, 2013 and second Tranche consisting of 230 Bonds having face value of Rs.10,00,000 amounting to Rs.23 crores was issued on March 28, 2014. The coupon rate and tenure of the Tranche I & II Bonds were 8.51% p.a & 10 years and 8.72% p.a & 15 years respectively. These bonds were secured by way of equitable mortgage created on the Companys landed properties at Girinagar in favour of debenture trustee viz. SBICAP Trustee Company Ltd.  These Bonds were rated CARE AA+ by CARE and IND AA+ by India Ratings. These Bonds are listed on Wholesale Debt Market (WDM) segment of BSE Limited (BSE).

Research and Development Activities

29. The various Research and Development activities undertaken by the yard in year 2013–14 include:

a) Development of mechanized elbow cutter for cutting non standard elbows. This has reduced pipe fit up cycle time and thereby increased the productivity of pipe shop.

b) Submerged Arc Weld (SAW) procedure has been developed for low thickness steel plates. This has improved the weld quality and productivity and reduced the fatigue of the welders. This procedure was implemented in the shop floor and used extensively for welding of panels of the Fast Patrol Vessels being built in the yard for Indian Coast Guard.

c) Training and qualifying the welders for mechanized pulsed welding machine for aluminum panels. This has drastically reduced cycle time of fabrication of blocks with bare minimum weld restart. This has helped in productivity improvement in the construction of Fast Patrol Vessels being built in the yard for Indian Coast Guard.

d) Self shielded welding process has been developed and this has shown good results in the test bed and is advantageous to weld in areas where shielding gas is not available.

e) Circular welding work station has been developed with Submerged Arc Welding (SAW). This has helped to cater to the requirement of circular weld joints in ships and this has resulted in reducing the weld time of circular joints by about 40% compared to the conventional semi automatic MIG/MAG process used hitherto.

Safety

30. Cochin Shipyard continues to place very high emphasis on safety at the work place. Considering that ship building and ship repair are prone to accidents, the constant vigil on this crucial aspect has enhanced the overall safety consciousness of all employees in the Shipyard.

31.  Cochin Shipyard  has  maintained  a  safe   working  environment  inside  the   Shipyard  through  well  conceived  policy,  and  implementation  of  safe  procedures.  Some of these measures include the following:–

a)      Permit to work system

b)     Usage of 100% Personal Protective Equipments [PPEs}

c)      Refresher Training for all Employees

d)     Safe Operating Procedure for all type of jobs in connection with Ship Building and Ship Repair Operations

e)      Conducting  Tool Box  Talk  on  vessels  under  repair  and  new  building  ships.

f)       Statutory Safety Committee Meetings at Regular Intervals such as Central safety Committee, Shop Level safety committees in Ship Building, Ship Repair and Services Departments  with  active  involvement  of  employees  to  promote  ideas,  elicit  Opinions and to further improve working conditions.

g)     Conducting Additional Safety Committee Meeting for the Contractors and Contract Workmen.

h)     Periodical Auditing of the systems and Facilities to identify and eliminate Potential Hazards at work locations and reduce risk.

i)       Conducting Training Sessions   regularly to ensure continued competence and to enhance safe working atmosphere.

j)        Observance of Safety Week annually during the month of March and Encouraging Employees to actively participate in various safety related programmes.

k)     Observance of Fire and Rescue week  during  the  month  of  April,  in  connection  with National Fire Services  Day.

l)       Mock Exercises  simulating  different  emergencies  are  conducted  on  ships  under repairs, new building  and  at  the  plant  every  month,  to check  the personal capability, response, responsibility and identify lacunae. Corrective actions are taken to eliminate the lacunae, if any.

m)   Periodic offsite and onsite emergency exercises with participation of surrounding industries and involvement of all emergency aid services are being conducted.

32.   The increased focus on safety has resulted in the decrease of reportable accidents from 20 in 2012 to 12 in 2013.

Industrial Security

33. Industrial Security of the Company continued to be normal and without any security breach or incident. Company continues to be an International Ships and Port facility Security (ISPS) Code compliant Shipyard and follows all standard security requirements. As per the security arrangements, 24 hrs waterfront patrolling with armed personnel and wireless surveillence (CCTV) system covering all critical locations and installation are in place. Company also has Bio Metric Access Control System for all categories of persons entering the yard. A fullfledged visitors' facilitation center is in operation for scrutiny and verification of the credentials of the visitors to the Company.

34. The physical security of the Company has been entrusted to a 116 strong CISF contingent headed by an officer of the rank of Assistant Commandant. Company also has a very effective system of coordination with other security agencies like Kerala Police, Intelligence Bureau, Central Bureau of Investigations, Indian Navy, Coast Guard etc. Cochin Shipyard Limited is also represented in a State level Committee on security of critical installation in the State of Kerala headed by the State Home Secretary. Periodic safety drills and exercises are conducted inside CSL premises towards creating security awareness and preparedness among the various users of facilities including regular and contract workers.

Awards and Recognitions

 

35. During the year, CSL was adjudged the winner of the safety award instituted by the National Safety Council–Kerala Chapter.

Board of Directors

36. The Board of CSL comprises of twelve directors consisting of four Whole Time Directors, six Non–Official Part Time Directors and two Official Part Time Directors. Shri Ravikumar Roddam, Director (Finance) retired from the services of the Company with effect from 30th April 2014 on superannuation. Also, Shri Vinayakumar P, Director (Technical) retired from the services of the Company with effect from 31st  May 2014 on superannuation.

37. Shri Paul Ranjan D was appointed as Director (Finance) with effect from 01st May 2014 vide Ministry o f Shipping letter No.SY–11012/1/2009–CSL Vol–II dated 04 April 2014. Shri Sunny Thomas was appointed as Director (Technical) with effect from 01 June 2014 vide Ministry of Shipping letter No.SY– 11012/3/2010–CSL dated 12 May 2014.

           

Directors Responsibility Statemen

t

38.       Pursuant to Section 217(2AA) of the Companies Act, 1956, Directors, based on the representations received from the operating management, confirm that:

a) In the preparation of the annual accounts, the applicable Accounting Standards have been followed and that no material departures are made from them.

b) We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give 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 the period.

c) We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and,

d) The annual accounts have been prepared on the 'going concern' basis.

