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DIRECTOR'S REPORT

Reliance Industrial InfraStructure Ltd.

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Market Cap. (₹) 457.83 Cr. P/BV 1.35 Book Value (₹) 224.23
52 Week High/Low (₹) 497/261 FV/ML 10/1 P/E(X) 58.77
Bookclosure 04/07/2018 EPS (₹) 5.16 Div Yield (%) 0.99
Year End :2018-03 

The Board of Directors are pleased to present the Company's Thirtieth Annual Report and the Company's audited financial statements (standalone and consolidated) for the financial year ended 31st March, 2018.

Financial Results

The Company's financial performance for the year ended 31st March, 2018 is summarised below:

(Rs. in lakh)

STANDALONE

CONSOLIDATED

2017-18

2016

- 17

2017-18

2016

- 17

Profit before Tax

1,513.47

2,024.66

1,626.66

2,084.75

Less:

- Current Tax

784.51

661.15

784.51

661.15

- Deferred Tax

(245.12)

539.39

(278.27)

382.88

(245.12)

539.39

(278.27)

382.88

Profit for the Year

974.08

1,641.78

1,087.27

1,701.87

Add: Other Comprehensive Income

723.94

282.25

723.94

282.25

Total Comprehensive Income for the

1,698.02

1,924.03

1,811.21

1,984.12

year

Add: Balance in Profit and Loss Account

6,861.86

6,323.93

9,805.89

9,207.87

Sub-Total

8,559.88

8,247.96

11,617.10

11,191.99

Less: Appropriation

Transferred to General Reserve

300.00

750.00

300.00

750.00

Dividend paid on Equity Shares*

528.50

528.50

528.50

528.50

Tax on Dividend on Equity Shares*

107.60

936.10

107.60

1,386.10

107.60

936.10

107.60

1,386.10

Closing Balance (including Other

7,623.78

6,861.86

10,681.00

9,805.89

Comprehensive Income)

*Pertaining to dividend for the financial year 2016-17.

Dividend

The Board of Directors has recommended a dividend of Rs.3.50 per equity share of Rs.10/- each fully paid (last year Rs.3.50 per equity share of Rs.10/- each fully paid) for the financial year ended 31st March, 2018 amounting to Rs.637 lakh (inclusive of Dividend Distribution Tax of Rs.109 lakh). The dividend payment is subject to approval of members at the ensuing Annual General Meeting.

The dividend payout is in accordance with the Company's Dividend Distribution Policy. The Dividend Distribution Policy of the Company is annexed herewith as Annexure I to this Report.

Material changes affecting the Company

There have been no material changes and commitments affecting the financial position of the Company between the end of the financial year to which the financial statement relates and date of this Report. There has been no change in the nature of business of the Company.

Management's Discussion and Analysis Report

Management's Discussion and Analysis Report for the year under review, as stipulated under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations”), is as under.

Results of Operations and the State of Company's Affairs

During the year, the Company earned a total revenue of Rs.10,154.56 lakh, as compared to Rs.10,882.34 lakh in the previous year, a marginal decrease of 7% on year-on-year basis.

Income from product transportation services increased by 18% from Rs.2,620.98 lakh to Rs.3,098.72 lakh on a year-on-year basis. Income from operating construction machinery on hire decreased by 29% from Rs.3,523.36 lakh to Rs.2,495.63 lakh on a year-on-year basis. Income from other support services increased marginally by 4% from Rs.3,176.52 lakh to Rs.3,293.32 lakh.

Net profit during the year was Rs.974.08 lakh as compared to Rs.1,641.78 lakh of previous year, decrease by 41%.

The Company continues to provide infrastructural facilities and support services, namely, transportation of petroleum products and water through pipelines, operating construction machinery on hire and other support services to Reliance Industries Limited and its group companies with a substantial portion provided to Reliance Industries Limited.

Resources and Liquidity

The Company's net worth as on 31st March, 2018 stood at Rs.29,339.52 lakh, with accumulated reserves and surplus of Rs.27,829.52 lakh. The Company continues to maintain its conservative financial profile and funds its requirements largely through internal cash generation.

Industry Structure, Developments, Opportunities and Outlook

Infrastructure sector is a key driver for the Indian economy. The sector is responsible for propelling India's overall development and enjoys focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country.

The Government has set out large-scale infrastructure development programmes which provide significant opportunities for industry players to help transform the sector and partner India's socioeconomic progress. The Government continues to focus on Railways, Roads, Sagarmala project (for ports and coastal development), Housing for All, Inland waterways and Make in India initiatives.

