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Annual Report 2010-2011
HMT MACHINE TOOLS LIMITED
CONTENTS
Board of Directors ............................................................................................................................. 2
Peformance Highlights ........................................................................................................................ 3
Directors Report ............................................................................................................................. 4
Auditors Report ........................................................................................................................... 19
Comments of C & AG ........................................................................................................................ 24
Significant Accounting Policies .......................................................................................................... 25
Balance Sheet ...........................................................................................................................28
Profit & Loss Account ........................................................................................................................ 29
Schedules and Notes Forming Part of the Accounts ......................................................................... 30
Cash Flow Statement ........................................................................................................................ 50
Additional Information as required under
Part IV of Schedules VI to the Companies Act, 1956 ......................................................................... 51
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BOARD OF DIRECTORS
Shri G. K. Pillai Chairman, (w.e.f. 28-12-2010)Managing Director I/c (w.e.f. 01-01-2011)
Shri A. V. Kamat Chairman (upto 27/12/2010)
Shri Harbhajan Singh Director
Shri Ashok Gupta Special Director (BIFR) (w.e.f. 8-12-2010)
Shri P. Ganeshan Special Director (BIFR) (upto 15-9-2010)
Shri S. G. Sridhar Director (w.e.f. 05-5-2011)
Shri K. H. Suresh Director (Technology) (upto 12-8-2011)
AUDITORS
M/s. A. Raghavendra Rao & AssociatesChartered Accountants
Bangalore
BANKERS
UCO BankPunjab National BankAndhra BankState Bank of Travancore
REGISTERED OFFICE
HMT BHAVAN59, Bellary RoadBangalore 560 032
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Annual Report 2010-2011
PERFORMANCE HIGHLIGHTS
2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02
OPERATING STATISTICS
Sales 20902 20962 20060 26521 25661 24218 23343 19821 22998 26409
Other Income 1442 2346 3125 2012 6779 16253 5686 1477 2264 2892
Materials 7108 7602 8125 9001 9445 10488 10539 7600 7997 8962
Employee Costs 15248 12410 13754 15901 25793 17960 13627 12939 13208 13614
Other Costs 5506 4942 5435 6704 6428 7051 6957 6284 6677 6476
Depreciation 985 788 565 388 425 515 562 583 627 664
Earning Before Interest -8529 -3,841 -3907 -4380 -11491 5577 -1424 -6291 -5558 -3017
Interest 777 739 -250 -387 3434 6180 5956 5617 4647 4048
Earnings /(Loss) Before Tax -9306 -4580 -3657 -3993 -14925 -603 -7380 -11908 -10205 -7065
Taxation - - 60 57 53 53 - - - -
Net Earnings -9306 -4580 -3717 -4050 -14978 -656 -7380 -11908 -10205 -7065
FINANCIAL POSITION
Net Fixed Assets 9382 9432 7375 4132 3038 2842 3488 4005 4530 4900
Current Assets 21672 25521 31448 40179 41236 24614 24882 24233 26287 30271
Current Liabilities & Provisions 29570 26857 27059 27797 28771 30441 25479 27233 27524 22050Working Capital -7898 -1336 4389 12382 12465 -5827 -597 -3000 -1237 8221
Capital Employed 1484 8096 11764 16514 15503 -2985 2891 1005 3293 13121
Investments - - - - - - 1 1 1 -
Miscellaneous Expenditure 4 6 8 643 250 13747 16577 18834 21653 19832
Borrowings 12675 9983 9073 10740 7448 56024 64574 57565 50764 48552
Net Worth -11191 -1887 2691 5773 8056 -59008 -61682 -56559 -47470 -35432
OTHER STATISTICS
Capital Expenditure 988 2893 3809 710 625 25 46 72 316 226
Internal Resources Generated -8321 -3792 -3152 -3662 -14553 -141 -6818 -11325 -9578 -6401
Working Capital Turnover Ratio -3 -15.69 4.57 2.14 2.06 -4.16 -39.10 -6.61 -18.59 3.21
Current Ratio 1 0.95 1.16 1.45 1.43 0.81 0.98 0.89 0.96 1.37
Return on Capital (%) -1 -2.17 -3.80 -3.95 -0.42 0.07 -0.26 -0.18 -0.80 -1.76
Employees (Nos) 3652 3808 3826 4188 4236 4386 4531 4714 4604 5054
Per capita Sales 5.72 5.50 5.24 6.33 6.06 5.52 5.15 4.20 5.00 5.23
(` in Lakhs)
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DIRECTORS REPORT
Your Directors have pleasure in presenting the Twelfth
Annual Report of your Company for the financial year 2010-
11 containing Annual accounts together with the Auditors
report and the comments by the Comptroller and Auditor
General of India.
PERFORMANCE
Your Company achieved Sales turnover of`190.90 Cr.
during the year 2010-11 which is marginally lower as
compared to`193.86 Cr. achieved during the previous year.
The production performance was lower for the year under
review, at`177.43 Cr. as against `194.19 Cr. achieved
during the previous year. The Order Booking during 2010-
11 was significantly higher at`239.71 Cr. as against`177.80
Cr. in the previous year. The Directors of the Company
expressed its concern that the performance of the Company
requires to be accelerated so as to achieve the breakeven
levels in the Financial year 2011-12.
FINANCIAL HIGHLIGHTS
The operations of your Company resulted in a Net loss of`93.06 Cr. as compared to the Loss of`45.80 Cr. registered
in the previous year, the details of which are as follows:
(` in Lakhs )
Current Previous
Earnings Year Year
2010-2011 2009-2010
Production 17743 19419
Sales 19090 19386
Sale value of Production 17703 18677
Added Value 10595 11075
Gross Profit before
Interest & Taxes -8537 -3840
Interest 1104 1244
Net Profit/(Loss) before DRE -9306 -4580
Def. Revenue Expenditure/VRS - -
Income from NPA Sale - -
Net Profit/ (loss) after tax -9306 -4580
DIVIDEND
In view of the losses incurred during the year, your Directors
are unable to recommend any Dividend on the Paid up Equity
Share Capital and Preference Share Capital of the Company
for the Financial year under review.
SHARE CAPITAL
The Authorized capital of your Company stood at`800 Cr.
divided in to Equity Share Capital for`355 Cr. and Preference
Share Capital for`445 Cr. The Issued, Subscribed and
Paid up Share Capital of your Company stood at
`719,59,91,370/- consisting of 27,65,99,137 Equity Shares
of`10/ each and 4,43,00,000 Preference Shares of `100/
- each which is entirely held by HMT Limited, the Holding
Company. The Networth of the Company is negative at
`(-) 11191 Lakhs at the end of the year due to accumulated
losses.
Your Company was to repay`443 Cr. to the Government of
India through M/s HMT Limited against redemption of
Preference Share Capital by 31st March, 2011 out of sale
of identified surplus asset, in line with the revival plan
sanctioned by GOI and the rehabilitation scheme
sanctioned by the BIFR. The redemption of Preference
Share Capital could not take place as the Lands, though
vested with the Company vide the Scheme of Arrangement
of Government of India in the year 2001, the mutuation in
respect of the same has not been recorded in the name of
the Company in the revenue records and continue to be in
the name of HMT Limited, the Holding Company. The sale
of surplus lands of the Company for the purposes of
redemption of Preference Share capital is being included
in the revival plans of the Holding Company and would be
taken up after the approval and sanction of the same bythe GoI. The Honble Bench of the BIFR has also been
intimated about the status in this regard. Your Company
has also requested the Government for extension of period
of redemption of Preference Shares upto 31stDecember
2011.
IMPLEMENTATION OF BIFR ORDER
Your Company being a Sick Industrial Company registered
with Board for Industrial and Financial Reconstruction (BIFR)
is in the midst of implementation of the Rehabilitation
Scheme sanctioned by BIFR.
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Annual Report 2010-2011
The Company has approached the Institutions / Companies
and Banks from whom the reliefs and concessions, as
sanctioned by BIFR, are to be claimed. While the reliefs
are under consideration by some of the Parties, the
consortium of Banks have appealed to AAIFR against the
BIFR Order which is being contested by the Company.