Corporate Governance

39. The Company is committed to maintaining the highest standards of corporate governance and has put in place an effective corporate governance system. The Company complies with the guidelines on corporate governance issued by the Department of Public Enterprises and various other guidelines in this regard. The Company submits its quarterly progress reports on corporate governance within 15 days from the close of each quarter to the Ministry of Shipping as recommended by the DPE in this regard. The report on corporate governance forms part of the annual report.

Investor Services

40. CSL is a fully owned Government of India enterprise and the shares of the Company are not listed in any of the recognized stock exchanges in India. The Tax Free Bonds issued by the Company are fully dematerialised with both the depositories, NSDL and CDSL. These Bonds are listed on Wholesale Debt Market (WDM) segment of BSE Limited (BSE). M/s. Linkintime India Private Limited, Mumbai are the Registrar & Transfer Agents of the Company in respect of these Bonds.

Internal Control Systems

41. In order to provide for functional autonomy, the Company has a system wherein financial powers of the Board of Directors is delegated to the CMD. These powers are further sub delegated to officers at various levels for smooth and efficient day to day functioning. An independent internal audit mechanism which is entrusted to an independent audit firm is in place for conducting extensive audit of various operational and financial matters. C&AG conducts proprietary audit. An independent Audit Committee of the Board of Directors has been constituted with three Non Official Part Time Directors as members which examines internal/ statutory and C&AG audit observations and provides guidance based on the same. The Audit Committee also looks into the internal control system, company procedures and internal audit performance and reports to the Board of Directors.

Audit Committee Recommendations

42. During the year, there were no recommendations of the Audit Committee which was not accepted by the Board of Directors.

Risk Management process

43. CSL has adopted a comprehensive system of Risk Management. It ensures that all risks are clearly defined, mitigated or managed in accordance with a well structured risk management process. The Audit Committee and the Board periodically reviews the risk management process and policy.

Auditors

44. Babu A. Kallivayalil & Co, Chartered Accountants, Ernakulam were appointed as the Statutory Auditors of the Company for the year 2013–14.

Auditors Report

45.       The comments of the Statutory Auditors and the Company's reply are placed at Annexure–C.

Acknowledgment

46. The Board of Directors are extremely thankful for the continued patronage and support extended by the Hon'ble Minister of Shipping and all officers of the Ministry of Shipping. The Board would also like to express their grateful appreciation for the support and cooperation from various offices of the Government of India, Government of Kerala, various local bodies, the Comptroller & Auditor General of India, Statutory Auditors, Internal Auditors, Suppliers, Sub contractors, Company's Bankers and our valued customers. The Board also places on record its appreciation for the contribution and support extended by all employees of Cochin Shipyard.

For and on behalf of the Board of Directors,

Sd/–

Kochi

Cmde K Subramaniam

23–Jul–14

 Chairman & Managing Director

  

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Global Industry Scenario

1. While the global shipbuilding scenario in 2013–14 showed signs of recovery with fresh orders being placed during the year, the Industry is yet to reach the ordering levels that were seen during the pre downturn scenario in the years 2003–2007. Almost all the new orders were taken by Chinese, Korean and Japanese yards. As per the RS Platou report on the industry, though, the new building price index has increased by 12%during 2013 on an average. In historic perspective the prices are still low and below the average in 2011. 42% of all orders in 2013, measured in CGT were signed at Chinese yards, with 21% of these on domestic account. Korean yards secured 35% of the contracts, out of which 10% were backed by Korean owners and 14% were signed by Japanese yards, with one third registered as domestic orders.

2. The shiprepair scenario continued to be highly challenging. The global economic slow down and financial crisis has posed challenges to the shiprepair industry as the competition has become more fierce with prices and payment terms becoming more competitive. Indian Shipbuilding and Shiprepair Industry Outlook

Indian Shipbuilding and Shiprepair Industry Outlook

3. The global recession in the shipbuilding industry has affected the financial position of a number of yards especially in the private sector. Due to the market downturn post 2008 and the lack of government policy support, all shipyards other than the defence shipyards are facing challenging times with very few global shipbuilding orders coming in. The Indian shipbuilding industry has continued to concentrate on defence and offshore sector vessels. The fleet expansion plans of Indian Navy and the coastal vessels for the Indian Coast Guard are the two prime segments which were targeted by the Indian shipyards. Lack of orders from the Indian commercial ship owners and the lack of government policy support adversely effected the Indian Shipbuilding outlook.

4. The Indian share in the global shiprepair market continued to be low as there were very few capacity addition during the year. Indian ship owners continued to rely on overseas repair facilities owing to insufficient capacity and lack of government incentive. The applicability of service tax on shiprepair carried out in Indian yards continued to affect the competitiveness of the Indian companies.

Government Policy

5. Government of India i s considering implementation of a number of measures for the promotion of the Indian shipbuilding industry. The Government of Indias Maritime Agenda 2010–20 has identified the following policy measures for encouraging the industry:–

i. Grant of infrastructure status to shipbuilding industry.

ii. A scheme for capital subsidy for encouraging adoption of world class technologies by the Indian shipbuilding industry

iii. Purchase preference for Indian shipyards in procurement of ships by Government through global tenders.

iv. Offset scheme for Government procurement.

v. Promotion of the building of green ships.

vi. Formulation of a policy to promote/ facilitate maritime clusters including shipbuilding & ship repair hubs and ship ancillary units.

vii. Centers in Shipbuilding education & training to promote development of skills in shipbuilding.

viii. Enhance capabilities for ship design.

ix. Liberalization of scheme for registration of shiprepair units.

Operations

6. CSL has continued to maintain its performance levels of previous year and launched six Fast Patrol Vessels and delivered five Fast Patrol Vessels to the Indian Coast Guard. The Company also delivered two Platform Supply Vessels to Norwegian owners. Another important milestone was the launching of Indigenous Aircraft Carrier on 12thAugust 2013. On the shiprepair front, the company achieved turnover of Rs. 228 crores. The key repair projects undertaken during the year include TSHD Cauvery, MV Sagar Deep II, INS Tir (Phase II), MV Kavaratti, MV Thinnakkara and Tug Thiruvalluvar.

