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Your Directors present the 38th Annual Report of your Company for its
financial year ended 30th June 1996.
Rupees in `000
FINANCIAL RESULTS 1996 1995
Sales & Service 228,989 384,964
Less :
Cost of Sales & Services 145,991 268,392
Operating Expenses 47,922 71,102
General Administration & Selling Expenses 36,387 58,299
Research & Development Expenses 8,883 6,189
Interest & Financial Charges 109,002 98,533
Total Expenses 348,185 520,535
Gross Profit/(Loss) (119,196) (117,571)
Other Income & Sundry Credits (Net) 16,812 76,419
Prior Period Income/Expenses) 147 (22,080)
Depreciation 28,624 29,183
Provision for Taxation - -
Net Profit/(Loss) for the year (130,861) (92,415)
In view of absence of profits, your Directors do not recommend any
dividend for the year under review, and no amount is therefore,
transferred to the Balance Sheet as at 30th June 1996 to Reserves.
PERFORMANCE
It may be recalled at the outset that the Company had embarked upon an
export led marketing strategy in the context of liberalization and
Company's products having being found acceptable with OEMs and Textile
Mills of developed countries in terms of performance, quality and
price. To that end, the Company has spent both directly and through
its subsidiaries Rs. 80 million over the last 4 years for export market
and product development and succeeded in establishing our
competitiveness in the international market. Whereas the Directors
were as a result of the above, confident to start to reap the benefit
our said investments, the efforts of the Company have been thwarted on
account of the pressures exercised by the German Technical
collaborators, their Indian Associates and certain machinery makers
being either their licencees or influenced by them. Regrettably thus,
in the last 3 years, this has mainly as narrated below, contributed to
substantial reduction of the Company's turnover.
The scheme for amalgamation of erstwhile SITEL with this Company,
prepared by the Industrial Development Bank of India (IDBI) as the
Operating Agency was sanctioned by the Board for Industrial & Financial
Reconstruction (BIFR) on 10th March 1995 with retrospectively effect
from 1st March 1994. The scheme had projected sizable internal
accruals for the Company during the Financial Year 1994-95 and the year
in question, on the basis of the sales projections that took into
account the marketing arrangements and agreements that the Company had
entered into with international Original Equipment Manufacturers (OEMs)
of spinning machinery, other textile mill groups, representatives,
agents including our UK & USA subsidiary Companies.
As the concerned major European OEMs were forced to cancel their wide
ranging export contracts with the Company, and consequently reneging on
the cooperation agreements that they had entered into with the Company,
the projections for wide-ranging export of the Company's products could
not be achieved resulting in unavoidable losses. The Company had not
reckoned that the Company's Technical Collaborators of such
international repute would indulge in business practices that are
totally unacceptable in business parlance. In addition in view of the
large scale violations of the Collaboration agreement by non-supply of
effective and complete know-how, training etc., besides the deliberate
and specific mis-representation by the Technical Collaborator, the
Company was forced to carry out wide-ranging technological
developmental work on its own for market acceptability of the products
in question, thus losing substantial time and money.
Had the Company not been forced to face the totally unwarranted and
violative acts as aforesaid on the part of the Company's Technical
Collaborator, their Indian Associates, Agents and certain machinery
manufacturers, the Company would have by achieving its sales
projections, well have withstood the losses due to the floods at Baroda
factory in September 1994 and due to the textile industry's reduced
demand. The adverse effect of the overall liquidity crises that Indian
Industries suffered during 1995 and 1996 also did not help the Company
to retrieve its position particularly in the context of the scheme for
amalgamation, under which the Company had to take over substantive
liabilities. Alas therefore, the highly synergistic and beneficial
amalgamation has turned unsuccessful otherwise.
After June 1996 too, the Company is continuing to face the liquidity
crunch and the effect of the Collaborators actions. Production at
break-even level has not been maintained and all out efforts have been
undertaken to retrieve the situation by taking strategic measures that
include modification of the BIFR's amalgamation scheme for the SITEL
units and implementation of a total restructuring and re-engineering
programme with drastic measures. Your Directors are sanguine that the
operations of the Company will return to normalcy within a period of 6
months, once the Company's proposals with regard to the modified
amalgamation scheme on the basis of the restructuring and
re-engineering scheme are accepted.