However, the appeal of Central Organization for
Modernization of Workshop (COFMOW) and the State Govt.
of Haryana had been dismissed by AAIFR. Thereafter
COFMOW has approached Committee of Disputes and
State Government of Haryana has filed a Writ Petition in
the High Court of Punjab and Haryana, which is being
contested by the Company.
All post merger activities related to Praga Tools Limitedmerger with your Company has been completed
substantially.
MARKET SCENARIO AND FUTURE OUTLOOK
Indias industrial output grew at its fastest pace year-on-
year during 2010-11 signaling a strong recovery in
manufacturing sector. The manufacturing sector which
constitutes around 80% of industrial output expanded by
18.5% to set the pace of growth. The Index for Industrial
Production (IIP) during the year 2010-11 has grown by 7.8%
over previous year. Manufacturing Sector, Capital Goodssector and Consumer Durables sector were the major
contributors for the growth in IIP during the period. The
manufacturing sector grew by 8.1 % during the year 2010-
11, the Capital Goods sector has grown by 9.3% and
Consumer Durables grew by 20.9% over previous year. This
growth has helped the Machine Tool industry to improve its
performance during 2010-11.
The Auto & Auto parts industry which is the major consumer
of machine tools has recorded a growth rate of 26% over
2009-10. Other user segments of Machine tool industry
have also done well during 2010-11. This has triggered gooddemand for Machine tools.
The consumption of machine tools for the year 2010-11 is
`9029 Cr., a growth of 41% over previous year. Countrys
production for the year 2010-11 is`2416 Cr., a jump of 46%
over previous year. The orders booked for machine tools in
the country as per IMTMA for the year 2010-11 has
witnessed a growth of 57% over corresponding period 2009-
10 to`3064 Cr.,
The consumption of machine tools is estimated to be around
`11000 Cr during the year 2011-12 considering cumulative
annual growth rate (CAGR) of 20%. About 30% of countrys
machine tool consumption is addressed by domestic
machine tool manufacturers and the rest is catered by
imports. The countrys production is expected to be around
`3000 Cr. during 2011-12.
There is a huge business of approx.`9000 Cr available for
the domestic machine tool manufacturers for increasing
their production capacities to address the demand for
machine tools in the country. Major manufacturers
especially in sectors such as auto & auto ancillary, defence,
power, industrial machinery and industrial intermediates
have already indicated their investment plans for the year
2011-12. The Company is looking forward to achieve the
performance level of`340 Cr.
AUDITORS
M/s A. Raghavendra Rao & Associates, Chartered
Accountants, were appointed as Statutory Auditors of the
Company for the year 2010-11 by the Comptroller & Auditor
General of India and separate Branch Auditors were also
appointed for each of the Unit/Divisions of the Company.
Replies to the observations/qualifications made by the
Statutory Auditors on the Accounts and on the Comments
by the Comptroller and Auditor General of India on the
Accounts are given separately.
INFORMATION REGARDING CONSERVATION OF
ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN
EXCHANGE EARNINGS AND OUTGO
Particulars with respect to conservation of energy,
technology absorption and foreign exchange earnings and
outgo, as required under the Companys (Disclosure of
particulars in the Report of Board of Directors) Rules, 1998
are annexed to this Report.
PERSONNEL
The total employee strength of the Company as on31.3.2011 was 3652. During the Financial Year 2010-11,
373 employees have separated and 217 joined the services
of the Company.
The details of different categories of personnel in position
as on 31.3.2011 are given hereunder:
Scheduled Castes 690
Schedule Tribes 187
Other Backward Class 929
Ex-service men 26
Person with Disabilities (PWD) 55
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PARTICULARS OF EMPLOYEES
Information in accordance with Section 217(2A) of the
Companies Act, 1956 read with the Companies (Particularsof Employees) Rules,1975, as amended is NIL for the
year 2010-11.
EMPLOYEE RELATIONS
Harmonious and cordial Industrial relations prevailed during
the year.
VIGILANCE ACTIVITIES
The Vigilance Cell is functioning and keeping watch on the
overall vigilance activities of the Company. The Vigilance
Officers of each of the Units are carrying out surprise checks
and inspections in various Departments. Transparency in
various areas of Company operations helps to achieve
vigilance objectives.
IMPLEMENTATION OF OFFICIAL LANGUAGE
The Company continued its thrust for implementation of
Official Language in the Company as per the directions
and guidelines of the Government. The Official Language
Implementation Committee has been constituted in all the
Units of the Company as well as Corporate Office,
Bangalore for monitoring the Implementation of Official
Language Act, Rules, Policy etc., which meets at regular
intervals at every quarter. Various Hindi programmes like
Hindi workshop and pakwada were conducted at the
Corporate and the Unit level in order to increase the usages
of Hindi as Official Language.
CORPORATE GOVERNANCE
Your Company is committed to maintaining the highest
standards of Corporate Governance. As your Company is
a Government Company, appointment of Directors as well
as fixing of remuneration for Directors are decided by Govt.
of India. With a view to strengthening the Corporate
Governance framework, the Department of Public
Enterprises, GOI has made the Guidelines on Corporate
Governance for Central Public Sector Enterprises mandatory
from the year 2010-11. Your Company has initia ted
appropriate action for compliance of the same.
A report on the Corporate Governance is annexed as part
of this report along with the Compliance Certificate from
the Auditors. A Report on Management Discussion &
Analysis and a declaration by the Chairman for having
obtained affirmation of compliance of the Code of Conduct
by the Board Members and Senior Management for the
year ended March 31, 2011 is also appended to this Report.
DIRECTORS RESPONSIBILITY STATEMENT
Pursuant to Sub-Section (2AA) of Section 217 of the
Companies Act, 1956, the Board of Directors of the Company
hereby state and confirm that:
I. In the preparation of the Annual Accounts, the
applicable accounting standards have been followed
and there has been no material departures from
accounting standards;
II. The Directors have selected such accounting policies
and applied them consistently and made judgements
and estimates that are reasonable and prudent as to
give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the
profit/(loss) of the Company for that period;
III The Directors have taken proper and sufficient care for
the maintenance of adequate accounting records in
accordance with the provisions of the Companies Act,
1956 for safeguarding the assets of the Company and
for preventing and detecting fraud and other irregularities;
IV The Directors have prepared the annual accounts on a
going concern basis.
DIRECTORS
The Board for Industrial and Financial Reconstruction (BIFR)
vide Order F.No.16(4)/G-72/2009/BIFR/SD DT.15.09.2010
has withdrawn the nomination of Shri P. Ganesan, Special
Director (BIFR) from the Board of the Company with
immediate effect and further vide Order F.No. 16(4)/G-73/
2010/BIFR/SD dated 8thDecember 2010, nominated Shri
Ashok Gupta as Special Director (BIFR) on the Board of
the Company with immediate effect under Section 16(4) of
the Sick Industrial Companies ( Special Provisions) Act,
1985.
The Ministry of Heavy Industries and Public Enterprises,
Department of Heavy Industry, New Delhi vide Presidential
Order No.F.No.5-1(3)/2009- P.E. X dt. 28thDecember 2010
has appointed Shri G.K. Pillai, Chairman and Managing
Director of Heavy Engineering Corporation of India Limited,
Ranchi as Part-Time Chairman of the Company with
immediate effect till the date of his retirement ( i.e. 31.12.
2011) or until further orders vice Shri A.V. Kamat. In
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Annual Report 2010-2011
accordance with section 260 of the Companies Act, 1956
and Article 77 & 83 of the Articles of Association of the
Company, Shri G.K. Pillai shall hold directorship upto the
12thAnnual General Meeting of the Company and is eligible
for appointment as Director at the meeting.