7.         Financial information of the company pertaining to the last decade (Rs cr)

Years

Paid up capital

Nominal value of shares (`per share)

Capital employed

Net worth

Profit Before Tax

Tax on Profits paid

Net profit

EPS

(Amt `)

Dividend

Payout ratio

2013–14

113.28

10

1389.98

1352.53

290.96

96.71

194.24

17.15

16.99

0.08

2012–13

113.28

10

970.84

1175.70

275.55

90.28

185.27

16.35

16.99

0.09

2011–12

152.42

10

918.68

1050.83

252.96

80.63

172.33

15.21

16.99

0.10

2010–11

192.42

 10

829.27

967.80

344.23

116.70

227.53

20.09

11.32

0.05

2009–10

192.42

10

578.32

680.32

331.25

108.21

223.04

19.69

11.32

0.05

2008–09

232.42

10

550.31

566.49

247.63

87.56

160.07

14.13

11.32

0.07

2007–08

232.42

1000

401.33

429.43

149.40

55.55

93.85

828.51

Nil

Nil

2006–07

234.42

1000

496.60

323.45

85.77

27.66

58.11

513.00

Nil

Nil

2005–06

232.42

1000

499.64

284.85

25.44

7.21

18.23

160.97

Nil

Nil

2004–05

232.42

1000

493.63

266.62

16.85

4.76

12.09

106.81

Nil

Nil

Proposed/Declared Dividend

8.         Your Directors are pleased to recommend a dividend of Rs.1.5 per share on the 11,32,80,000 fully paid equity shares of Rs. 10 each. The total out go for dividend and dividend tax would be approximately Rs 19.88 Crs

Segment wise/ Product wise performance

9. The Company is engaged in two major activities viz Shipbuilding and Repair of Ships/Offshore, rigs. Segment wise analysis has been made on the above basis and amounts allocated on a reasonable basis. The detail of segment wise performance is placed at Annexure 1 to this report.

Strengths, Weakness, Opportunities and Threats

10.        Cochin Shipyard perceives the following to be its Strength, Weakness, Opportunities and Threats.

Strengths:

a.     Highly trained , motivated and , knowledgeable manpower with an average of 15 years  of experience at all levels of hierarchy resulting in extremely high quality workmanship

b.    A well planned and laid out shipyard enabling smooth work flow.

c.     A modern State of the Art design centre manned by highly trained , experienced and competent designers.

d.    Highly evolved shipbuilding processes and practices permitting modular construction of ships.

e.     A very good product mix comprising of defence ships, commercial ships, offshore support ships and shiprepair.

f.     Availability of quality sub contractors and good supply chain network.

g.    State of art' facilities especially in terms of cranage, transporters, covered mobile shops, covered marine coating facility, high quality welding equipment, international standard hull fabrication facilities etc.

h.     Strategic location in the main sea route.

i.      Good industrial relations scenario.

Weakness:

a.     Inadequate  Government support by way of orders / subsidy etc.

b.    No tariff barriers on import of ships affecting domestic industry.

c.     Virtually nonexistent indigenous ancillary industries and consequently Non availability of major equipments /raw materials in India.

d.    Restrictive labour practices.

e.     Non availability of low cost funds for expansion and capital investment

Opportunities:

a.     Projected increase in requirement of ships for the defence sector and growth in international and domestic commercial shipbuilding sectors owing to oil exploration, age profile of ships etc.

b.    Opportunities for domestic shipyards on account of Ministry of Shipping's Maritime Agenda's objective to attain 5% share of the global shipbuilding and to develop indigenous ancillary industries.

c.     Domestic demand for High end niche vessels like LNG, seismic, well stimulation vessels etc.

d.    Better opportunities in shiprepair owing to growing Indian fleet and ships calling at Indian Ports.

Threats:

a.     Severe International Competition.

b.    Withdrawal of subsidy scheme for Shipbuilding.

c.     Levy of Service Tax on Shiprepair other than for Government vessels.

d.    Lack of level playing grounds vis a vis foreign yards by way of Government support, level of taxation etc.

Risks and Concerns

11. The shipbuilding industry world over faced challenging times in the aftermath of the global downturn in 2008. However, CSL has been able to maintain, in fact marginally improve its performance levels and effectively deal with the risks through diversification into domestic / defence shipbuilding. The yard with its presence in defence & commercial building and repair and Marine Engineering Training has effectively mitigated risks through its diversified products and services.

12. CSL has adopted a comprehensive system of Risk Management. It ensures that all risks are identified and managed in accordance with the well structured risk management process. The Audit Committee reviews periodically the risk management process.

Future plans

13. Cochin Shipyard has identified repairs to rigs and offshore structures, increased shiprepair and Defence shipbuilding to be the major areas for future expansion and has identified the following projects to be pursued:

a) Setting up of an International Shiprepair Facility in the Cochin Port Trust area to take up repairs of small sized ships

b) Setting up of a high definition dry dock for taking up underwater repairs of rigs and for future construction of large commercial/ Naval ships.

14. Out of the above, the yard has already entered into an agreement with Cochin Port Trust for setting up of an International Shiprepair Facility on 42 acres of land in their premises and has commenced the shiprepair operations. Ground survey of the project area for preparing CRZ map was carried out from16th Feb 14 to 17th Feb 14 by Consulting Engineering Services, New Delhi. Base line environmental monitoring / survey is progressing at project site. The Environmental Clearance is expected by March 2015. The agreement for Project Management Consultancy (PMC) was signed between CSL and consortium of M/s Inros Lackner, Germany and Tata Consulting Engineers Ltd on 15thMar 14.

15. A technical feasibility and viability study is being undertaken to examine setting up a new large sized dock . This would help CSL to pursue taking up of underwater repairs of rigs and construction of large commercial/ Naval ships, in the future.

Internal Control Systems and their Adequacy

16. The Company has promulgated an internal control and internal audit manual. The internal audit function is carried out by an independent firm of chartered accountants who carryout an indepth review of internal control systems in critical areas based on the audit programme approved by the independent board level audit committee.

Human Resource Development

17. CSL has a highly skilled and experienced manpower dedicated to achieving excellence in their performance. Towards this, a significant human resource initiative was undertaken to extend training for skill development, motivation, leadership and personality development across all levels of employment.

18. The Shipyard places a lot of emphasis on safety. The Shipyard conforms to ISO 18001–2001 OSHAS certified by DNV. In–house safety awareness programme is organized for all new entrants. Regular training programmes are conducted by external and internal agencies which are attended by all employees including executives, supervisors and workmen. Special emphasis is paid to the training of contract personnel and trainees.