Urban and rural infrastructure and road development is one of the top priority areas for the Government. A favourable ease of doing business environment and numerous initiatives announced for the infrastructure sector is expected to boost demand for infrastructure services. Further liberalisation on foreign direct investment (FDI) for infrastructure projects in the country has increased the pace of infrastructural developments. There are several industries which are directly or indirectly dependent on the development of infrastructure sector.

The Government of India has taken significant initiatives to strengthen the economy of the country and make it one of the strongest economies in the world. Owing to higher infrastructure spending and continued reforms in fiscal and monetary policy, the Indian economic outlook has been further strengthened. The Government of India is striving to move steadily to minimize bottlenecks and attract higher investment for the infrastructure sector.

The Company will continue to seek growth opportunities with its focus on the infrastructure sector.

Challenges, Risks and Concerns

Infrastructure Industry in India has registered great progress in the recent years. Creation of infrastructure is vital for India's economic development as the opportunities for future growth are enormous in the country.

Underlying challenges in productivity, profitability, performance, labour, and sustainability could disrupt the industry's growth. The combination of increasing project complexity and competition and decreasing experience and skill-sets is a risk multiplier, increasing the risk of deliverable delays, quality construction problems, and employee safety concerns.

It is important to innovate and adopt new methods while implementing infrastructure projects. Modern construction equipment and machineries used in infrastructure development, help reduce the cost of project and also shorten the project completion time. In order to keep up with the challenges which the infrastructure sector has to offer, the Company focuses on deploying the latest machineries with trained work force.

Some of the greater challenges that hinder infrastructure progress of the economy are easy access to finance, availability of land and delays in project completion leading to cost and time overruns. However, the Government has undertaken some key reforms that include stronger co-operation between the private and public sectors, enforcing of a unified legal framework, single window approval process, creation of better dispute-resolution mechanisms and removing bottlenecks.

The Company's ability to foresee and manage business risks is crucial in its efforts to achieve constructive outcome. While the Company's long term outlook, is subject to a few risks and uncertainties, with its strong financials and past track record, the Company is well positioned to mitigate those risks.

Human Resource Development

The Company has a team of able and experienced professionals. The Company believes that the quality of its employees is the key to its success in the long run. The Company continues to have cordial relations with its employees. The Company provides personal development opportunities and all round exposure to its employees.

Internal Controls

The Company has robust internal control systems and procedures commensurate with its nature of business which meets the following objectives:

- providing assurance regarding the effectiveness and efficiency of operations;

- efficient use and safeguarding of resources;

- compliance with policies, procedures and applicable laws and regulations; and

- transactions being accurately recorded and promptly reported.

The Company continues to have periodical internal audits conducted of all its functions and activities to ensure that systems and processes are followed across all areas.

The Audit Committee of Directors of the Company regularly reviews the adequacy of internal control systems through such audits. The Internal Auditor reports directly to the Audit Committee.

The Company also has a budgetary control system to monitor expenditure against approved budgets on an ongoing basis.

Internal Financial Controls

Internal Financial Controls are an integrated part of the risk management process, addressing financial and financial reporting risks. The Company has in place adequate internal financial controls with reference to financial statements.

Assurance on the effectiveness of internal financial controls is obtained through management reviews, control self-assessment, continuous monitoring by functional experts as well as testing of the internal financial control systems by the Statutory Auditors and Internal Auditors during the course of their audits.

We believe that these systems provide reasonable assurance that our internal financial controls are designed effectively and are operating as intended.

Risk Management

The Company has in place a Risk Management Policy which was reviewed by the Audit Committee and approved by the Board of Directors of the Company. The Policy provides for a robust risk management framework to identify and assess risks such as safety, health and environment, operational, strategic, financial, security, property, regulatory, reputational and other risks and put in place an adequate risk management infrastructure capable of addressing these risks. Further, a risk assessment group has been constituted by the Board of Directors of the Company, comprising functional executives/ experts to identify, monitor and report on the potential risks associated with the Company's business and periodically keeps the Audit Committee and the Board of Directors apprised of such risks and the measures taken by the Company to mitigate such risks.

Given below are significant potential risks of the Company and measures in place to mitigate them:

Operational Risk: Disruptions in operating the Company's pipelines and equipments may arise due to natural calamities, equipment failures or other unexpected or unforeseen interruptions. The Company consistently works towards monitoring the health of the pipelines and maintaining or improving operational efficiencies.