The Ministry of Heavy Industries and Public Enterprises,
Department of Heavy Industry, New Delhi vide Presidential
Order No.F.No.5-1(4)/2009- P.E. X (Pt.) dt. 29thDecember
2010 and Order No. F.No.5-1(4)/2009-P.E.X (Pt.) dt. 28 th
July 2011 has also assigned Additional Charge of the post
of Managing Director of the Company to Shri G.K. Pillai,
Part Time Chairman of the Company w.e.f 01.01.2011 for a
period of three months and w.e.f. 01.04.2011 for a period of
six months respectively or till a regular incumbent joins thePost or until further orders, whichever is earliest,
consequent upon superannuation of Shri V. Hemachandra
Babu, Managing Director of the Company.
The Ministry of Heavy Industries and Public Enterprises,
Department of Heavy Industry, New Delhi vide Presidential
Order No.F.No.5(10)/2011- P.E. X dt. 5thMay 2011 has
appointed Shri S.G. Sridhar, Director (Operations), HMT
Limited as Part-Time Director of the Company with
immediate effect until further orders. In accordance with
section 260 of the Companies Act, 1956 and Article 77 &83 of the Articles of Association of the Company, Shri S.G.
Sridhar shall hold directorship upto the 12thAnnual General
Meeting of the Company and is eligible for appointment as
Director at the meeting.
Shri K. H. Suresh, Director (Technology) ceased to be
Director of the Company w.e.f.. 12-08-2011 consequent upon
his resignation. The Board of Directors recorded appreciation
of the valuable contributions made by Shri A.V. Kamat,
Shri V. Hemachandra Babu, Shri K. H. Suresh and Shri P.
Ganesan during their respective tenure on the Board of the
Company.
In terms of provisions of Section 256 of the Companies act,
1956 and article 85 of the Articles of Association of the
Company, Shri Harbhajan Singh, Director, retires by
rotation at the ensuing Annual General Meeting and is
eligible for reappointment.
ACKNOWLEDGEMENTS
The Directors are thankful to HMT Limited, the Holding
Company, its Subsidiaries, various Departments and
Ministries in the Government of India, particularly the
Department of Heavy Industry, Ministry of Heavy Industriesand Public Enterprises, Ministry of Corporate Affairs,
Comptroller & Auditor General of India, Principal Director-
Commercial Audit, Statutory and Branch Auditors, Director
General Supplies & Disposals, Director General, Ordnance
Factories, various State Governments, Suppliers and
Dealers, the Consortium of Banks lead by UCO Bank and
valued customers of the Company both in India and abroad
for their continued co-operation and patronage.
The Directors also wish to sincerely appreciate the
contributions made by the employees at all levels in the
operations during the year, despite the difficult situationfaced by the Company.
For and on behalf of the Board of Directors
( G.K. PILLAI )
Chairman
Place: Bangalore,
Date : 25th August, 2011
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ADDENDUM TO DIRECTORS REPORT FOR THE YEAR 2010-11 IN RESPECT OFOBSERVATIONS MADE BY THE STATUTORY AUDITORS ON THE ACCOUNTS OF HMT
MACHINE TOOLS LIMITED FOR THE YEAR ENDED 31ST MARCH 2011Sl. No. Statutory Auditors Observation Companys Reply
4. Accounting Standard-9 (Revenue Recognition),where the company is, in case of FORDestination Contracts, recognizing its revenueon sales when "LR/GR obtained and endorsedin favour of customer" though the significantrisk and rewards is not transferred to buyer.Consequently, the Sales which are in Transitas on March 31, 2011 and whose ownership isstill lying with the Company are recognized as
sales for the financial year 2010-11. This hasresulted in overstatement of sales by`376.24lakhs and understatement of loss by `27.41lakhs.
6. a) Non-confirmation of debtors, creditors andadvances, the consequential effect on thefinancial statements is not ascertainable.
6. b) We draw attention to note no 9 of schedule 10"Sanctioned Rehabilitation Scheme from BIFR"regarding non recognizing of various sanctions,waivers and exemptions from variousgovernment agencies and banks as thestakeholders filed an appeal before AppellateAuthority for Industrial and FinancialReconstruction against the order of Board forIndustrial & Financial Reconstruction.
6. c) We draw attention to Schedule 3 "FixedAssets", Note 2, 4.1 and 4.3 where the titles orlease deed of land is not in the name of theCompany and Note no. 4.4 where a portion ofland admeasuring approximately 39 acres isnot in possession of the company, the value ofsuch land included in Fixed Assets is not
The Company Accounting Policy is in line with AS-9 andhas been followed consistently in the past. There is nodeviation in the accountal of sales as far as the significantrisks and ownership of goods stands transferred to thebuyer based on the physical despatch and GC note hasbeen made in the name of customer. Moreover, asper the terms and conditions of contract, the machineshould not be despatched/delivered without getting thesame inspected and issue of inspection notes by the
Quality Assurance Officer nominated in the contract.Accordingly the customer has inspected and acceptedthe machine and given clearance for despatch of machinesbefore 31st March 2011.
In view of the above, this has not resulted in overstatementof sale by`376.24 lakhs and understatement of loss by
`27.41lakhs.
Proper disclosure has been made vide point No. 14 underschedule No.10 forming part of Annual Accounts for theyear 2010-11. Efforts are being made to get theconfirmations from the concerned parties.
The BIFR has sanctioned Rehabilitation Package for thecompany envisaging various sanctions, waivers andexemptions from Central/State Government agencies andBanks. However, an appeal by certain stakeholders againstthe BIFR, pending confirmation from the respectivestakeholders and the statutory formalities which are tobe complied with, no recognition has been given for thereliefs, concessions and exemptions in the accounts forthe period ended 31.03.2011. Therefore necessarydisclosure has been made to this effect under notes tothe accounts.
The fact that Fixed Assets include immovable properties,vested under the Scheme of arrangement approved bythe Govt. of India for which mutation of title deed is yetto be done in the revenue record, fresh Lease Deed inrespect of Lease Hold Lands pending and conversion ofRevenue land for industrial use at Machine Tools UnitAjmer, pending finalization of rates by the Govt. ofRajasthan have been disclosed vide point no. 2, 4.1 &4.3 in the Fixed Asset Schedule forming part of accounts.
The fact of non-possession of 39 acres of land by theCompany in respect of Praga Tools Division, Hyderabadhave been adequately disclosed in the fixed assets
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Annual Report 2010-2011
Sl. No. Statutory Auditors Observation Companys Reply
schedule forming part of accounts vide Point No. 4.4.The matter is being pursued with the concerned authorityfor settlement.
The company has submitted proposal to the Govt. ofIndia, Department of Heavy Industries for waiver ofGuarantee fee amounting to`98.41 lakhs in respect ofPraga Tools Division, and accordingly the same has notbeen provided in the books.
Further, as per BIFR order vide case No.504/98 dated3rd May, 2007 in respect of Praga Tools Division, thepenal damages of`349.58 lakhs towards Family Pension
contribution is to be waived off by the PF Authorities andaccordingly the same has not been provided in the Books.
However, the necessary disclosure has been made to theabove effect in the notes forming part of annual accountsof the company vide point No.13.2 &13.3.
As such there is no understatement of loss of `447.99lakhs.
To the extent of information available with the Company,provision has been made towards the interest payableunder Micro, Small and Medium Enterprises DevelopmentAct, 2006. However, necessary disclosure has been madevide point No.13.1 a) (i) ,(ii) & b) under notes formingpart of Annual Accounts of the company for the year2010-11.
The non-provisioning of LD's outstanding less than 3 yearsand debtors less than 5 is in line with the uniformaccounting practice consistently being followed in theCompany, in compliance to internal accounting guidelinesof the Company vide letter No. GGM (F) dated 07.06.2004.
As such, there is no overstatement of Sundry Debtorsand understatement of loss to the extent of`621.27 lakhs.
The Provident Fund Trust has been formed and governedby Board of Trustees of the Unit/Company under theprovisions of Employees Provident Fund and Misc. Act,1952. As the Unit/Company is facing acute financialcrunch due to lower level of turnover, there is an outstanding
payment of PF dues. However, the loss suffered by the
ascertained. Loss, on account of these lands.Could not be ascertained.