Women Empowerment

19. Cochin Shipyard Ltd has constituted an Internal Complaints Committee in accordance with the guidelines and norms prescribed by the new enactment namely Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The Chairperson of the Internal Complaints Committee is a Senior Women Executive of the Company. The Certified Standing Orders applicable to Workmen have also been amended incorporating the new definition of Sexual Harassment as per the Act. The Internal Complaints Committee has been duly empowered to inquire into such complaints in accordance with the procedure laid down in the Certified Standing Orders and Industrial Employment (Standing Orders) Act and rules. CSL has a strength of 125 women employees on its rolls consisting of 30 Executives, 15 Supervisors and 80workers.

Industrial Relations

20. CSL has an enviable record of harmonious industrial relations. Industrial Relations scenario of the Company remained cordial and peaceful. CSL continues to maintain, the legacy of not loosing a single man day on account of labour unrest by the regular employees of CSL. Effective and purposeful interactions are held with the various categories of employees through their representative bodies viz. trade unions and Officers and Supervisors Associations. Day to day grievances are addressed at the shop floor to the extent possible or at higher levels in a time bound manner. All categories of employees are generally contented and motivated thanks to the timely and focused industrial relation interventions. Referendum of trade unions for recognition was conducted and four trade unions emerged as recognized trade unions in CSL.

21. The Company follows a participative management approach while dealing with the industrial labour force. Accordingly, the Company has constituted two levels of participation namely (i) Joint Council consisting of equal number of representatives from workmen and management and (ii) three shop councils at the lower level also consisting of equal number of participation from workmen and management. Apart from this, participation of workers in management is also practiced in the case of PF trust wherein four trustees are elected from the workmen and four nominated by the Management. The central safely councils and shop safety councils which are set up to ensure safe working environment also consist of equal representation of workmen and management. Apart from this, the Canteen Management Committee is also run with equal participation by workmen. At the contractors workmen front , the Company has constituted another safety committee consisting of representatives of the contractors workmen and management. The Occupier of the factory is the chairman of the committee. This approach has instilled a sense of ownership amongst the employees and has worked very effectively in ensuring an extremely harmonious and conducive work environment.

Technology Conservation

22. CSL continuously strives for conservation and upgradation of technology to remain competitive in the global shipbuilding market place. Towards this, the yard has fully absorbed the Tribon Software in Ship Design. The yard has also developed complete design for 1500 KW tug, 2400 KW tug and 3300 KW tug in–house. Besides, the yard has also implemented in–house 3D hull modeling, machinery and outfit modeling of piping systems, ventilation, air conditioning, cabling and structural items and development of structural drawing of Aircraft Carrier based on the input from Indian Navy. Cochin Shipyard is proud of the fact that it is the only shipyard in the country to adopt and build ships using the Integrated Hull Outfit and Painting (IHOP) method. CSL has developed over 35 in number welding processes to weld the high strength alloy steel DMR 249 G2 A and B steel used in the Indigenous Aircraft Carrier Project.

23. The yard has also developed the production designs of the State of the Art Clean Design for DPII Electric propelled Comfy class Platform Supply Vessels.

Foreign Exchange Conservation

24. Cochin Shipyard has been able to consistently secure and execute international shipbuilding

orders in the last several years, thereby earning foreign exchange. The earnings from foreign exchange during the year 2013–14 was Rs. 7380.14 lakhs.

Corporate Social Responsibility (CSR) & Sustainability Development

25. In pursuit of fulfilling the CSR Vision of CSL towards becoming the best responsible Corporate Citizen of the Country recognized for the quality of its products and services and respected for the ethical conduct of business, CSL has embarked upon several diligently chosen CSR & Sustainability Projects during the year. Fol l owing the Guidelines on CSR & Sustainability Development 2013 issued by Department of Public Enterprises in letter and spirit, CSL identified and sanctioned 33 minor and major CSR & Sustainability Projects involving total estimated cost of Rs. 4.25 crores. Out of these, 22 projects have been completed and 11 are in progress. CSL CSR Board Level Committee, the apex controlling and monitoring body for CSR & Sustainability projects of CSL approved Rs. 3.60 crores as the CSR & Sustainability Budget for the year 2013–14. These focused CSR projects spread across all thrust areas of CSR interventions viz., quality of life improvement especially of the less privileged or sidelined citizens, health, education, community development, capacity building, green technology etc. Apart from the intangible positive impact on the environment, approximately 13000 individual citizens stand benefitted from out of the above CSR & Sustainability projects of CSL during the year.

26. The following are a few of the major CSR & Sustainability projects undertaken by CSL during the year.

a) Lighting 75 Tribal Houses by Solar Power at Kunjippara Tribal Village at Kuttampuzha Panchayath in Ernakulam district. The project provided solar power generated electricity to 75 tribal houses where conventional power is nearly impossible to reach in near future. With independent solar power unit for each house, the tribal family could use 5 power points at each house. With bright and costless light provided to them, significant improvement in the quality of their life is expected in the long run.

b) Construction of a new building for 50 women inmates of the Home for Destitute costing Rs. 1.40 crores. CSL contribution to the cost of construction was Rs. 40.00 lakhs.

c) Construction of Training cum Cultural Centre for Om Sivananda Pulaya Seva Samajam at Ayyamppilly, a coastal village in Ernakulam district. The Centre aims to train the housewives and the unemployed girls of the area in livelihood enhancement skills and giving tuition for the children of the residents of the local mostly belonging to SC Community.

d) Livelihood enhancement of 260 visually challenged persons by providing them with USB supported announcement instrument. The equipment enables them to sell lottery tickets and make a living out of it.

e) Distribution of 100 wheel chairs to 100 physically challenged persons.

f) Conducted SAUHYAM–2013, a super specialty medical camp at Ernakulam which benefitted more than 3000 poor patients with free diagnosis and free follow up treatment at renowned private and Government hospitals in Ernakulam.

g) Provided one–time free meals to the bye–standers of poor inpatients at General Hospital, Ernakulam which benefitted average 400 persons a day.

h) Installation and commissioning of a RO based water treatment plant inside CSL which converts

50 Tons of saline ground water to potable water every day.

i) Provided three dialysis machines and their accessories at Primary Health Centre, Erattupetta Grama Panchayath inKottayam district.

j) Yet another major CSR project commenced during the last year and to be completed during 2014 is construction of a 100 bedded Boys Hostel for Vivekananda Residential Tribal School at Mathilayam in Wayanad district. Wayanad district inKerala is a backward district notified by the Planning Commission of India.

k) Other CSR & Sustainability projects included providing ambulance to a nearby Panchayath, boat ambulance to a nearby hospital catering to the scattered islanders at Cochin, school bus to a Government Primary School in an interior village Ernakulam district, constructed a new school building for a village high school, improvement of living conditions in an Old Age Home at Cochin, conduct of early cancer detection camp, construction of a Community Centre at Cheranellur Panchayath in Ernakulam district, support for conducting Global Ayurveda Festival–2014, helping to set up smart class rooms at Government schools by providing computers, printers, projectors, tablet PCs etc. setting up of a National Dementia Help Line in Ernakulam, support to Palliative Care Unit of

General Hospital, Ernakulam etc.