Safety, Health and Environment Risks: The Company's activities of transporting petroleum products through its pipelines are inherently hazardous. Any accident, explosion, leakages or acts of terrorism may cause property damage or bodily injury and adversely impact surrounding communities and environment which may result in litigations and disruption of operations. The Company has structured inspections of its operating facilities for identifying and mapping operational hazards, investigating root cause analysis and to eliminate any such occurrence by developing mitigation plans.

Further, there is a comprehensive insurance plan in place to cover the above risks.

Consolidated Financial Statement

In accordance with the provisions of the Companies Act, 2013 (the Act) and Ind AS 110 - Consolidated Financial Statement read with Ind AS 28 - Investments in Associates, the audited consolidated financial statement is provided in the Annual Report of the Company.

Subsidiary, Joint Venture and Associate Company

The Company did not have any subsidiary or joint venture during the financial year under review. The Company has one associate company, Reliance Europe Limited.

A statement containing the salient features of the financial statement of the associate company as per Section 129 (3) of the Act, is provided as Annexure A to the consolidated financial statement and therefore not repeated to avoid duplication.

The audited financial statement including the consolidated financial statement of the Company and all other documents required to be attached thereto is put up on the website of the Company and may be accessed at the link: http://www.riil.in/notice_annual_report.html.

These documents will also be available for inspection on all working days, during business hours at the Registered Office of the Company.

Secretarial Standards

The Directors state that applicable Secretarial Standards, i.e. SS-1 and SS-2, relating to 'Meetings of the Board of Directors' and 'General Meetings; respectively, have been duly followed by the Company.

Directors' Responsibility Statement

Your Directors state that:

a) in the preparation of the annual accounts for the year ended 31st March, 2018, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same;

b) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2018 and of the profit of the Company for the year ended on that date;

c) 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 and detecting fraud and other irregularities;

d) the Directors have prepared the annual accounts on a 'going concern' basis;

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

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

Business Responsibility Report

As stipulated under the Listing Regulations, the Business Responsibility Report describing the initiatives taken by the Company from an environmental, social and governance perspective is attached and forming part of the Annual Report.

Contracts or Arrangements with Related Parties

All contracts / arrangements! / transactions entered by the Company during the financial year with related parties were in its ordinary course of business and on arms' length basis and do not have potential conflict with interest of the Company at large.

The contracts / arrangements / transactions with related party which are required to be reported in Form No. AOC-2 in terms of Section 134(3)(h) read with Section 188 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014 is annexed herewith as Annexure II to this Report.

The Policy on Materiality of Related Party Transactions and on Dealing with Related Party Transactions as approved by the Board may be accessed on the Company's website at the link: http://www.riil.in/pdf/materiality_policy.pdf

Members may refer to Note No. 23 to the standalone financial statement which sets out related party disclosures pursuant to Indian Accounting Standard 24 (Ind AS 24).

Corporate Social Responsibility (CSR)

The Corporate Social Responsibility Committee (CSR Committee) has formulated and recommended to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, which has been approved by the Board.

The CSR Policy may be accessed on the Company's website at the link: http://www.riil.in/pdf/csr_policy.pdf.

The key philosophy of the CSR initiative of the Company is to promote development through social and economic transformation.

The Company has, inter-alia, identified following areas in which it may engage for its CSR activities:

- Addressing identified needs of the underprivileged through initiatives directed towards promoting health, including preventive health care;

- Environmental sustainability and ecological balance;

- Any other activity falling within the scope of Schedule VII to the Act.

During the year, the Company has spent Rs.70 lakh (around 3.21% of the average net profits of last three financial years) on CSR activities as against the statutory requirement of Rs.43.56 lakh.

The Annual Report on CSR activities is annexed herewith as Annexure III to this Report.

Directors and Key Managerial Personnel

In accordance with the provisions of the Act and the Articles of Association of the Company, Shri Mahesh K. Kamdar (DIN: 00013915), Director of the Company, retires by rotation at the ensuing Annual General Meeting. The Board of Directors, on the recommendation of the Nomination and Remuneration Committee and based on report of performance evaluation, has recommended re-appointment of Shri Mahesh K. Kamdar as Director of the Company liable to retire by rotation.

The Board of Directors, on recommendation of Nomination and Remuneration Committee and based on report of performance evaluation, has re-appointed Shri Dilip V. Dherai as Whole-time Director designated as Executive Director of the Company for a period of 5 (five) years with effective from 1st July, 2019, subject to the approval of members as his present term of office is up to 30th June, 2019.