6. d) We draw attention to Schedule 10, Note no.13.2"No provision towards Government CounterGuarantee Fee" of`98.41 lakhs on the guaranteeextended by the Govt. of India to State Bank ofHyderabad on behalf of company and Note no.13.3 "No provision towards penal interest on unpaid contributions under Employees FamilyPension Scheme" of`349.58 lakhs in respectof Praga Tools Division. Consequently loss has
been understated by`447.99 lakhs during theyear.
6. e) "No provision is made by Bangalore Branch(MBX), Ajmeer Branch and Hyderabad Branch(MTH) for the liability, if any, towards the interestpayable under Micro, Small and MediumEnterprise Development Act, 2006 in theabsence of confirmation from the vendor. Theimpact on non-provision of such interest on thefinancial result cannot be quantified.
6. f) We draw attention to Schedule 10, Note no11.2 "Amount withheld towards liquidateddamages and interest on advances claimed/ifclaimed on delayed supplies". As per theinformation and explanation provided, these arewith held by buyers due to delay in supply inaccordance with agreement with the parties.
This resulted in overstatement of sundry debtorsand understatement of loss by `516.6 lakhsand an amount of`104.67 lakhs being intereston advances with held by a customer has notbeen included, which resulted in overstatementof Sundry Debtors and understatement of lossby `104.67 lakhs.
6. g) In respect of Pinjore Branch, provident fund duesaggregating`605.84 lakhs, not having remittedto the authorities and the consequent non-compliance with the provisions of sub section(4) of Section 418 of the Companies Act, 1956
and provision not having been ascertained and
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Sl. No. Statutory Auditors Observation Companys Reply
made in respect of penalty and damages arisingout of non-remittance of Provident Fund dues tothe authorities and the consequent effect onthe account not being ascertainable.
6. h) During the year 2002-03 and 2003-04, videMemorandum of Understanding between theCompany and HMT Limited, the holdingcompany, the land admeasuring 26.952 acresbelonging to the company was sold by HMTLimited and profit on sale amounting to`36.55Crores has not been accounted by the companyresulting in understatement of prior periodincome by`36.55 Crores and overstatement ofcumulative loss by`36.55 Crores.
6. i) After considering understatement of Loss,as referred in Paragraph4, paragraph 6(d) and6(f), the aggregate loss for the year has beenunderstated by `1096.67 lakhs. Prior Periodincome, as referred in para 6(h), has beenunderstated by`3655 lakhs and Accumulatedlosses has been overstated by`2558 lakhs.
PF Trust consequent to delay in remittance of PF dueshas been made good by the Unit/Company by providing12.5% interest on such belated payments.
As per the MOU with the Holding company, equivalentland value will be transferred to HMT Machine ToolsLimited. As such there is no understatement of priorperiod income and overstatement of cumulative loss by
`36.55 Crores.
Necessary provisions have been made wherever requiredand as such, there is no understatement of loss for theyear.
As per the MOU with the Holding company, equivalentland value will be transferred to HMT Machine ToolsLimited. As such there is no understatement of priorperiod income and overstatement of cumulative loss by
`36.55 Crores.
For and on behalf of the Board of Directors
(G. K. Pillai)
Chairman
Place : Bangalore
Date : 25.08.2011
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MANAGEMENT DISCUSSION & ANALYSIS
A Industry Structure and Development
The Indian machine tool industry consists of about 750
manufacturing units of which approximately 400 units
fall under the organised category. Further, ten major
Indian companies constitute almost 70 per cent of the
total production. While the large organised players cater
to Indias heavy and medium industries, the small scale
sector meets the demand of ancillary and other units.
The machine tools industry can be broadly classified
into metal-cutting and metal-forming tools, based on
the type of operation. Metal cutting accounts for 87
per cent of the total output of machine tools in India.Key metal cutting tools include turning centres,
machining centres and grinding centres, which account
for nearly two-thirds of the total metal-cutting production.
Metal forming is dominated by presses, which account
for 51 per cent share. Based on technology, machine
tools can be classified into CNC (Computerised
Numerically Controlled) and conventional tools. CNC
machine tools, which are highly productive and cost
effective, comprise nearly 70 per cent of machine tools.
Of these, CNC turning centres, machining centres and
grinding centres are the biggest segments, accountingfor nearly 81 per cent of the total machine tools
production in India. During 2010-11, countrys
consumption of machine tools was`9029 Cr. out of
which contribution from domestic production is around
`2416 Cr., the gap of`6613 Cr. is addressed by imports
which is around 73% of total consumption. The
increasing domestic demand which is not currently met
by domestic production indicates the vast business
potential available within the country for machine tools.
B Strength and Weakness
Strengths:
Strong brand image.
Large basket of products conventional, CNC and
special purpose machines.
Huge infrastructure for in house manufacturing of
critical components.
Proven experience in offering component-oriented
Special Purpose Machines built to international
standards
Highly qualified, experienced engineers andtechnicians to meet the high technology needs of
users.
Wide range of quality machine tools established
indigenously through renowned collaborations and
CNC machine tools established through in-house
R&D.
Focus group for strategic segments
Well equipped sales and service network spread
throughout length and breadth of the country.
Weakness:
Inadequate number of engineers in key
departments like Design & developments , Project
Engineering, Application Engineering, Sales
Engineering etc.,
Time taken to commercialize new products is high.
Too wide product range, limited CNC products,
low market potential of conventional machines.
High overheads and manpower costs.
Low employee morale due to very low salary
structure not in line with industry norms.
Old plant and machinery resulting in low productivity
levels with quality problems.
Ageing employee profile not in keeping with
industry standards.
C Opportunities and Threats
Opportunities:
Huge investment envisaged in strategic sectors
will fuel demand for Machine Tools.
Market potential available for state-oftheart
Machines presently being met by imports.
Growth in power, nuclear power, Aerospace and
Wind Energy sectors will fuel huge demand for
Machine Tools.
High potential available for Exports
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The Gap between domestic consumption and
production provides potential for increasing
domestic production.
Over`3500 Cr. investment intentions in various
user sectors will enhance demand for Machine
tools.
Impetus being given for growth in manufacturing
sector.
Global hub for manufacturing components
Threats:
Inland competitors strengthening their capabilities
through technical tie-up with overseas majors
Severe competition from reputed overseas players
Low duty structures have made imported machines
extremely competitive for domestic buyers.
Influx of second hand / reconditioned imported
machines at cheaper prices.
Decline in demand for conventional machines due
to technology shift and obsolescence. Trend in
shift from stand alone machines to manufacturing
systems.
Increased competition even from small/ medium
scale manufacturers
Customers choice of technology. User preference
for supply from source as per collaborators
recommendation.
Increased input costs, increase in exchange parity,
power shortage resulting in erosion of profitability.
Import of machines tools from China/ Taiwan/Korea
D Segment wise or Product wise Performance
Segment wise Performance: Segment wise sales
for the year 2010-11 of the Company is as under-
Sector Val.`Lakhs
Auto & Auto Ancillary 3465
Railways 583
Defence 2970
Agricultural Machinery 939
Mining & Metals 1047
Industrial Machinery 300
Industrial Intermediates 2154
Power 2554
Consumer Durables 134
Others 4944
Total 19090
E Outlook
Demand for machine tools accrues from themanufacturers of primary goods and intermediate
goods. The primary user industries includes the
automotive sector, capital goods sector and
consumer durables sector. Prominent users of
machine tools in the intermediate goods sector
includes the auto components, the ball and roller
bearings and electronic components. Most
segments of the Indian automotive, capital goods,
consumer durable, as well as intermediate goods
sectors recorded a good growth in turnover during
2010-2011. This growth in various sectors presentsa positive outlook for improving the companys
business during 2011-12.
F Risks and Concerns
Shortage of working capital
Attrition of experienced professionals and
skilled manpower in key areas
Low order flow from private sector (less
advances) and no advances for orders received
from government and defence sectors
Salaries not in line with the industry standards
Unable to induct professionals and skilled
manpower due to low pay scales
Low morale among employees due to low pay
scales
Imports of machine tools both new and second
hand machines especially from countries like
China, Korea, Taiwan etc
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Annual Report 2010-2011
period for the Bank as it was recovering from its criticalfinancial crisis.