27. Apart from the above projects commissioned this year, the ongoing CSR projects of CSL already commissioned during the earlier years continued to render desired services to the society and positive impact on the beneficiaries and CSL as well. Special mention is being made about the Regional MRI Centre set up at General Hospital, Ernakulam with the joint support of two MPs Fund and CSL CSR Fund (` 1.50 crores each) helped more than 5500 poor patients in getting their MRI done either freely or at a rate as low as Rs. 1800/– for brain MRI. The prevailing rate for the same at private MRI centers ranged between Rs. 6,500/– to Rs. 9,000/–. So also is the experience with the Regional Dialysis Center functioning at Government Hospital, Aluva in Ernakulam district. The Centre, the first of its kind perhaps all over India, for which CSL spent approximately Rs. 70 Lakhs caters to hundreds of poor kidney patients giving them as much dialysis as required by them through 22 dialysis machines. This model CSR project of CSL has created such a positive impact that Government of Kerala has now decided to sponsor the dialysis procedures being carried out in all such dialysis centers and declared that all Government hospitals in Kerala would have dialysis centers within 2 years.

28. It is heartening to report that CSR interventions of CSL has proved to be an effective vehicle which carried positive corporate image of CSL among its internal and external stakeholders. Such boosted goodwill of the Company is indeed a driving force for its employees who take pride and ownership of being part of a responsible Corporate Citizen. The CSR agenda of CSL has also enthused the employees which is reflected in their own active involvement in the implementation of CSR projects and also in their own self motivated efforts to render support to the less privileged fellow citizens. In short, as has been enshrined in the CSR & Sustainability Guidelines, CSR is forming part of DNA of CSL as its way of conducting business and ethical expression.

Cautionary Statement

29. Statement in this Management Discussion and Analysis Report describing the objectives, expectations, assumptions or predictions of the Company may be forward looking statements within the meaning of applicable rules and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the operations of the Company include economic conditions affecting demand/supply, price conditions in the domestic and international markets, Government policies and regulations,  statutes and other incidental factors.

Annexure I to Management Discussion and Analysis Report

 (Rs. Lakhs)

Shipbuilding

Shiprepair

Unallocated

Total

Segment Revenue

External Sales

140956.46

22788.41

0.00

163744.87

Interest

0.00

0.00

5082.86

5082.86

Total Revenue

140956.46

22788.41

7532.96

171277.83

Accretion/ (Decretion) to WIP

(4379.48)

357.91

0.00

(4021.57)

Segment Result

31507.56

(44.50)

(2367.48)

29095.58

TAX (Net)

9671.36

NET PROFIT

19424.22

OTHER INFORMATION

Segment Assets

150052.60

37173.33

82850.29

270076.44

Segment Liabilities

103360.15

5176.78

161539.52

270076.44

Capital Expenditure

5669.58

9260.15

954.23

15883.96

Depreciation

1067.45

917.25

283.81

2268.51

Annexure C

Company's Reply to the Comments of the Statutory Auditors

Para in

Auditors Report

Statutory Auditors Comments

Companys Reply

6 (i)

Reliance on the recognition of rupees 93,320 lacs under revenue from operations on Ship Building of Indigenous Aircraft Carrier (IAC) for Indian Navy pertains mostly to phase–II of the construction, provisionally based on the rates approved for phase–I, including rupees 8,648 lacs as referred to in Note, for which formal contract defining the terms is yet to be entered into. (Refer note number 18)

Government of India vide order No.PL/1289/IAC (P–71)/Revision/312/D (Navy–I)/2014 dated 30th July 2014 has approved the revised cost and delivery schedule and cost estimate of IAC– project 71. Further it was also clarified vide letter dated 07 August 14, from IHQ, MOD DND that the above approval includes approval for fixed price part of the phase II contract and the process of concluding and signing of the contract is in progress. The Company expects the contract to be signed shortly. During 2012–13, the Company was executing certain activities pertaining to phase II scope of the contract, even though the price and other scope of contract was under negotiation. This was done in the broader national interest to avoid any delay in the construction of this strategic ship. As a matter of prudence the income pertaining to that work amounting to Rs.8648 lakhs was also recognized during 2013–14 and adequately disclosed in Note No.6.1 (i) & 18.2 of the accounts. This is in line with the accepted accounting practices in the industry and complying with the Accounting Standards AS–1, AS–7 and AS–9.

6(ii)

Reliance on the recognition of revenue from ship building /repair based on the Companys own assessment of physical completion. (Refer note number 18)

The company has been recognizing the revenue from ship building operations as per AS–7 which requires that revenue from long term construction contracts shall be recognized on percentage of completion. As per the Companys accounting policy followed consistently, for recognizing revenue, the percentage

of physical completion or financial completion whichever is lower is adopted. In the case of physical completion the percentage progress is evaluated by the Companys technical experts in charge of the planning/ production department, who are considered as most suitable and competent to assess the physical progress achieved. This has been followed consistently over the years.

6(iii)

Accounting of liabilities towards subcontract work based on Companys estimate pending confirmation by the parties. (Refer note number 5A)

Estimates have been prepared and reviewed every year on a realistic assessment of the total cost of construction, for which major part of the subcontract liability has been provided on the basis of actual worked out on the basis of subsequent settlement of work orders and balance liability based on technical assessment of work progress. This procedure is being followed consistently in accordance with Accounting Standard 7 on Construction Contract and Accounting Standard 9 on Revenue Recognition.

i(b)

The fixed assets have been stated to be physically verified by the Management during the year and is not observed by us. However the physical verification procedure needs to be strengthened. As explained to us, no material discrepancies were noticed on such physical verification.