MODIFICATION TO THE BIFR'S AMALGAMATION SCHEME (FOR ERSTWHILE SITEL)
The net worth of the Company as at 30th June 1996 has been eroded by
more than 50% and therefore, the provisions of Sec. 23(1) of the Sick
industrial Companies (Special Provision) Act, 1985 have been attracted.
However subsequent to 30th June, 1996 soon thereafter, due to the
mounting losses and erosion of `Goodwill' for the reasons outlined
earlier, the Company's net worth has become negative and the Company
appears to have attracted the provision of sec. 3(1)(O) of the said
`SICA'. Directors have decided therefore as a prudent course of
action, to seek the reference to the BIFR to safeguard the interest of
the Company, its shareholders, workers & creditors apart from taking
consequential measures for restructuring the Company. An extra
Ordinary General Meeting of the Company is also being called seeking
the approval at members of this action. As the Members are informed,
SITEL has been amalgamated with the Company vide the Order of BIFR
dated 10th March 1995, with retrospective effect from 1st March 1994.
Since the original Scheme for SITEL of its amalgamation as sanctioned
by BIFR could not be implemented fully, under agreement of all
concerned, BIFR directed at its meeting held on 16th October 1996, that
a modified scheme of amalgamation be prepared by IDBI, in its capacity
as the Operating Agency for the Company. Accordingly, IDBI was
directed to submit a modified scheme based on the proposals submitted
by the Company after arriving at a consensus with Banks, etc. at a
Joint meeting. This joint Meeting was held on 5th February, 1997 and
the modified scheme incorporating the promoters' contribution, the need
based credit requirements for SITEL units to be provided by banks and
the revised schedule of repayment of dues to Banks & Institutions was
agreed upon by all the participants after the long term viability of
the Company was established. As per the modified scheme, the promoters
had agreed to arrange to bring in substantial funds to the extent of
Rs.33 Crores mainly through external financing, but also by sale of
surplus assets. However the external funds were subject to the support
of the SITEL Bankers for the Dombivli and Nasik units of SITEL. This
modified scheme was submitted by IDBI to the BIFR in April 1997.
The modifications inter alia included further funding of interest dues
to the SITEL Banks and Institutions upto 30th June 1996 and
reschedulement of their loans and funded interest. Also specifically
as per the said consensus at the joint meeting, the Banks were required
to provide need-based working capital of Rs.242 Lacs, term Loan of
Rs.105 Lacs and deferred payment guarantee of Rs.430 Lacs. Of these,
60% share had been taken by Bank of India, the main Banker of the
Company, though it was not the banker of the SITEL units but of APS
only. This initiative on the part of Bank of India was motivated by
its anxiety to hasten early normalcy returning to the working of the
Company.
The Banks of SITEL although earlier had agreed to take over the balance
40% as per the said consensus and the discussions at the previous BIFR
hearing and although, the terms and conditions for the sharing of
securities and charges between Bank of India and the SITEL banks were
finally settled after prolonged discussions, have, for reasons best
known to them, chosen to back out from providing their share of 40% of
the said facilities for the SITEL units. As a result of this and the
delay of over a year, Bank of India too has been forced to withdraw its
approval for its share of 60% of the said facilities.
In the context of the above, the Company would be submitting fresh
proposal to the BIFR apart from the application under section 15 of the
SICA, as referred above, for permitting the Company's promoters to
bring in such minimum funds, including for working capital, which would
permit operations of the Company to be performed at optimum and
profitable, level, particularly in the context of the potential orders
for Company's products in the domestic and international market. Your
Directors are confident that on the basis of these revised proposals
and the re-engineering and restructuring of the activities to normalise
the Company's operations particularly with the support of the APS'
major bank within the next 6 months, the Company's financial structure
would once again get strengthened within 2 years thereafter.
As reported in the Director's Report for the financial year 1994-95,
the Company has disposed of its Unit IV at Dombivli and shifted its R &
D activities to other units. The Dombivli Unit is closed since 1st
March 1996, and the Nasik unit has been closed from 12.10.97. The
Lease rights of Mumbai Corporate Office at Dhanraj Mahal are under
sale/disposal as directed by the BIFR and consequently the functions of
the Corporate Office are under transfer to the Unit at Vadodara.
In the context of the modified scheme for BIFR not providing any levy
of penal interest on overdue payments even to secured creditors the
Company is seeking waiver from payment of the same with the lenders,
hence the same has not been provided. Attention is drawn to note no.