He has contributed articles in the journal of the ICAI TheChartered Accountant. He is a Faculty for the workshopsorganized by the Indian Audit & Accounts Department ofthe Principal Director of Commercial Audit & Ex-OfficeMember, Audit Board, Govt. of India, New Delhi. Herepresented ICAI in IDW Congress in Berlin (Germany) in1991. He contributed an Essay Views of Directors IndianBank The Magic of Turnaround in the book entitled ANew Beginning The Turnaround story of Indian Bank whichwas authored by Smt. Ranjana Kumar, Former VigilanceCommissioner, Central Vigilance Commission, Govt. ofIndia, New Delhi.
He is also associated with Delhi District CricketAssociation, Rajasthan Ratnakar, Bhagwati Devi SarupSingh Charitable Trust (NGO whose primary domain isEducation).
Committees of the Board
The Audit Committee of the Company has to bereconstituted and the Remuneration Committee of theCompany to be constituted after the induction of theIndependent Directors on the Board of the Company by theGovernment. The Company has requested to theAdministrative Ministry for the same.
Remuneration of Directors
The details of remuneration of whole time Directors are givenbelow:
Name of Director Salary Other Total(`````) Benefits (`````)
(`````)
V.Hemachandra BabuCeased w.e.f 31.12.10 280479 97644 378123
K.H. Suresh 349638 108498 458136An amount of `1,500/- is payable only to Independent /BIFR Nominee Directors for attending each meetings ofthe Board and Committees.
The salary of whole time Directors does not includeperformance - linked incentive except amount payable asper the productivity linked incentive scheme of theCompany.
General Body Meetings
The last three Annual General Meetings of the Company
were held as under:
Financial Date Time VenueYear
2007-08 26.09.2008 4.00 P.M. Registered Officeat No.59, BellaryRoad, Bangalore-560 032
2008-09 25.09.2009 11.30 A.M. As above
2009-10 07.09.2010 11.00 A.M. As above
One special resolution for increase in the Authorized ShareCapital of the Company was passed in the General meetingheld on 26.09.2008.
Annual General Meeting for the current year is scheduled
to be held in the month of September 2011 at the RegisteredOffice of the Company.
Disclosures
There were no transactions of material nature with itsPromoters, the Directors or the Management or theirrelatives which may have the potential conflict with theinterest of the Company at large.
The Company has not filed the statutory returns for theyear 2009-10 with the Ministry of Corporate Affairs/ ROC,Bangalore due to non updation of the increased AuthorizedShare Capital in the records of MCA pending 100 %exemption from the payment of Stamp Duty on increased
Authorized Share capital from the Government of Karnatakain terms of the BIFR sanctioned Rehabilitation Scheme ofthe Company. Government of Karnataka had exempted 50%Stamp Duty against 100% and the Company has re-approached them for 100% exemption . Company has alsoinformed ROC Bangalore about non filing of StatutoryReturns due to technical problem being faced by theCompany.
There are outstanding Statutory Dues payable by some ofthe units of the Company which have approached/ areapproaching the Provident Fund Authorities for settlementin monthly installments.
There were no other instances of non-compliance by theCompany, penalties, strictures imposed on the Companyby any statutory authority, or any matter related to anyguidelines issued by Government, during the last threeyears.
The Company has not established a Whistle Blower Policyfor the employees. However, none of the employee has beendenied the access up to the senior level management.
Means of Communication
Being a wholly owned subsidiary, Company submitsfinancial results periodically to M/s HMT Limited, theHolding Company. Annual results are also updated on the
Companys website www.hmtmachinetools.com.
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Annexure to the Directors report
Section 217(1) (e) of the Companies Act, 1956
Companys (Disclosure of particulars in the Report of the Board of Directors) Rules, 1988
A. CONSERVATION OF ENERGY, TECHNOLOGY
ABSORPTION AND FOREIGN EXCHANGE
EARNINGS AND OUTGO
a) Energy Conservation measures taken:
The Company has given major emphasis for
Conservation of Energy. The energy utilization
in our manufacturing Units are being monitored
constantly in order to achieve effective
conservation of energy. The energy conservationmeasures taken during the year 2010-2011
include:
Switching off Machines/equipment when
not in use and switching off lights in areas
not having adequate activity.
Use of Energy Efficient Lighting systems
like mercury vapour lamps, high power
sodium vapour lamps and fluorescent tube
lamps
Centralised Control of coolers and shop
lighting
Use of transparent roof sheets wherever
possible and cleaning of glass in sheds
periodically to make an effective use of
natural lighting.
Switching off main Air Compressor during
lunch breaks and running portable Air
Compressor during C Shift instead of Main
Compressor
Monitoring of utilization of energy in lighting
and other auxillary equipments
Use of power capacitors to improve the
power factor
Creating awareness among employees
about the necessity of energy conservation
by observing energy conservation week.
Power savings by using AC Motor with Low
power in place of DC Motors in High Power
Machine, while refurbishing.
Utilization of Foundry Furnace during
night and holidays to save power tariff.
Water is heated for cooking purpose through
solar water heating panels.
Water leakage plugged and defective taps
replaced to reduce water wastage and
consumption which conserves power.
Continuous running of Furnace ensured by
checking the holding time betweenconsecutive charges i.e. by ensuring
furnace friendly compatible load for optimal
utilization.
b) Additional investments and proposals, if any
being implemented for reduction of energy
consumption:
Providing energy saving lighting equipments
in place of florescent lights and bulbs
Usage of sodium vapour lamps for yard
lighting
Installation of timer switches for yard light
control
Providing of graphite layer on salt bath
furnace to reduce heat dissipation.
Replacement of existing electric geysers
with solar.
Replacement of motor generator sets with
new AC drives in conventional machines.
Replacement of old system and drives with
new energy efficient systems in CNCmachines.
c) Impact on cost of production of goods:
The above mentioned measures have
resulted in reduced consumption of
electrical energy at various load centers and
helped in curtailing the energy costs.
d) Total energy consumption and energy
consumption per unit of production
Not applicable, as the Company is not
covered in the list of specified industries.
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Annual Report 2010-2011
B. TECHNOLOGY ABSORPTION
FORM B
Research and Development ( R & D )
1. Specific areas in which R & D carried out by
the Company:
The Company has its own R&D facilities at its
manufacturing units to meet its needs. The focus
of R&D is to progressively achieve self-reliance
in product technology, upgrading the existing
products with additional features. This approach
has resulted in development of the following
products during 2010-11:
-CNC Precision Turning Centre PTC 200
- Drill Machine Centre DMC 400
- Centreless Grinding Machine CLG 310
- Three Station Bridge Type Tappet Machine
with Picoco
2. Benefits derived as a result of the above R&D
The development of the new products will enable
the Company to meet the emerging competition
(both indigenous and foreign) and also meet the
market demand for technologically competitive
products and automation requirements of the usersectors for improved productivity.
3. Future Plans of action:
R&D is a continuous process and is closely
linked with the various operations of the
Company.
4. Expenditure on R & D Particulars
(`````in Lakhs)
a) Capital -
b) Recurring `209.94 LakhsTotal `209.94 Lakhs
Total R & D Expenditure 0.01
As % of Turnover
5. Technology absorption, adaptation and
innovation:
(i) Ef for ts in br ief towards technology
absorption and innovation and
(ii) Benefit derived as a result of the above
efforts
There has been a consistent effort todesign, develop and manufacture new
products of technologies in vogue and
Special Purpose Machines which are
state-of-the-art and technology centric. The
Technology Development Plans facilitate
reducing the cost of production by value
engineering (redesigning / up gradation of
products) and thereby helps reduction in
import substitution.
