23rd Annual Report 2003-04 - autoaxle.com · Fertilizers & Petro Chemicals Corp., Finolex...

23rd Annual Report 2003-04

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TWENTY THIRD ANNUAL REPORT 2003-2004

BOARD OF DIRECTORS

Ashok Rao President & Wholetime DirectorB.C. PrabhakarB.N. Kalyani ChairmanBlake G. PalmerBradley A. ArnoldP.C. BhaleraoP.M. McNamaraPratap BhogilalS.S. MaratheSabareeshan C.K. Executive Director (Finance) & Company Secretary

Auditors M/s. Deloitte Haskins & Sells (Chennai),Bangalore

Bankers State Bank of IndiaPunjab National BankState Bank of MysoreBank of Nova ScotiaICICI Bank LimitedBNP ParibasIDBI Bank LtdExport Import Bank of IndiaHDFC Bank Ltd

Registered Office Hootagalli Industrial Areaand Works Off Hunsur Road

Mysore 570 018

Listing at Stock The Stock Exchange, MumbaiExchanges at National Stock Exchange of India Limited

Contents Page No.

1. Notice 32. Management Discussion & Analysis 53. Report on Corporate Governance 74. Directors’ Report 115. Annexures to Directors’ Report 136. Auditors’ Report 157. Balance Sheet 178. Profit and Loss Account 189. Cash Flow Statement 19

10. Schedules to Accounts 21

23rd Annual General Meeting

Day : Thursday

Date : 27th January, 2005

Time : 12.30 p.m.

Place : Registered Office,

Mysore

3

NOTICE

Notice Is hereby given that the Twenty-third Annual General

Meeting of the Members of Automotive Axles Limited, will be

held at the Registered Office of the Company at Hootagalli

Industrial Area, Off Hunsur Road, Mysore 570 018 on Thursday

27th day of January 2005, at 12.30 p.m. to transact the

following business.

1. To receive, consider and adopt the Balance Sheet as

at 30th September 2004, the Profit and Loss Account

for the year ended on that date and Reports of the

Directors’ and Auditors thereon.

2. To declare a Final Dividend on Equity Shares.

3. To appoint a Director in place of Mr. S S Marathe who

retires by rotation and, being eligible, offers himself for

reappointment.

4. To appoint a Director in place of Mr. Pratap Bhogilal who


reappointment.

5. To appoint a Director in place of Mr. P C Bhalerao who


reappointment.

6. To appoint M/s. Deloitte Haskins and Sells (Chennai),

Chartered Accountants, Bangalore, the retiring auditors,

to hold office from the conclusion of this meeting until

the conclusion of the next Annual General Meeting and

to authorise the Board of Directors, to fix their

remuneration for the period.

Special Business

7. To consider and, if thought fit, to appoint Mr. B C

Prabhakar, as director of the company liable to retire by

rotation.

By Order of the Board of Directors

For AUTOMOTIVE AXLES LIMITED

Place : Mysore C.K. Sabareeshan

Date : 30.11.2004 Executive Director (Finance) &

Company Secretary

Registered Office:

Hootagalli Industrial Area

Off Hunsur Road

Mysore 570 018

NOTES :

1. The Explanatory Statement pursuant to Section 173 (2) of the Companies Act, 1956, in respect of item No.7 of the Notice

is annexed.

2. A member entitled to attend and vote at the meeting entitled to appoint a proxy to attend and vote instead of himself

and proxy need not be a member of the company.

3. Dividend on Equity Shares, if declared at the meeting, will be paid to those members, whose name appear either on

the Company’s Register of Members or on the List of Beneficial owners in the records of Depositories as on the date

of the Annual General Meeting.

4. The register of Members and Share Transfer Books will remain closed from Tuesday, 25.01.2005 to Thursday 27.01.2005

(both days inclusive).

5. As required under the Companies Act, 1956, dividends unclaimed/unpaid for a period of seven years, have to be transferred

to the ‘Investor Protection Fund’, constituted by the Central Government. The Dividend warrants remaining unpaid for

the year 1996-97, are to be claimed by the members on or before 4th March 2005. Those who have not encashed these

or for any subsequent years may write to the Company.