2(b) in the accounts.
ERSTWHILE SITEL'S MATTERS IN CONNECTION WITH ALGERIA PROJECT
With regard to the case at Delhi High Court on the invocation by SITEL
of performance guarantee issued by Som Datt Builders (SDB), the Court
had given an interim injuction, subject to SDB keeping the guarantee
extended till such time that the case is finally disposed of. The
appeal filed by the company against this court injuction is still
pending disposal.
As regards the arbitration proceedings between SDB and the Company,
arguments have been concluded by SDB before the Arbitrators and your
Company has commenced the same. It is expected that the proceedings
may conclude in the next 4 to 5 months.
CURRENT STATUS OF COLLABORATION AGREEMENTS SKF-TEXTILMACHINEN KOMPONTEN
GmbH (`SKF')
SKF having conceded during the discussions that there have been
breaches, have sought to compensate the Company against premature
cancellation of the Technical Collaboration Agreement with the Company
valid for a period of 10 years as from 12th September, 1989. The
Company in view of the resultant adverse effect that this will have on
the textile industry which it has serviced for 35 years, has correctly
perceived the premature cancellation as an attempt to dominate the
market through the back door, without redressal of the genuine
grievances of the Company. It may be mentioned that after the time SKF
as collaborators divested their shareholding, in the Company, they have
withheld effective and complete know-how including continuing know-how
and new or improved designs. They have also not provided any training
and technical support as required under the Agreement. The Company has
substantiated claims worth several crores on SKF both against their
violations of the Technical Collaboration Agreement, besides for their
violative trade practises in India. In view of the above position, the
Company has not paid and provided royalty and know-how fees amounting
to Rs. 41.56 Lacs being not payable.
CHEMNITZER SPINNEREIMASCHINENBAU GmbH (`CSM')
CSM reneged on the several agreements executed with your Company due to
certain internal and external influences brought on them. As a result
of the above, claims have been raised by the Company on CSM which has
reacted with counter-claims. A Settlement Agreement is now in an
advanced stage of finalisation with the new management of CSM. The
claims of your Company on CSM have therefore not being given effect to
in the accounts.
GROSSENHAINER TEXTILEMASCHINENBAU GmbH (`GROSSENHAINER') &.
SPINDELFABRIK NEUDORF GmbH (`NEUDORF')
A comprehensive MOU was executed between your Company and its associate
Star Spin & Twist Machineries Ltd. on the one hand and Neudorf and
Grossenhainer on the other hand. Accordingly, Neudorf was to supply
heavy duty spindles and inserts to the Company and the Company would
supply light duty spindles and other components to Neudorf. Also,
Grossenhainer was to purchase several components and machinery
aggregates for their speed frames from the Dombivli unit, for which
purpose they had stationed a German technical expert in our plant.
Again, as a result of certain internal and external influence the said
arrangements have not been given effect to. In the meantime,
Grossenhainer has been merged with CSM. On the Settlement Agreement
being reached with CSM, it is proposed to settle also the disputes that
have arisen with Neudorf, which, now once again is interested in
building constructive relationships with us and the Company's foreign
subsidiaries.
SUBSIDIARIES
Pursuant to Sec. 212 of the Companies Act 1956 relating to subsidiary
companies viz. Star of Gujarat Textile Mills Ltd. (SOGTM), the accounts
are enclosed. The SOGTM has considerable asset value based on present
market value of its land including surplus land as assessed by the
Gujarat Government.
The subsidiary StarWorId-Technologies & Trade Ltd., UK (SWTT) together
with its subsidiary StarWorld-USA, Inc. have made considerable market
inroads both with OEMs and Textile Mills in Europe and USA. Once the
restructuring and re-engineering scheme with the sanction of BIFR and
the concerned Banks and Institutions is put into effect and our
operations normalised, the Company would be able to take advantage of
substantive potential orders for the export market.
DEPOSITS
Your Company has not accepted or renewed any deposits during the year
under review. Deposits of Rs. 11.56 Lacs from depositors remain
unclaimed as on 30th June 1996.
INSURANCE
All the properties of your Company have been adequately insured.