As per the Companys view the procedure for asset verification in the Company is well defined. The lists of assets excluding non movable items like buildings, roads, water supply etc. and assets categorized as intangible assets are drawn from Fixed Asset Register and sorted in the order of Cost center and forwarded to the respective department/division heads for verification and confirmation. The list is based on the items available in the asset register. The concerned HODs form a team of officers of minimum 2 members and conduct the physical verification.

In case the assets are not available in the location mentioned in the asset verification list and the present location is known, then the information is mentioned in the Remarks column based on which asset location is corrected in the register. If the asset is damaged or beyond economic repair, the position is intimated by the concerned department, and action initiated for write off of the asset after getting approval of the competent authority. In view of the detailed procedure followed for fixed asset verification which takes care of all the requirements, the physical verification procedure is considered adequate.

ii(b)

In our opinion, the procedure of physical verification of inventories followed by the Management need to be strengthened in relation to the size of the Company and the nature of its business.

Being a manufacturing company it is not possible to shut down operations of the company to carry out physical verification. Therefore the Company is following the perpetual inventory system. For physical verification of inventory, the Company has constituted a committee and physical verification is done and reconciled with book balances. The committee is conducting 100% physical verification of items on an annual basis. The report of the committee is submitted to CMD and adjustment if any required are done with proper approval. Hence the Companys procedure for physical verification is considered adequate.

(iv)

In our opinion and according to the information and explanations given to us, the internal control system should be strengthened to commensurate with the size of the Company and nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. According to the information and explanations given to us, there is no continuing failure to correct major weaknesses in internal control.

The Company has a predefined internal control procedure in which all areas of operations are covered and all activities/nature of function with authority and control measures are defined, the enforcement of which is strictly adhered. In respect of inventory, the control measures are ensured as per the materials manual. Delegation of powers are circulated and authorization of all activities are made as per the delegation of powers. Further the scope of internal audit includes review and assessment of internal control systems and procedure and defects if any reported are rectified. The Internal Audit reports are discussed at CMDs level and the report along with actions proposed are placed before the Audit Committee and deliberated and actions required are followed up and taken appropriately.

(vii)

In our opinion, the scope of internal audit function carried out by firm of Chartered Accountants, need to be enlarged to commensurate with the size of the Company and nature of its business

In order to enhance the internal audit scope and coverage and to strengthen the internal audit functions, the company hired the services of professionally qualified firm of Chartered Accountants. As directed by the Board, Chartered Accountant firms who have audit experience in the Companys activities are considered for appointment as Internal Auditors of the Company, as they are conversant with the affairs of the Company. The Company has an Internal Audit Manual and detailed audit programme is approved by the Audit Committee of the Board. The Audit Programme defines the Audit scope. The Audit Programme is periodically reviewed by the Audit Committee considering the changes in business environment. The programme was last reviewed and finalised at the 25th Audit Committee Meeting held on 16th June 2013. The reports submitted by professional firms are reviewed by Audit committee of the Board. The Internal Auditors are required to provide necessary clarifications to the Statutory Auditors with respect to the internal audit functions carried out by them. In view of the above, the Company is of the view that the Internal Audit functions are commensurate with the size & nature of the business of the Company.

(viii)

We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under section 209 (1) (d) of the Companies Act, 1956 and are of the opinion that, prima facie, the

prescribed cost records have been maintained by the Company. We have, however, not made a detailed examination of the records with a view to determining whether these records are accurate or complete.

The Company has proper records relating to utilisation of material, labour and other items of cost as prescribed under section 209 (i) (d) of the Companies Act, 1956. Further the Cost Accountant appointed under rule 5 of the Companies (Cost Accounting Records) Rules, 2011 has filed Compliance Report, that proper cost records, as per the Companies (Cost Accounting Records) Rules, 2011 prescribed under clause (d) of sub section 1 of section 209 of the Companies Act, 1956 have been maintained by the company so as to give a true and fair view of cost of production and margin of all the products/activities of the company. All records are available with the company for verification.

Details regarding energy conservation

1. Conservation of Energy a. Steps taken for conservation of energy during the year 2013–14. Ø Installed 25KW Solar Power System Ø Provided Variable Frequency Drives (VFDs) for 2Nos portable compressors Ø Electrification of new building is being carried out with LED lights Ø Replaced 1000 W Sodium Vapour Lamp/Mercury Vapour Lamp with 400WMetal Hallide Lamp (having high Lumen output) Ø Replaced 40W/36W conventional tube lights with 18WLEDtype tubes leading to saving of electricity. Ø Replacement of old and damaged window air conditioning units with energy efficient five star rated split A/C units. Ø Leakages in the compressed air distribution system and other industrial gas lines are regularly monitored and rectified. Ø Switching off Main Air Compressor during lunch break. Ø Switching off of main power supply to shops, quays, and Docks momentarily at 12:15 hrs, this trips man coolers, roof extractors (controlled through starters), etc which are not required during the lunch break. Ø Displayed energy saving stickers and posters, conducted seminar and quiz competition for inculcating awareness among employees for energy conservation aimed at optimum use of electric power. Ø Power factor is continuously monitored and maintained near unity. Ø Replacement of 2 Nos old oil cooled power transformers with dry type transformers, thereby, reducing no load losses and improving efficiency of transformers. b. Additional investments & proposals, if any, being implemented for reduction of consumption of energy and consequent impact on the cost of production of goods.Ø Installation of 60KWSolar Power System. Ø Conventional lamps are being substituted by LED light fittings in new buildings. Ø Energy auditing is conducted and feasible suggestions will be implemented. Ø Regular inspection and renewal of compressed Air/Acetylene/ Oxygen Pipe lines as needed. c. Impact of measures at (a) and (b) above for reduction of consumption of energy. Energy consumption has been reduced by 3 lakhs units per annum with the implementation of measures specified at Sl. No.1 (a). The measures mentioned at Sl. No.1 (b) are under implementation. d. Particulars with respect to conservation of energy.Ø Energy auditing is conducted every three years and recommendations are implemented. Annexure to Directors Report – Annexure A (Contd.) FORM A Disclosure of particulars in respect of conservation of energy SL NoPower & Fuel Consumption2012–132013–142013–14 (CoPT) 1.Electricity (a)Purchase units (kWh)2,76,37,0002,87,94,0003,15,036 Total Amount (Rs)13,72,49,90515,58,74,61547,15,694 Per Unit RateRs. 4/kWh & Rs. 300/kVARs. 4.40/kWh & Rs. 300/kVARs. 6.10/kWh upto 30,000 units Rs. 7.20/kWh above 30,000 units (for all units) and Rs.400/kVA Cost per unitRs. 4.97Rs. 5.41Rs.14.96 (b)Own generation including hired generator sets (i)Through Diesel Generation Units (kWh)6,3507,135Nil Unit per ltr of diesel1.681.88Nil Cost per unit30.3933.00Nil (ii)Through steam turbine /generator UnitsNilNilNil Units per ltr of fuel, oil/gas–––––– Cost per unit–––––– 2.Coal Quantity (tonnes) Total cost Average rateNilNilNil NilNilNil NANANA 3.Furnace Oil Quantity (K1)NilNilNil Total AmountNilNilNil Average rateNANANA 4.Others/internal Generation QuantityNil23,012 KWHNil 5. Consumption per unit of productionNANANA