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ANNEXURE TO NOTICE

The following Explanatory Statement sets out material factsrelating to the item No.7 mentioned in the Notice, as requiredunder Section 173 (2) of the Companies Act, 1956.

Item No. 7

Pursuant to Article 117 of the Articles of Association of theCompany read with Section 260 of the Companies Act, 1956,Mr. B C Prabhakar was appointed as Additional Director on theBoard of the Company, effective 30th November 2004. Interms of provisions under section 260 of the Companies Act,Mr. B C Prabhakar would hold office only up to the date ofthis Annual General Meeting. A Notice under section 257 ofthe Companies Act, 1956 has been received from amember specifying his intention to propose the appointment ofMr. B C Prabhakar, a Director subject to retirement by rotation.It would be in the best interest of the Company to appointMr. B C Prabhakar, a Director of the Company. For Briefresume of the Director please refer “Additional informationpursuant to clause 49 of the listing agreement”.

None of the Directors of the Company is interested or concernedin the resolution.

Additional Information pursuant to clause 49 of the listingagreement:

The information relating to the Directors being appointed /re-appointed at the ensuing Annual General Meeting to be heldon 27th January 2005 are given below:

Mr. S S Marathe has served as the Director of your companysince year 1984. He was educated in Pune and later at theLondon School of Economics and Political Science. He is asenior member of the Indian Economic Services since itsinception. He retired in 1980 as Secretary to the Governmentof India, Ministry of Industry (Dept of Industrial Development.)He has wide experience in the fields of finance and industry.He serves on the Boards of Bajaj Tempo, Bharat Forge, DeepakFertilizers & Petro Chemicals Corp., Finolex Industries , FuturaPolyesters, Kinetic Motor, Kirloskar Brothers, Mandovi Pellets& Sandvik Asia. He is also the member of the Audit Committee& Shareholders/ Investor’s Grievances committee of AutomotiveAxles Limited. Having regard to his significant contribution tothe performance and growth of the company, the Directorsrecommend his reappointment.

Mr. Pratap Bhogilal has served as the Director of your Companysince year 1984. He holds a Master Degree in Economics fromUniversity of Bombay. Presently he is the Chairman of BatliboiLimited. He also serves on the Board of Bharat Forge Limited.Mr. Pratap Bhogilal is the Chairman of Audit Committee ofAutomotive Axles Limited. Having regard to his significantcontribution to the performance and growth of the company, theDirectors recommend his reappointment.

Mr. P C Bhalerao has served as the Director of your companysince year 2000. He holds a Bachelor’s degree in Engineeringin Chemistry, (First Rank), M.B.A with Specialisation in Financeand Post graduate Diploma in Taxation (First Rank). He hasa vast experience relating to Capital Restructuring, CapitalIssues, Strategic alliances with foreign companies, CorporateFinance etc. and is presently the Executive Director, BharatForge Limited. Mr.Bhalerao also serves on the Boards ofMeritor HVS (India), BF Utilities, Kalyani Carpenter SpecialSteels, Bhalachandra Investment, Forge Investment, MundhwaInvestment, Jalakumbhi Investment & Finance and JalakamalInvestment & Finance. He is also the member of Audit Committee& Remuneration Committee of Automotive Axles Limited. Havingregard to his significant contribution to the performance andgrowth of the company, the Directors recommend hisreappointment.

Mr. B C Prabhakar, holds a Bachelor’s Degree in Law. He hasrich experience in the field of IR, Legal Issues and HR Practicesand is a Legal Advisor of about 100 companies. He is alsothe Working President of Karnataka Employers Association andhas represented Employers at various International Forumsincluding ILO (International Labour Organisation), both in Indiaand abroad. He is on the Board of Wipro Ltd since 1997.