DIRECTORS
Mr. M. C. Shah and Mr. C. P. Shah resigned from the Board of Directors
of your Company effective from 1st July 1996 and 14th October 1996
respectively. Mr. D. M. Popat also ceased as Director of the Company
w.e.f. 1st August 1996. Mr. J. S. Pant was appointed as an Alternate
Director for Vice Adm. Ravi Sawhney and automatically ceased as such,
on arrival of Vice Adm. Ravi Sawhney to the State. The Directors take
on record their profound and valuable services and contributions
rendered by them throughout their association with the Company. Mr.
Suresh Talwar resigned from the Board effective from 1st July 1996,
however, to avail of the benefit of his wide experience, he was
appointed as an Alternate Director for Mr. Tapan Mehta, and
automatically ceased as such on, arrival of Mr. Tapan Mehta to the
state. He has now been appointed as Alternate Director for Mr.Suresh
A.Seshan. Mr. Paramjeet Singh Patheja was appointed as Director to
fill in the casual vacancy caused due to the resignation of Mr. C. P.
Shah, but ceased as such w.e.f. 31st March 1997. Mr. Suresh A.
Seshan, Mr. Inder Chand Jain and Mr. Tapan Mehta, Directors retiring by
rotation eligible and willing to be re-appointed, have been reappointed
at the 38th Annual General Meeting of the Company held on 31st March
1997.
Mr. Suresh Mehta has been appointed as the Managing Director of the
Company for a period of five years w.e.f. 23rd September 1996.
Requisite resolution has already been passed at the 38th Annual General
Meeting held on 31st March 1997.
This is further to report that all the managerial personnel viz., Mr.
Suresh Mehta, Managing Director, Ms. Chinmayi Mehta, Mr.P.D. Takalkar
and Mr. Ramesh Verma, Wholetime Directors, have willingly waived their
right to receive any salary for a period of six months beginning from
1st October, 1996 in the wider interest of your. Company due to
financial crunch. The Board of Directors at its meeting held on the
16th September, 1997 have accepted with profound regret the
resignations of Wholetime Directors Ms. Chinmayi Mehta and Mr. Ramesh
Verma as from 17th September 1997 and 11th October 1997 respectively
and taken on record their dedicated services with personal sacrifices
in the difficult times of the Company and their invaluable contribution
to the Company over the years. The tenure of Mr. P D Takalkar as
Director (Technical) has been extended for 3 more years upto 30th June
2000 and that of Mr. Ramesh Verma as Director (Finance) upto 10th
October 1997.
PARTICULARS OF EMPLOYEES
As required under the provisions of Sec. 217(2A) of the Companies Act
1956 read with the Companies (Particulars of Employees) Rules, 1975,
the requisite particulars of such employees are set out in Annexure `A'
to this Report and forms an integral part of this Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
EARNINGS & OUTGO
Particulars under Sec. 217(1)(e) of the Companies Act 1956 read with
the Companies (Disclosure of Particulars in the Report of Board of
Directors) Rules, 1988 are disclosed in Annexure `B' to this Report and
forms an integral part of this Report.
AUDITORS' REPORT
Notes to the accounts are largely self-explanatory to the comments of
the Auditors in their Report.
AUDITORS
Messrs. Nanubhai & Co., Chartered Accountants, Mumbai, Auditors of the
Company, retire at the conclusion of this Meeting. Being eligible,
they have expressed their willingness for re-appointment, certifying
that their re-appointment, if made, shall be within the limits
prescribed under Sec. 224(1B) of the Companies Act, 1956.
APPRECIATION
Your Directors take on record their appreciation and thanks to all the
well wishers more particularly the shareholders, customers, suppliers,
financiers, banks, financial institutions, NBFCs, State Governments of
Gujarat, Maharashtra and Karnataka, Central Government, more
particularly the BIFR and IDBI as its Operating Agency and Bank of
India and United Bank of India as the main bankers for their rational
and constructive support to the Company. Your Directors also put on
record the appreciation of the co-operation and sacrifices of all the
workers, employees, officers and executives of your Company in trying
period, through which the Company has been passing.
I. CONSERVATION OF ENERGY
a) The Company has taken several steps/measures for conservation of
energy like -
i) Only those machines are run which can give maximum out-put in view
of limited requirement of production. Balance machine kept idle.
ii) Wastage of compressed air reduced by new fittings.
iii) Re-allocation of lighting arrangement done.
b) Additional investments and proposals, if any, being implemented for
reduction of consumption of energy. On Account of low production no
additional investments and proposal done.
c) Impact of measures at (a) and (b) for reduction of energy
consumption and consequent impact on the cost of production of goods.