Details regarding technology absorption

B. Technology Absorption, Adaptation and Innovation i. Efforts in brief towards technology absorption, adaptation and innovation i. Developed digitally the hull and outfit/design models for Platform Supply Vessels (PSVs) and Fast Patrol Vessels (FPVs). ii. In–house development of complete production engineering design of above FPVs and PSVs in 3D hull and entire outfit modeling in Tribon iii. In–house 3D hull modeling, machinery and outfit modeling of piping systems, ventilation, air–conditioning, cabling and structural items and development of structural drawing of Indigenous Aircraft Carrier are in progress, based on the inputs provided by the Indian Navy. iv. Propulsion System Integration for the Indigenous Aircraft Carrier Project being carried out in collaboration with M/s Fincantieri, Italy. v. In–house 3D modeling of Aviation Facilities like Arresting gear, Restraining gear, Hydraulic station, aviation ammunition complex, maintenance facilities inside Hangar, Ilmen, Luna and MTK for integration of these equipments onboard Indigenous Aircraft Carrier based on the details received from M/s Rosoboronexport Russia. vi. In–house 3D modeling of fire curtain used for separating the Hangar into two compartments and preparation of production drawings as per the details received from M/S Darchem, USA vii. In–house 3D modeling of various Aviation Facility equipments like SAC lift, Ammunition lift, Turn table and hangar doors and preparation of production drawings based on the details received for these equipments from their respective foreign OEMs. viii. Design of fire fighting system for Aviation Ammunition Magazine compartments and design of power supply system for Aviation Facility complex equipments with the help of M/s Rosoboronexport Russia. ix. Production design of state of the art ‘CLEAN DESIGN, DP II, Electric Propelled‘ Platform Support Vessels. x. Conversion of the existing semi automatic (MIG/ MAG) weld process to a completely automated weld process using welding oscillator with Rack and Pinion drive as well as magnetic base drive for welding in different weld position. This has resulted in significant increase in productivity and consistent better quality of welds xi. Development of new weld procedures for DMR 249 Grade B Plate using Manual Metal Arc Welding (MMAW) process. Semi Automatic Gas Metal Arc Welding (GMAW) process and completely mechanised Submerged Arc Welding (SAW) process for welding butt, fillet joints, T sections and aluminum structures. xii. New weld procedures were developed in–house for fabrication of methanol tank made of 316 L grade stainless steel using semi automatic Flux Cored Arc Welding (FCAW) process.

Details regarding foreign exchange earnings and outgo

C. Foreign Exchange Earnings & Outgo (Rs. Lakhs) Income from Foreign Exchange2013–142012–13 From Shiprepair15.29Nil From Shipbuilding7364.8561251.55 Expenditure in Foreign Exchange Materials (CIF Value)37678.9154374.01 Design & Documentation17152.551311.57 Service Charges & Others3721.325340.76

Details regarding research and development

A. Research and Development 1. Specific areas in which R&D carried out by the company 2. Benefits derived as a result of R&D R&D initiatives undertaken in the areas of welding and mechanisation for productivity improvement. 1. Development of mechanized elbow cutter for cutting non standard elbows has reduced pip fit up cycle time and thereby the productivity of pipe shop 2. Submerged Arc Weld (SAW) procedure developed for low thickness has reduced the fatigue of the welders and improved the weld quality and productivity. This procedure was implemented in the shop floor and us extensively for welding of panels of the Fast Patrol Vessels being built in the yard for Indian Coast Guard. 3. Training and qualifying the welders for mechanized pulsed welding machine for aluminum panels have drastically reduced cycle time of fabrication of blocks with bare minimum weld restart and uniform weld bead. This has helped in productivity improvement in the construction of FPVs for Coast Guard. 4. Self shielded welding process developed has shown good results in the test bed and this area is advantageously used in welding where shielding gas is not available. This process is being further developed in the coming financial year. 5. Circular welding work station developed with Submerged Arc Welding (SAW) has helped to cater to the requirement of circular weld joints in ships and this will also result in reducing the weld time of circular joints by about 40% compared to the conventional semi automatic MIG/MA process used hitherto. 3. Future Plan of Action Following R&D activities are planned in year 14–15 1. Distortion prediction and measurement of stiffened panels and large ship blocks and their mitigation in association with IIT Kharagpur. 2. Development of weld procedure using activated TIG weld process for carbon and Stainless steel pipes 4. Expenditure on R&D Rs 1.83 crores (in year 2013–14)

Particulars of employees as per provisions of section 217

Particulars as required under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended:– Nil

Disclosures in director’s responsibility statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, Directors, based on the representations received from the operating management, confirm that: a) In the preparation of the annual accounts, the applicable Accounting Standards have been followed and that no material departures are made from them. b) We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give 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 the period. c) We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and, d) The annual accounts have been prepared on the 'going concern' basis.