The first term of office of Shri Sandeep H. Junnarkar (DIN: 00003534) and Shri Chandra Raj Mehta (DIN: 00002011), as Independent Directors, will expire on 31st March, 2019. The Board of Directors, on the recommendation of the Nomination and Remuneration Committee and based on report of performance evaluation, has recommended re-appointment of Shri Sandeep H. Junnarkar and Shri Chandra Raj Mehta, as Independent Directors of the Company for a second term of 5 (five) consecutive years effective 1st April, 2019.

The members of the Company at its Annual General Meeting held on 28th July, 2017 had, inter-alia, approved re-appointment of Smt. Bhama Krishnamurthy (DIN: 02196839) as an Independent Director of the Company, for a second term of 5 (five) consecutive years effective 26th March, 2018 on the Board of the Company by passing a Special Resolution.

The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence prescribed under the Act and the Listing Regulations.

The following policies of the Company are annexed herewith as Annexure IV and Annexure V to this Report:

a) Policy for selection of Directors and determining Directors' independence; and

b) Remuneration Policy for Directors, Key Managerial Personnel and other employees.

Performance Evaluation

The Company has in place a Policy for performance evaluation of Independent Directors, Board, Committees and other individual Directors which includes criteria for performance evaluation of the non-executive directors and executive directors.

On the basis of the Policy for performance evaluation of Independent Directors, Board, Committees and other individual Directors, feedback was obtained from all the Directors by way of an online structured questionnaire for the evaluation of the Board, its Committees and the individual directors covering, inter-alia, various aspects of their performance including attendance of Directors at Board and Committee meetings, composition and skills, board dynamics, domain knowledge, understanding of Company's operations, contribution at meetings, inter-personal skills, adherence to the Company's Code of Conduct and values. The responses received were evaluated by the Board.

Auditors and Auditors' Report

Statutory Auditors

Messrs D T S & Associates, Chartered Accountants, were appointed as Auditors of the Company, for a term of 5 (five) consecutive years, at the Annual General Meeting held on 28th July, 2017. They have confirmed that they are not disqualified from continuing as Auditors of the Company.

The Notes on financial statement referred to in the Auditors' Report are self-explanatory and do not call for any further comments. The Auditors' Report does not contain any qualification, reservation, adverse remark or disclaimer.

Cost Auditors

In terms of the Companies (Cost Records and Audit) Rules, 2014 as amended, the Company has maintained cost records in its books of account for financial year 2017-18 in respect of its services of transportation of petroleum products. However, in terms of the said Rules, the requirement of cost audit is not applicable to the Company for the financial year 2017-18 as the turnover of the Company from these services was below the threshold limit prescribed in the said Rules for cost audit.

Secretarial Auditor

The Board of Directors of the Company appointed Dr. K. R. Chandratre, Practicing Company Secretary, to conduct Secretarial Audit for the financial year ended 31st March, 2018. The Secretarial Audit Report relating thereto is annexed herewith as Annexure VI to this Report. The Secretarial Audit Report does not contain any qualification, reservation, adverse remark or disclaimer.

Disclosures

Meetings of the Board

Five meetings of the Board of Directors were held during the year. The particulars of meetings held and attended by each Director are detailed in the Corporate Governance Report forming part of the Annual Report.

Audit Committee

The Audit Committee of the Company comprises Independent Directors namely Shri Chandra Raj Mehta (Chairman), Shri Sandeep H. Junnarkar and Smt. Bhama Krishnamurthy and Shri S. C. Malhotra as Non-Executive Non-Independent Director.

During the year all the recommendations made by the Audit Committee were accepted by the Board.

Corporate Social Responsibility Committee

The Corporate Social Responsibility Committee of the Company comprises Shri Mahesh K. Kamdar (Chairman) with Shri Chandra Raj Mehta, Shri Sandeep H. Junnarkar and Shri S. C. Malhotra as other members.

Vigil Mechanism

The Company has established a robust Vigil Mechanism and a Whistle-blower policy in accordance with provisions of the Act and the Listing Regulations. The Vigil Mechanism is supervised by an 'Ethics & Compliance Task Force' comprising senior executives of the Company.

Protected disclosures can be made by a whistle-blower through an e-mail or a letter to the Task Force or to the Chairman of the Audit Committee. The Vigil Mechanism and Whistle blower policy is put on the Company's website and can be accessed at http://www.riil.in/pdf/whistleblower_policy.pdf.