As a result of above steps, energy saving upto around 6% is achieved.
d) As per Form `A'
FORM - B
1. RESEARCH & DEVELOPMENT (R&D)
i) Specific areas in which R&D carried out by the Company.
a) New product developed to take care of local as well as export
market.
b) New (design) drafting components for Ring and Speed frame have been
already designed.
c) To achieve better quality, time to time development work is being
done so that quality improvement is achieved.
ii) Benefits derived as a result of above R&D.
Quality improvement, saving in foreign exchange and penetration in
overseas market.
iii) Future Plan of Action.
We shall continue our efforts to develop new techniques, in order to
further improve quality of our existing products and through research
and development activities, we would develop new products to meet
indigenous and overseas market.
iv) Expenditure on R&D Rs. in Lacs
1996 1995
a) Capital - -
b) Recurring 17.08 163.26
c) Total 17.08 163.26
d) Total R&D expenditure as a percentage of
total turnover 0.73 4.33
2. TECHNOLOGY ABSORPTION & INNOVATION
i) Efforts in brief, made towards technology absorption and
innovation :
Having vast experience in the manufacturing in the field of textile
machinery components and with the help of available know-how, the
Company can produce various design of drafting components and meet
requirement of machinery manufacturers world wide.
ii) Benefits derived as a result of above efforts :
Quality improvement, import substitution, reduction in cost and
improvement in existing products etc.
iii) Information regarding technology imported during the last five
years :
Sr. Technology Imported Year of Has Technology
No. Import been fully absorbed
1. Spindle Inserts HF-21, 1989-90 Yes, to the extent drawings
HZ-21 and HC-21 1990-91 and know-how were provided
to us
2. Spindle Inserts HF-1/ 1992-93 Yes to the extent drawings
HZ-1 and know-how were
provided to us
3. Spindle Inserts HF-3/ 1991-92 Technology was absorbed to
HZ-3 the extent of the drawings/
know-how provided only for
spindle inserts of type HF-30.
4. Spindle Inserts HF-/ 1992-93 Whatever know-how was given
HZ-4 has been fully absorbed.
However, detailed technical
data with regard to marketing
application has not been
provided inspite of repeated
requests by the company. As
a result of this, technology
absorption for this has been
slowed down and is still in
progress.
5. Spindle Inserts HF/HZ-5 1991-92 Technology absorption inspite
series of Two for One of know-how not provided by
Twister and Heavy the Collaborators, has been
duty Spindles finally and fully accomplished
by the Company's own
development efforts and with
the help of Star Spin & Twist
Machineries Ltd.
Sr. If technology not fully absorbed the
No. reasons thereof and future plan of action
1. It has come to light that vital know-how/technical information was
withheld by the Collaborators and inspite of repeated requests, the
drawings and technical know-how pertaining to the same were not
provided by the Collaborators. Also, no continuing know-how and
training to the Company's technical team at the collaborators works
for which the company has paid royalty was given by the
Collaborators. By the Company's own R&D department's efforts the
additional designs/developments have been/are being resolved
and achieved.
2. It has come to light that vital know-how/technical information was
withheld by the Collaborators and inspite of repeated requests, the
drawings and technical know-how pertaining to the same were not
provided by the Collaborators. Also, subsequently design improvements
and modifications made by the Collaborators, which should have
been provided to the company have not been given in violation of
the terms of the Technical Collaboration Agreement. Furthermore,
no continuing know-how and training to the company's technical
team at the collaborators works for which the company has paid
royalty was given by the Collaborators. By the Company's own
R&D department's efforts the additional designs/developments have
been/are being resolved and achieved.
3. Under the series HF-3, although the company was entitled to all
inserts under this category including type HF-33, HF-35 and others,
know-how provided only for the same have been withheld inspite of
repeated requests to the Collaborators. By the Company's own R&D
department's efforts the additional designs/developments have
been/are being resolved and achieved.
4. The company is making its own development efforts to achieve
full absorption.
3. FOREIGN EXCHANGE EARNINGS AND OUTGO
a) Company has made sincere efforts to increase export of products by
introduction of new products and improvement of quality would widen
global market.
b) Total foreign exchange used and earned. Rs. in lacs
1995-96 1994-95
i) Used 84.86 650.79
ii) Earned 132.72 524.18
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