Director's comments on qualification(s), reservation(s) or adverse remark(s) of auditors as per board's report

6 (i) Reliance on the recognition of rupees 93,320 lacs under revenue from operations on Ship Building of Indigenous Aircraft Carrier (IAC) for Indian Navy pertains mostly to phase–II of the construction, provisionally based on the rates approved for phase–I, including rupees 8,648 lacs as referred to in Note, for which formal contract defining the terms is yet to be entered into. (Refer note number 18) :– Government of India vide order No.PL/1289/IAC (P–71)/Revision/312/D (Navy–I)/2014 dated 30th July 2014 has approved the revised cost and delivery schedule and cost estimate of IAC– project 71. Further it was also clarified vide letter dated 07 August 14, from IHQ, MOD DND that the above approval includes approval for fixed price part of the phase II contract and the process of concluding and signing of the contract is in progress. The Company expects the contract to be signed shortly. During 2012–13, the Company was executing certain activities pertaining to phase II scope of the contract, even though the price and other scope of contract was under negotiation. This was done in the broader national interest to avoid any delay in the construction of this strategic ship. As a matter of prudence the income pertaining to that work amounting to Rs.8648 lakhs was also recognized during 2013–14 and adequately disclosed in Note No.6.1 (i) & 18.2 of the accounts. This is in line with the accepted accounting practices in the industry and complying with the Accounting Standards AS–1, AS–7 and AS–9. 6(ii) Reliance on the recognition of revenue from ship building /repair based on the Companys own assessment of physical completion. (Refer note number 18) :– The company has been recognizing the revenue from ship building operations as per AS–7 which requires that revenue from long term construction contracts shall be recognized on percentage of completion. As per the Companys accounting policy followed consistently, for recognizing revenue, the percentage of physical completion or financial completion whichever is lower is adopted. In the case of physical completion the percentage progress is evaluated by the Companys technical experts in charge of the planning/ production department, who are considered as most suitable and competent to assess the physical progress achieved. This has been followed consistently over the years. 6(iii) Accounting of liabilities towards subcontract work based on Companys estimate pending confirmation by the parties. (Refer note number 5A) :– Estimates have been prepared and reviewed every year on a realistic assessment of the total cost of construction, for which major part of the subcontract liability has been provided on the basis of actual worked out on the basis of subsequent settlement of work orders and balance liability based on technical assessment of work progress. This procedure is being followed consistently in accordance with Accounting Standard 7 on Construction Contract and Accounting Standard 9 on Revenue Recognition. i(b) The fixed assets have been stated to be physically verified by the Management during the year and is not observed by us. However the physical verification procedure needs to be strengthened. As explained to us, no material discrepancies were noticed on such physical verification.:– As per the Companys view the procedure for asset verification in the Company is well defined. The lists of assets excluding non movable items like buildings, roads, water supply etc. and assets categorized as intangible assets are drawn from Fixed Asset Register and sorted in the order of Cost center and forwarded to the respective department/division heads for verification and confirmation. The list is based on the items available in the asset register. The concerned HODs form a team of officers of minimum 2 members and conduct the physical verification. In case the assets are not available in the location mentioned in the asset verification list and the present location is known, then the information is mentioned in the Remarks column based on which asset location is corrected in the register. If the asset is damaged or beyond economic repair, the position is intimated by the concerned department, and action initiated for write off of the asset after getting approval of the competent authority. In view of the detailed procedure followed for fixed asset verification which takes care of all the requirements, the physical verification procedure is considered adequate. ii(b) In our opinion, the procedure of physical verification of inventories followed by the Management need to be strengthened in relation to the size of the Company and the nature of its business. :– Being a manufacturing company it is not possible to shut down operations of the company to carry out physical verification. Therefore the Company is following the perpetual inventory system. For physical verification of inventory, the Company has constituted a committee and physical verification is done and reconciled with book balances. The committee is conducting 100% physical verification of items on an annual basis. The report of the committee is submitted to CMD and adjustment if any required are done with proper approval. Hence the Companys procedure for physical verification is considered adequate. (iv) In our opinion and according to the information and explanations given to us, the internal control system should be strengthened to commensurate with the size of the Company and nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. According to the information and explanations given to us, there is no continuing failure to correct major weaknesses in internal control.:– The Company has a predefined internal control procedure in which all areas of operations are covered and all activities/nature of function with authority and control measures are defined, the enforcement of which is strictly adhered. In respect of inventory, the control measures are ensured as per the materials manual. Delegation of powers are circulated and authorization of all activities are made as per the delegation of powers. Further the scope of internal audit includes review and assessment of internal control systems and procedure and defects if any reported are rectified. The Internal Audit reports are discussed at CMDs level and the report along with actions proposed are placed before the Audit Committee and deliberated and actions required are followed up and taken appropriately. (vii) In our opinion, the scope of internal audit function carried out by firm of Chartered Accountants, need to be enlarged to commensurate with the size of the Company and nature of its business :– In order to enhance the internal audit scope and coverage and to strengthen the internal audit functions, the company hired the services of professionally qualified firm of Chartered Accountants. As directed by the Board, Chartered Accountant firms who have audit experience in the Companys activities are considered for appointment as Internal Auditors of the Company, as they are conversant with the affairs of the Company. The Company has an Internal Audit Manual and detailed audit programme is approved by the Audit Committee of the Board. The Audit Programme defines the Audit scope. The Audit Programme is periodically reviewed by the Audit Committee considering the changes in business environment. The programme was last reviewed and finalised at the 25th Audit Committee Meeting held on 16th June 2013. The reports submitted by professional firms are reviewed by Audit committee of the Board. The Internal Auditors are required to provide necessary clarifications to the Statutory Auditors with respect to the internal audit functions carried out by them. In view of the above, the Company is of the view that the Internal Audit functions are commensurate with the size & nature of the business of the Company. (viii) We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Accounting Records) Rules, 2011 prescribed by the Central Government under section 209 (1) (d) of the Companies Act, 1956 and are of the opinion that, prima facie, theprescribed cost records have been maintained by the Company. We have, however, not made a detailed examination of the records with a view to determining whether these records are accurate or complete. :– The Company has proper records relating to utilisation of material, labour and other items of cost as prescribed under section 209 (i) (d) of the Companies Act, 1956. Further the Cost Accountant appointed under rule 5 of the Companies (Cost Accounting Records) Rules, 2011 has filed Compliance Report, that proper cost records, as per the Companies (Cost Accounting Records) Rules, 2011 prescribed under clause (d) of sub section 1 of section 209 of the Companies Act, 1956 have been maintained by the company so as to give a true and fair view of cost of production and margin of all the products/activities of the company. All records are available with the company for verification.

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