Annual Report - Shanthi Gears - 2009-2010

SHANTHI GEARS LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Your Directors have pleasure in presenting to you the Thirty Seventh Annual
Report, together with the audited accounts of your Company, for the year
ended 31 st March, 2010.



FINANCIAL RESULTS:

Year Ended Year Ended
31-03-2010 31-03-2009
Rs. in Million

Gross Profit before Interest & Depreciation 531.784 1032.573

Less: Interest 18.833 86.247
Depreciation 269.266 257.723
Donations 0.423 0.533
Provision for Taxation / Withholding Tax Paid 110.275 231.196
Fringe Benefit Tax - 2.500
Deferred Tax (25.934) 10.261
Prior Year Tax - 3.618
158.921 440.495
Add: Excess Provision no longer required 2.927 0.115
Surplus brought forward 98.028 72.142
259.876 512.752

Appropriations:

Proposed Dividend 65.373 98.059
Tax on Dividend 10.857 16.665
General Reserve 100.000 300.000
Surplus in Profit & Loss Account 83.646 98.028

259.876 512.752

DIVIDEND:

Your Directors recommend a Dividend of Rs. 0.80 per Equity Share of Re. 1
each fully paid up (80% on the paid up share capital of the Company)

OPERATING RESULTS:

The Company has achieved a Turnover of Rs. 1213.871 Million for the year
under review as against the turnover of Rs. 2524.842 Million of the
previous year. Various factors such as change in management team, labour
unrest, the measures taken by the Company to revamp, restructure and
relocating of machines, scaling down of plant operations has resulted in
decrease in turnover. The Company's policy of manufacturing niche and value
added products have helped the Company to maintain profitability
irrespective of reduction in sales. The Company proposes to follow the same
policy during the current year.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS
AND OUTGO:

The Company is making continuous efforts to conserve and optimise energy
wherever practicable by economising on fuel and power. For the Company's
existing product line, there is no technical collaboration/arrangement.
Your Company has made export sales of Rs. 93.579 Million during the year.
The outflow of foreign exchange on Import of Machinery, Raw Materials,
Consumoble Stores & Tools, Machinery and Electrical Spares, Interest on
ECBs, Advertisement, Subscription and Germany Liaison Office Expenses
amounted Rs. 47.71 Million.

FIXED DEPOSITS:

The Company has not accepted any deposits from the public during the year.

DIRECTORS:

Sri P.N. Gopal resigned from the Board on 25th, January, 2010 due to health
condition. He was associated with the Company from 17.03.1986. The
Directors place on record the valuable guidance and support rendered by
Sri. P.N.Gopal during his tenure of office as Director.

Sri. M.J. Vijayaraaghavan retires by rotation at the ensuing Annual General
Meeting and being eligible, offers himself for re-election.

Sri. C.G.Kumar was appointed as additional Director on 25m January, 2010,
retires at the ensuing Annual General Meeting. A member has given a notice
in writing proposing Sri. C.G.Kumar for the office of Director along with
required deposit amount.

DIRECTORS' RESPONSIBILITY STATEMENT:

In compliance to the Provisions of Section 217 (2AA) of the Companies Act,
1956 your Directors wish to place on record:

(i) that in preparing the Annual Accounts, all applicable accounting
standards have been followed;

(ii) that the accounting policies adopted are consistently followed and the
judgments and estimates made are reasonable and prudent so as to give a
true and fair view of the state of affairs of the t Company at the end of
the Financial Year and of the Profit and Loss Account of the Company for
the Financial year;

(iii) that the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Act for safeguarding the assets of the Company and for
preventing/detecting fraud and other irregularities;

(iv) that the Directors have prepared the Annual Accounts on going concern
basis.