Enterprise Resource Planning (ERP)package is in the process of commissioning
at Machine Tools Bangalore Unit on trial
basis. Training for the Head of Departments
is completed. Blue print is being drawn to
suit the requirement of Company. After
successful implementation in Bangalore
Unit, ERP will be implemented in rest of
the Units as well as the Regional/ Zonal
Marketing Offices and the Head Office of
the Company.
C. FOREIGN EXCHANGE EARNING AND OUTGO
Activities relating to exports, initiatives taken to
increase export markets for products and services and
plans:
Exports of the Companys products are managed by
HMT (International) Limited, the wholly-owned
subsidiary of HMT Limited, the Holding Company.
Total Foreign Exchange used and earned:
PARTICULARS (`````in Lakhs)
1. Foreign Exchange earned -
2. Outgo of Foreign Exchange -
3. Expenditure in Foreign
Currencies on account ` 4.82 Lakhs
of Royalty, Know-how/Professional
Consultation Fees, Interest
and other matters.
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CERTIFICATE ON CORPORATE GOVERNANCE
To
The Members of HMT Machine Tools Limited,
We have examined the compliance of conditions of Corporate Governance by HMT Machine Tools Limited (the
Company), for the year ended on 31stMarch 2011, as stipulated in Guidelines on Corporate Governance for Central
Public Sector Enterprises.
The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination
was limited to procedures and implementation thereof, adopted by the company for ensuring the compliance of the
conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements
of the company.
The full complements of Independent Directors as required under Corporate Governance Guidelines have not been
fulfilled.
Subject to the above, in our opinion and to the best of our information and according to the explanations given to
us, we certify that the Company has complied in all material respects with the conditions of Corporate Governance
as stipulated in the above mentioned Guidelines.
We further state that such compliance is neither an assurance as to the future viability of the Company nor the
efficiency or effectiveness with which the management has conducted the affairs of the Company.
For A. Raghavendra Rao & Associates
Chartered Accountants
FR No. 003324S
Sd/-
Latha S Koppal
Date: June 28th, 2011 Partner
Place: Bangalore Membership No. 214976
DECLARATION BY THE CHAIRMAN
Sub: Code of Conduct - Declaration under Clause 3.4.2
This is to certify that:
In pursuance of the provisions of Clause 3.4.2 of Corporate Governance Guidelines of DPE, a Code of Conduct for the
Board Members and Senior Management Personnel is in place.
The said Code of Conduct has been uploaded on the website of the Company and has also been circulated to the Board
Members and the Senior Management Personnel of the Company; and,
All Board Members, and the Senior Management Personnel have affirmed compliance of the said Code of Conduct, for
the year ended March 31, 2011.
(G. K. Pillai)
Chairman
Place: Bangalore
Date: 13thJune, 2011
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Annual Report 2010-2011
AUDITORS REPORT
To
the members of
HMT MACHINE TOOLS LIMITED
We have audited the attached Balance Sheet of HMTMachines Tools Limited as at March 31st, 2011, the Profitand Loss account of the company and the Cash Flowstatement of the Company for the year ended on that date,annexed thereto. These financial statements are theresponsibility of the company's management. Ourresponsibility is to express an opinion on these financialstatements based on our audit.
In preparation of this report, we have considered the BranchAuditor's Report of Bangalore Complex (MBX) Branch,Ajmeer Branch, Kalamassery Branch, Praga ToolsHyderabad Branch, Pinjore Branch, Hyderabad Branch,which are audited by Branch auditors appointed undersection 619(2) of the companies Act, 1956 and Marketingdivision audited by us for the year ending March 31st, 2011.
In the light of C&AG's observations under section 619(4) ofthe companies Act, this report is in substitution of our earlierreport dated June 28th, 2011 with respect to para 6 (e), 6(f), 6 (h) and 6 (i) of the report and with respect para 4, 6, 9and 10 of the Annexure.
We conducted our audit in accordance with the auditingstandards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements.An audit also includes assessing the accounting principlesused and significant estimates made by the Management,as well as evaluating the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.
As required by the Companies (Auditor's Report) Order,2003 ('the Order'), as amended, issued by the CentralGovernment of India in terms of sub-section (4A) of Section227 of the Companies Act, 1956 ('the Act'), we enclose inthe Annexure a statement on the matters specified inparagraphs 4 and 5 of the said Order.
Further to our comments in the Annexure referred to above,we report that:
1. We have obtained all the information and explanations
which to the best of our knowledge and belief were
necessary for the purposes of our audit;
2. In our opinion, proper books of account as required by
law have been kept by the company so far as appears
from our examination of those books;
3. The Balance Sheet, the Profit and Loss account and
the Cash Flow statement dealt with by this report are
in agreement with the books of account;
4. In our opinion, the Balance Sheet, the Profit and Loss
account and the Cash Flow statement dealt with bythis report comply with the Accounting Standards
referred to in sub-section (3C) of Section 211 of the
Act, except deviation with respect to :
Accounting Standard-9 (Revenue Recognition),
where the company is, in Case of FOR Destination
Contracts, recognizing its revenue on sales when
"LR/GR obtained and endorsed in favour of
customer" though the significant risk and rewards
is not transferred to buyer. Consequently, the
Sales which are in Transit as on March 31, 2011
and whose ownership is still lying with thecompany are recognized as sales for the financial
year 2010-11. This resulted in overstatement of
sales by`````376.24 Lakhs and understatement of loss
by`````27.41 Lakhs.
5. The provisions of Section 274 (1) (g) of the Companies
Act, 1956 is not applicable to Government companies
vide Notification GSR No. 829 (E) issued by Department
of companies affairs in exercise of powers conferred
by Section 620(1)(a) of Companies Act.
6. In our opinion and to the best of our information and
according to the explanations given to us, the saidaccounts give the information required by the Act, in
the manner so required and give a true and fair view in
conformity with the accounting principles generally
accepted in India, subject to:
a) Non-confirmation of Debtors, Creditors and
Advances, where the consequential effect on
the financial statement is not ascertainable.
b) We draw attention to Note No. 9 of Schedule
10 "Sanctioned Rehabilitation Scheme from
BIFR" regarding non recognizing of various
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sanctions, waivers and exemptions fromvarious government agencies and banks asthe stake holders filed an appeal before
Appellate Authority for Industrial and FinancialReconstruction against the order of Board forIndustrial & Financial Reconstruction.
c) We draw attention to Schedule 3 "FixedAssets", Note 2, 4.1 and 4.3 where the titles orlease deed of land is not in the name of thecompany and Note no. 4.4 where a portion ofland admeasuring approximately 39 acres isnot in possession of the company, the value ofsuch land included in Fixed Assets is notascertained. Loss, on account of these lands,could not be ascertained.
d) We draw attention to Schedule 10, Note no.13.2 "No provision towards GovernmentCounter Guarantee fee" of`````98.41 Lakhs on theguarantee extended by the Government ofIndia to State Bank of Hyderabad on behalf ofcompany and Note no. 13.3 "No provisiontowards penal interest on un paid contributionsunder Employees Family Pension Scheme" of
`````349.58 Lakhs in respect of Praga ToolsDivision. Consequently loss has beenunderstated by`````447.99 Lakhs during the year.
e) No provision is made by BangaloreBranch(MBX), Ajmeer Branch and HyderabadBranch(MTH) for the liability, if any, towardsthe interest payable under Micro, Small andMedium Enterprise Development Act, 2006 inthe absence of confirmation from the vendor.The impact on non provision of such intereston the financial result cannot be quantified.
f) We draw attention to Schedule 10, note no.11.2 "Amount withheld towards liquidateddamages and interest on advances claimed/ifclaimed on delayed supplies". As per the
information and explanation provided, theseare with held by buyers due to delay in supplyin accordance with agreement with the parties.This resulted in overstatement of Sundry
Debtors and understatement of loss by`````516.6
Lakhs and an amount of`````104.67 Lakhs being
interest on advances with held by a customer
has not been included, which resulted in
overstatement of Sundry Debtors andunderstatement of loss by 104.67 Lakhs.