During the year under review, no protected disclosure concerning any reportable matter in accordance with the Vigil Mechanism and Whistle Blower Policy of the Company was received by the Company.

Particulars of loans given, investments made, guarantees given and securities provided

The Company, being a company providing infrastructural facilities and support services, is exempted from the provisions of section 186 of the Act relating to loan made, guarantee given and security provided.

Particulars of investments made are provided in the standalone financial statement. Members may refer to Note No. 30 to the standalone financial statement.

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

The particulars relating to conservation of energy, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under the Act are as under:

A. Conservation of Energy

As an infrastructural facilities and support services provider, the operations of the Company require minimal energy consumption.

(i) Energy Conservation measures taken

a. Upgradation of anode beds for reducing power requirement of Cathodic Protection system by 30% (current consumption reduced from 250 Amp to 100 Amp).

b. Installation of LED lights to reduce power consumption.

(ii) Steps taken by the Company for utilising alternate sources of energy and Capital investment on energy conservation equipment

The energy requirements are mainly for the Company's pipeline operations which are within the purview of its customer.

B. Technology absorption

(i) Major efforts made towards technology absorption:

a. Conversion of Gas Operated Sectionalising valves to motor operated by installing smart actuators for better reliability.

b. I nstallation of online corrosion monitoring system on pipelines for health checking.

(ii) The benefits derived like product improvement, cost reduction, product development or import substitution.

The selection of alternate quality of pipes for projects seamless pipes to ERW (Electric resistance welded). This saved about 20% cost of project for material.

(iii) I nformation regarding imported technology (Imported during the last three years):

The Company has not imported any technology during the last three years.

(iv) Expenditure incurred on research and development: Nil

C. Foreign Exchange Earnings and Outgo

Foreign Exchange earned

- Nil

Foreign Exchange outgo

- Rs.133.43 lakh

Corporate Governance

The Company is committed to maintain the highest standards of Corporate Governance and adhere to the Corporate Governance requirements set out by the Securities and Exchange Board of India (SEBI). The Company has also implemented several best governance practices. The report on Corporate Governance as stipulated under the Listing Regulations forms an integral part of the Annual Report. The requisite certificate from the Auditors of the Company confirming compliance with the conditions of Corporate Governance is annexed herewith as Annexure VII to this Report. Disclosure pursuant to para (IV) of third proviso to Section II, Part II of Schedule V to the Act relating to re-appointment of Shri Dilip V. Dherai is covered in the Corporate Governance Report. For details, please refer the Corporate Governance Report forming part of the Annual Report.

Extract of Annual Return

Extract of Annual Return of the Company is annexed herewith as Annexure VIII to this Report.

Particulars of Employees and related disclosures

In terms of the provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said Rules are provided in the Annual Report which forms part of this Report.

Disclosures relating to remuneration and other details as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are also provided in the Annual Report which forms part of this Report.

Having regard to the provisions of the first proviso to Section 136(1) of the Act and as advised, the Annual Report excluding the aforesaid information is being sent to the members of the Company. The said information is available for inspection on all working days at the registered office of the Company during business hours and any member interested in obtaining such information may write to the Company Secretary and the same will be furnished on request.

General

Your Directors state that no disclosure or reporting is required in respect of the following matters as there were no transactions on these items during the year under review:

1. Details relating to deposits covered under Chapter V of the Act.

2. Issue of equity shares with differential rights as to dividend, voting or otherwise.

3. Issue of shares (including sweat equity shares) to the employees of the Company under any scheme.

4. The Company has no holding company or subsidiary company; hence the provisions of Section 197(14) of the Act relating to receipt of remuneration or commission by the Whole-time Director from holding company or subsidiary company of the Company are not applicable to the Company.

5. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future.

6. No fraud has been reported by the Auditors to the Audit Committee or the Board of Directors of the Company.

7. The Company does not have any scheme of provision of money for the purchase of its own shares by employees or by trustees for the benefit of employees.

Acknowledgement

The Board of Directors would like to express their sincere appreciation for the assistance and co-operation received from the Government Authorities, Banks, other business constituents and members during the year under review.

The Board of Directors also wish to place on record their deep sense of appreciation for the committed services of the employees of the Company at all levels.

For and on behalf of the Board of Directors

Mahesh K. Kamdar

Chairman

Mumbai

12th April, 2018

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