CORPORATE GOVERNANCE:

Pursuant to the requirements of Listing Agreements with the Stock
Exchanges, your Directors are pleased to annex the following:

1. Management Discussion and Analysis Report

2. A Report on Corporate Governance

3. Auditors' Certificate regarding Compliance of conditions of Corporate
Governance.

AUDITOR:

Your Company's auditors M/s. S. Lakshminarayanan Associates are due to
retire at the ensuing Annual General Meeting and are eligible for re-
appointment.

PERSONNEL:

In accordance with the requirements of Section 217 (2A) of the Companies

Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975,
particulars of employees are given in the annexure to this report.

APPRECIATION:

The relationship between Management and Staff & Workers is very cordial and
your Directors wish to place on record their sincere appreciation for the
devoted and efficient services rendered by all employees of the Company.
Your Directors thankfully acknowledge the continued co-operation and
support rendered by Banks and Financial Institutions. The Board conveys its
thanks to the Central and State i Governments. It also thanks its customers
and suppliers for their support and investors for reposing faith in the
Company.

For the Board of Directors

Place: Coimbatore P. Subramanian
Date : 24th May, 2010 Chairman & Managing Director

MANAGEMENT DISCUSSION AND ANALYSIS

1. Industry Structure and Developments:

Gears, Gear Boxes and allied products are manufactured by the Company. The
products are manufactured by organized, unorganized and international
players. The products are differentiated as standard and non-standard. Most
of the players are in the manufacture of standard products, since
manufacturing non-standard products requires maneuvering of production
facilities in short span of time, quality and engineering skills. Shanthi
Gears has followed the policy of manufacturing more niche products compared
to standard products. The restructuring of operational and organizational
structure during the current year had lead to scaling down of operation.
The Company has declined the orders where the margins are less. This has
resulted in reduction in sales. However, with the manufacturing of value
added products the Company was able to maintain profitability. The Company
will follow the same policy during the current year.

2. Opportunities and Threats:

Opportunities:

With the manufacturing facilities, the Company can produce value added
products without any strain. The Company is also in the process of
manufacturing products where gear play a predominant role.

Threats:

The Company's policy of manufacturing value added products puts it in a
position to supply its products to selected customers. This will lead to
limited growth.

3. Outlook:

With the completion of restructuring operational and organization
structure, major production and related activities are shifted to the unit
located at Muthugoundanpudur. This has resulted in more flexibility in
production planning, supplying of goods in shorter duration and also
assured quality of the niche and value added products manufactured by the
Company. Company's initiative to manufacture products where gears play
major role puts it in an enviable position. With the above measures, the
company hopes that the outlook is bright for the years to follow.

4. Risks and Concerns:

* Precarious power position

* Acceptance of proposed products to be manufactured by the market

* Pricing Policy followed by the Company.

5. Internal Control Systems and their adequacy:

The Company's Internal Control Systems are adequate and ensures that all
assets of the Company are safely guarded against loss, damage or pilferage.
The internal control systems are designed to provide adequate financial and
accounting control and transparent Accounting standards.

6. Discussions on the financial performance with respect to operational
performance:

During the year, the Company has achieved a sales turnover of Rs.1213.871
Million as compared to Rs. 2524.842 Million of the previous year. The
Profit After Tax (PAT) of the Current Financial Year is Rs. 161.848 Million
as against Rs. 440.610 Million of the previous year.

7. Material developments in Human Resources/Industrial Relations front,
including number of people employed:

The Company firmly believes that Man Power is the most important asset,
above all. Hence the needs and aspiration of all ranks and files are very
well taken care of all the time without any letup. The Industrial
relationship at all factories remained cordial. The Company had 599
employees as of 31st March, 2010.

8. Caution:

The views and statements expressed or implied in the Management Discussions
and Analysis are based on available information, assessments and judgments.
They are subject to alterations. The Company's Actual Performance may
differ due to national or international ramifications. Governmental
Regulations, Policies, Tax Laws and other unforeseen factors over which the
Company do not or may not have any control.

On behalf of the Board of Directors

Place: Coimbatore P. Subramanian
Date : 24th May, 2010 Chairman & Managing Director