By Order of the Board of DirectorsFor AUTOMOTIVE AXLES LIMITED

C.K. SabareeshanExecutive Director (Finance) &

Company SecretaryPlace : MysoreDate : 30th November 2004

Registered Office:Hootagalli Industrial AreaOff Hunsur Road

Mysore 570 018

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MANAGEMENT DISCUSSION & ANALYSIS

Industry Structure & Developments

Your Company still retains its pre-eminent position as the largest

independent manufacturer of Drive Axle Assemblies for

Commercial Vehicles in the country, apart from the in-house

capabilities with the Original Equipment Manufacturers such as

Telco and Ashok Leyland, and continues to be the single source

for Drive Axle assemblies for certain Military application. The

demand for your company’s products continues to largely arise

from the OEMs mentioned above and is driven by certain Key

Economic factors such as the growth in agriculture, investment

in infrastructure such as Roads, Telecom, Power etc.

The Government’s initiatives on these infrastructure sectors have

driven the demand for Multi-Axle Vehicles and, hence, for your

company’s products. A recent development in the commercial

vehicles market that is expected to have a significant impact on

the growth of your company’s performance is the imminent entry

of other OEMs such as Eicher Motors & Bajaj Tempo in the

multi-axle segment of the CV market. Your company has in its

range of products that suit the heavier trucks better than what

the competition has to offer.

Segment analysis

Your Company has two primary segments namely, Domestic

and Exports. The following table gives break-up for domestic

sales and exports for the reporting period as compared to 2002-

03. A report of segmental performance is furnished in Para 14

of Schedule 16 to the Balance Sheet as at 30th September 2004.

The impact of these two segments on the performance of the

company is discussed below:

Domestic

As a result of the unprecedented growth in the multi-axle vehicles

segment, your company’s turnover reached the highest ever,

during the year under report, representing an improvement of

23.42% over last year.

Turnover 2003-04 2002-03 Growth Rate

Domestic 2951.50 2391.39 23.42%

Exports 112.59 60.58 85.85%

Exports

The Company is addressing all exports through Meritor HVS

(India) Limited. Exports of the Company’s products including

DEPB amounted to Rs.112.59 million, an increase of 85.85 %

over last year.

Opportunities & Threats

Domestic

Your company is gearing up to meet the requirement of Drive

Axles & Tag Axles from new customers like Eicher, Bajaj tempo,

Swaraj Mazda & Essar. Your company is ready with bigger

Tandem Drive Axles for higher horse power vehicles planned to

be introduced by these OEMs. These new axles would be

offered with high performance wheel end parts.

Your company is also gearing up to meeting the threat of the

competition, by aggressive pursuit of specific cost improvement

aimed at protecting its competitive pricing. These measures

would also enable your company to partly neutralize the increase

in cost of inputs such as steel etc.

Exports

Your company has identified further opportunities with Arvin

Meritor in USA, Brazil, China & Europe for supply of Axles, Gear

Sets, Housings & Weld yokes. These opportunities, when they

materialize, would enable your company to grow its business

significantly in the coming years.

Outlook

Automotive Industry – traditionally concentrated in USA, EU and

Japan, has witnessed increasing tendency to shift parts of the

value chain to low cost countries. Another discerning trend is

globalization and consolidation of supplies with fewer global

mega players leading the supply pyramid. This represents a

good business opportunity for your company.

Risks & Concerns

Steel prices, driven by certain key commodities, and the

increasing demand /supply gap, continue to be a major concern

due to the OEM’s inability to fully reimburse the cost increases.

Your company has therefore intensified its efforts to accelerate

(Rs. in million)

6

cost reduction programmes aimed at partly neutralize this

impact.

Internal Control Systems and their adequacy

Automotive Axles Limited has a proper and adequate system of

internal controls to ensure that all its assets are safeguarded

and not exposed to risks arising out of unauthorised use or

disposal and that the assets are properly accounted for and

transactions are authorised, recorded and reported correctly.

Your Company has an Audit Committee of the Board of Directors,

which reviews, inter alia, risk management policies, adequacies

of internal controls and the audit findings on the various segments

of the business. M/s. Price Waterhouse Coopers Pvt. Ltd.,

perform the internal audit function.

Human Resources

➣ The number of employees as on 30.09.2004 is 672.

➣ The Company has maintained excellent employee

relations during the year. All continuous improvement

activities were supported by the Union.

➣ All the management staff and workmen now have a

common identity by way of a uniform dress code.