g) In respect of Pinjore Branch, provident fund
dues aggregating `````605.84 lakhs, not having
remitted to the authorities and the consequent
non compliance with the provisions of section
418(4) of Companies Act, 1956 and provision
not having been ascertained and made in
respect of penalty and damages arising out of
non-remittance of Provident Fund dues to the
authorities and the consequent effect on the
account not being ascertainable.h) During the year 2002-03 and 2003-04, vide
Memorandum of Understanding between the
Company and HMT Limited, the holding
company, the land admeasuring 26.952 acres
belonging to the company was sold by HMT
Limited and Profit on sale amounting to
`````36.55 Crores has not been accounted by the
Company. resulting in understatement of prior
period income by `````36.55 Crores and
overstatement of Cumulative loss by `````36.55
Crores.
i) After considering understatement of loss as
referred in paragraph 4, paragraph 6 (d) and 6
(f), the aggregate loss for the year has been
understated by`````1096.67 Lakhs. Prior Period
income, as referred in para 6(h), has been
understated by`````3655 Lakhs and Accumulated
Losses has been overstated by`````2558 Lakhs.
i. In the case of the Balance Sheet, of the state
of affairs of the Company as at 31 March, 2011;
ii. In the case of the Profit and Loss account, of
the loss of the Company for the year ended
on that date; and
iii. In the case of the Cash Flow statement, of
the cash flows of the Company for the year
ended on that date.
For A.Raghavendra Rao & AssociatesChartered Accountants
FR No: 003324S
Latha S KoppalDate: August 24th, 2011 Partner
Place: Bangalore Membership No.: 214976
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Annual Report 2010-2011
ANNEXURE TO AUDITORS REPORT
The Annexure referred to in our report to the members of M/s. HMT MACHINE TOOLS LIMITED forthe year ended March 31st, 2011. We report that :
1. a) The Company has maintained proper records
showing full particulars, including quantitative
details and situation of fixed assets.
b) As informed to us, physical verification of fixed
assets was conducted by the management once
in three years, which, in our opinion, is
reasonable having regard to the size of the
Company and nature of its assets. During theyear physical verification has been conducted
for Hyderabad Branch, Pinjore Branch, Praga
Tools Hyderabad Branch, Kalamassery Branch,
Ajmeer Branch and for Bangalore Branch
physical verification carried during the year 2008-
09, no material discrepancies were noticed on
such verification as compared with the book
records.
c) Based on audit procedures and information &
explanations given to us there has not been
substantial disposal of fixed assets and hencethere is no effect on the going concern status of
the Company.
2. a) As informed to us, the Inventory has been
physically verified during the year by the
management. In our opinion, the frequency of
verification is reasonable.
b) In our opinion and according to the information
and explanations given to us, the procedures of
physical verification of inventories followed by the
management are reasonable and adequate inrelation to the size of the Company and the nature
of its business.
c) In our opinion and according to the information
and explanations given to us, the Company is
maintaining proper records of inventory. The
discrepancies noticed on verification between the
physical stocks and the book records were not
material.
3. The company has neither granted nor taken any loans,
secured or unsecured to/from companies, firms or other
parties covered in the register maintained under
section 301 of the Act. Hence, clauses (a) to (g) of
the said order are not applicable.
4. In our opinion and according to the information and
explanations given to us, there are adequate internal
control procedures commensurate with the size and
the nature of the business of the Company with regards
to the purchase of fixed assets, inventory and the saleof goods & Services. During the course of our audit,
no major weakness has been noticed in the internal
controls.
5. Based on the audit procedures applied by us and
according to the information and explanations provided
by the management, we are of the opinion that there
are no transactions that need to be entered in the
register maintained under Section 301 of the
Companies act 1956.
6. In our opinion and according to the information andexplanation given to us, the Company has complied
with the directives issued by Reserve Bank of India
and the provisions of Section 58A and 58AA of the Act
and the companies (Acceptance of Deposits) Rules,
1975 with regard to unsecured loans, falling within the
definition of deposits accepted from the public, except
in the case of M/s Nainital Bank, a Bond Holder, who
has gone on litigation and the case is pending before
Debt Recovery Appellate Tribunal.
7. In our opinion and as per the information given, the
Company has an internal audit system commensurate
with the size and the nature of the business.
8. Based on the information, explanation provided by the
management and considering the Branch auditor
report, we are of the opinion that, the books of account
maintained by the company in respect of materials,
labour and other items of cost maintained by the
company pursuant to the rules made by the central
government of India for the maintenance of cost
records under Section 209 (1) (d) of the companies
act and we are of the opinion that prima facie, the
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prescribed accounts and records have been made and
maintained. However, we have not made detailed
examination of the records with a view to determine
whether they are accurate or complete.
9. Based on the audit procedures performed and
information and explanations given to us, the company
is generally regular in depositing the undisputed
statutory dues including provident fund, income tax,
sales tax, custom duty, excise duty, cess and other
material statutory dues, however with respect to
Bangalore Branch, Praga Tools Branch and
Pinjore Branch, provident fund has not been
regularly deposited with the appropriate
authorities within the due date and with respectto Hyderabad Brach not regular in depositing
undisputed dues in respect to Provident fund and
Employees State Insurance.
According to the information and explanations given
to us, no undisputed amounts payable in respect of
income tax, wealth tax, sales tax, custom duty, excise
duty, cess, were in arrears, as at March 31st, 2011
for a period of more than six months from the date of
they became payable except the followings:
Nature of Dues Amount `````(in lakhs)
Provident Fund 1,405.81
Sales Tax 221.17
Pension Contribution 75.40
CST 2.09
Service Tax 0.70
Total 1,705.15
According to the information and explanation provided
to us and based on the records of the Company, there
are dues of income tax, sales tax, customs duty,
excise duty, cess which have not been deposited on
account of any dispute, are as follows :
Amount in `(lakhs)
Particulars Nature Amount Forum whereof dues (````` in dispute
Lakhs) is pending
Central Cenvat 221.17 CESATExcise CreditAct, 1944,Cenvat Rules
The employees ESI Dues 1.16 ESIC Court,state insurance employees HyderabadAct, 1948
The employees ESI Dues 1.42 ESIC Court,state insurance employees HyderabadAct, 1948
Central Modvat 0.13 Asst Comm. ofExcise Credit Central Excise,Act, 1944 (Appeals)
Hyderabad
Central Modvat 1.48 CESTATExcise CreditAct, 1944
Central Modvat 160.03 Availment of ExciseExcise Credit Duty ExemptionAct, 1944 under 10/97
Quathbullapur Property 412.01 Commissionermuncipality tax GHMC, Hyderabad
Raj, Land Land Conv. 2.39 Collector, AjmerConv. act Charges
Land & Building Land & 40.51 Collector & DistrictAct, Raj Building tax magistrate, Ajmer.
Including Interest
Urban Land Tax
(06-07) 3.39 DIG office Ajmer(07-08) 6.79(08-09) 6.79
BBMP, Bangalore Property Tax 1052.26 BBMP, Bangalore
10. The accumulated losses of the company have
exceeded its net worth. Consequently the
company has filed application with BIFR during
November 2005 as per the provision of Sick
Industrial companies (Special Provisions) Act, 1985
and the sanction is received on June 13th, 2008.
Also during the year 2007-08, Government of Indiahas sanctioned a revival plan envisaging infusion
of funds by way of preferential and equity capital,
conversion of long term loan into equity capital
and waiver of interest to address the negative net
worth of the Company. Though the appeals before
AAFIR against BIFR sanctions pending disposal,
considering the revival plan of the company and
the BIFR sanctioned rehabilitation Scheme, the
accounting continues to be prepared on Going
concern basis. The company has incurred cash
losses of `8320.91 lakhs during the year. and
`3792.31 Lakhs for the previous year.
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Annual Report 2010-2011
For A.Raghavendra Rao & Associates
Chartered Accountants
FR No: 003324S
Latha S Koppal
Date: August 24th, 2011 Partner
Place: Bangalore Membership No.: 214976
11. According to the information and explanation
provided to us and based on our verification of
records provided to us, we are of the opinion that,
the company has not defaulted in repayment ofdues to any financial institution or bank or
debenture holders as at the balance sheet date.
12. Based on the information, explanation provided to us,
the company has not granted any loans and advances
on the basis of security by way of pledge of shares,
debentures and other securities.
13. The provisions of any special statute applicable to chit
fund/Nidhi/Mutual fund/societies are not applicable to
the company.
14. In our opinion, based on the information, explanation
provided, the company is not a dealer or trader in
shares, securities, debentures and other investments.
15. In our opinion, according to information, explanation
provided to us, company has not given any guarantees
for loans taken by others from banks or financial
institutions during the year.
16. According to information, explanations provided, we
are of the opinion that, the company has not availed
any term loan during the year.
17. On the basis of information and explanation provided,
we are of the opinion that, there are no funds raised
on a short term basis, which have been used for long
term investment.
18. The company has not made any preferential allotment
of shares to parties and companies covered in the
register maintained under section 301 of the act during
the year.
19. The company has not debenture outstanding at the
year end. Hence creation of securities for the samedoes not arise.
20. The company has not raised any money by way of
public issue during the year.
21. Based on the audit procedures performed and
information and explanation given to us by the
management, we are of the opinion that, no fraud on
or by the company has been noticed or reported during
the course of our audit.
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COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER
SECTION 619(4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF M/S. HMT
MACHINE TOOLS LTD FOR THE YEAR ENDED 31stMARCH 2011.
The preparation of financial statements of M/s. HMT MACHINE TOOLS LIMITED for the year ended 31stMarch
2011 in accordance with the financial reporting framework prescribed under the Companies Act, 1956 is the responsibility
of the management of the Company. The statutory auditor appointed by the Comptroller and Auditor General of India
under Section 619(2) of the Companies Act, 1956 is responsible for expressing opinion on these financial statements
under Section 227 of the Companies Act, 1956 based on independent audit in accordance with the auditing and
assurance standards prescribed by their professional body the Institute of Chartered Accountants of India. This is
stated to have been done by them vide their Audit Report dated 28.6.2011 and their revised report dated 24.08.2011.
I on behalf of the Comptroller and Auditor General of India have conducted a supplementary audit under Section619(3)(b) of the Companies Act, 1956 of the financial statements of M/s HMT MACHINE TOOLS LIMITED for the
year ended 31st March 2011. This supplementary audit has been carried out independently without access to the
working papers of the statutory auditors and is limited primarily to inquiries of the Statutory Auditors and Company
personnel and a selective examination of some of the accounting records. In view of the revision made in Auditors
Report vide Para 6(e), 6(f), 6(h) and 6(i) and modification in paras 4,6,9 and 10 thereof as a result of my audit
observations highlighted during supplementary audit, I have no further comments to offer upon or supplement to the
Statutory Auditors Report, under Section 619(4) of the Companies Act, 1956.
For and on the behalf of the
Comptroller & Auditor General of India
(C. H. Kharshiing, I.A.A.S)
Pr. Director of Commercial Audit
& Ex-officio Member, Audit Board, Bangalore.
BangaloreDated : 25 August, 2011
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Inventories
Inventories are valued at the lower of cost and net
realizable value. The cost of materials is ascertained byadopting Weighted Average Cost Method.
Development & Commissioning
In respect of new projects, the pre-production revenue
expenditure (including depreciation) is collated under the
head Development and Commissioning Expenditure and
charged to revenue over four financial years as follows:
(a) In the year of commencement of commercial
production, one-fourth of the development and
commissioning expenditure on a pro-rata basis forthe period of production in that year: and
(b) The balance equally over the next three financial
years immediately following.
Deferred Revenue Expenditure
Technical Assistance fees (including fees for technical
documentation and exchange fluctuation difference) paid/
payable under foreign collaboration agreements are
amortized equally over the duration/balance duration of
the relevant agreement.
Gratuity, Earned Leave encashment, Settlement
Allowance and Lump sum Compensation paid to
employees under Voluntary Retirement Scheme shall be
fully written off in the year of disbursement.
Revenue recognition
Sales are set up based on:
Physical delivery of goods to the customer /
customers carrier /common carrier, duly supported
by invoice, excise duty paid challan, gate pass,
delivery voucher and LR / GR, in case of ex-works
contracts.
LR/GR obtained and endorsed in favour of customer
(consignee self), in case of FOR destination
contracts.
Sales include Excise Duty but are net of trade
discount and exclude sales tax.
Foreign currency transactions
Transactions in foreign currency are recorded at the
exchange rate(s) prevailing on the date of transaction or
at the forward contract rate(s) wherever applicable.
Current assets and liabilities are restated at the rates
prevailing at the yearend or at the forward contract rate(s)
wherever applicable, and the difference is recognized as
income or expenditure in the profit and loss account.
Exchange difference arising on restatement of liabilities in
foreign currency relating to fixed assets is recognized as
Income or Expenditure in the statement of Profit & Loss
account.
Borrowing costs
Borrowing costs are charged to revenue except those
which are incurred on acquisition or construction of aqualifying asset that necessarily takes substantial time to
be ready and until intended use of the said asset, such
costs are capitalized.
Retirement Benefits
Provident Fund is provided for, under a defined benefit
scheme. The contributions are made to the Trust
administered by the company.
Leave encashment is provided for under a defined benefit
scheme based on actuarial valuation.
Gratuity is provided for, under a defined benefit scheme,
to cover the eligible employees, liability being determined
on actuarial valuation. Annual contributions are made, to
the extent required, to a trust constituted and
administered by the Life Insurance Corporation of India
under which the coverage is limited to `50,000/- per
eligible employee. The balance provision is being retained
in the books to meet any additional liability accruing
thereon for payment of Gratuity.
Settlement allowance is provided for, under a definedbenefit scheme, to cover the eligible employees, liability
being determined on actuarial valuation.
Pension is provided for under a defined benefit scheme,
contributions are made to the Pension Fund administered
by the Government.
Warranty
Warranty provision for contractual obligations in respect
of machines sold is set up based on the past experience
and is provided in the year of sale.
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Annual Report 2010-2011
Special Tools
Expenditure on manufactured and bought out special
tools are amortized equally over a five year period orearlier, if scrapped. Individual items costing less than
`750/- are written off fully in the initial year of acquisition
/ manufacture.
Research and Development Costs
Revenue expenditure is charged to profit and loss
account under natural heads. Capital expenditure is
recorded as addition to fixed assets and depreciated over
the estimated life of the related assets.
Prototypes developed are carried as items of inventory atthe lower of cost or net realizable value until sale/transfer/
scrapping. Prototypes remaining undisposed for a period
of five financial years are provisioned for obsolescence in
the sixth year.
Contribution to sponsored Research and Development are
amortised equally over the duration/balance duration of
the programme.
Income Tax
Taxes are determined following the tax effect accounting
method and a provision thereof is recognized. A deferred
tax asset or deferred tax liability is recorded to recognize
the tax effect on timing differences arising on
reconciliation of profit/loss as per financial statements
and profit/loss as per taxation
Earnings per share
Basic earnings per share is determined by considering
the net profit after tax, inclusive of the post tax effect on
extraordinary items, if any, and the number of shares
outstanding on a weighted average basis.
Others
The amount of `50000/- per head received/receivable
from LIC on account of gratuity claims in respect ofemployees separated under Voluntary Retirement
Scheme during the year is accounted as Other Income.
In respect of employees who are separated other than
under Voluntary Retirement Scheme, the Gratuity paid in
excess of`50000/-, Earned Leave Encashment (ELE),
Settlement Allowance (SA) is debited to the respective
provision accounts. The provision at the yearend for ELE
and SA is restated as per the actuarial valuation done at
the year-end. In case of ELE and SA, any short or
excess provision is charged as expenditure or treated as
provision no longer required.
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BALANCE SHEET AS AT 31ST MARCH 2011
Sch. As at As at31.03.2011 31.03.2010
SOURCES OF FUNDS
SHAREHOLDERS FUNDS
Share Capital 1.1 719,59,91 719,59,91
Re