➣ AAL Learning Centre was inaugurated on 29th January

2004. The facility consist of Training Hall with required

facilities, product display centre alongwith an assembly

section and Library facility.

➣ To improve quality and operating efficiency, on the job

training was given to all employees working in the plant,

based on the skill matrix identified.

➣ Regular training programmes were organized in

technical and non technical areas, for a total man hours

aggregating to 4136 hours.

➣ Key personnel were sent to world class manufacturing

facilities through CII to get familiarized with best work

practices and work culture.

Health and Safety

➣ Various training on Health and Safety was executed

during the year. The number of employees trained on

first aid stands at 65. Engaged an experienced Safety

Officer and conducted safety training programmes and

the total man-hours training is 1666.

Financial Ratios

The following table lists out the key financial ratios for 2003-04

and 2002-03.

2003-04 (%) 2002-03 (%)

PBT / Total Income 13.48 14.69

PAT / Total Income 8.53 9.49

Return On Capital Employed 24.84 26.19

Return on Net Worth 34.44 33.61

Earning Per Share Rs. 14.97 13.25

Dividend Pay Out Ratio 76 64

Cautionary Statement

Statements in this management discussion and analysis

describing the Company’s objectives, projections, estimates and

expectations may be ‘forward looking statements’ within the

meaning of applicable laws and regulations. Actual results might

differ substantially or materially from those expressed or implied.

Important developments that could affect the Company’s

operations include a downtrend in the automobile industry –

global or domestic or both, significant changes in political and

economic environment in India or key markets abroad, tax laws,

litigation, labour relation and interest costs.

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REPORT ON CORPORATE GOVERNANCE

� Corporate Philosophy

Your Company is fully committed to sound principles ofCorporate Governance, encompassing high standards oftransparency, accountability, social responsiveness and good/ethical commercial practices. On these principles your Companyaims to maximize the value for all stake holders in the Companynamely, the shareholders, business partners, suppliers,employees and the society.

� Composition of the Board

As on 30th September 2004, the Board of Directors of your

company consisted of 9 Directors. Seven are Non-ExecutiveDirectors, and two Executive Directors. Four are IndependentDirectors.

� Number of Board Meetings

During the year, four Board Meetings were held on 28thNovember 2003, 29th January 2004, 31st May 2004 & 29th July2004. The maximum interval between two board meetings,during the year, was less than four months, except in May 04

that exceeded by two days.

� Independent Director means a director who apart from receivingdirector’s remuneration does not have any other material pecuniaryrelationship or transactions with the company, its promoters, itsmanagement or its subsidiaries, which in the opinion of the boardmay affect independence of judgment of directors.

None of the Director is a member of more than 10 Board LevelCommittees, or a Chairman of more than five such committees.

** Resigned with effect from 29th January 2004.

# Excludes Committees of your Company viz., Audit Committee,Shareholders/ Investors Grievance Committee, RemunerationCommittee and Companies other than public limited companies.

Directors with materially significant pecuniary transactionor relationship with the Company

There was no materially significant pecuniary transaction, orrelationship between the Company and any of the Directors,during the year as contemplated under relevant guidelines ofthe SEBI/Stock Exchanges.

� Information supplied to the Board

Among others, this includes:� Annual operating plans and budgets, capital budget,

updates,� Quarterly results for the company and its operating

divisions or business segments,� Minutes of meetings of Audit Committee and other

Committees,� Materially important issues, disputes with the

Government Authorities on show cause, demand,prosecution and penalty notices.

� Fatal or serious accidents or dangerous occurrences,� Significant labour problems and their proposed

solutions,

� Significant development in human resources andindustrial relations front,

� Sale of material nature, assets, which is not in normalcourse of business,

� Directors’ Attendance Record and Directorship held

Name of Director StatusNumber of

meetings heldNumber of

meetings attendedWhether Attended

last AGM

Mr. B.N. Kalyani Non-Executive 4 4 Yes 12 6Chairman (Chairman of 1)

Mr. S.S. Marathe Non-ExecutiveIndependent 4 Nil No 9 7

(Chairman of 2)

Mr. Pratap Bhogilal Non-ExecutiveIndependent 4 2 Yes 2 1

Mr. P.C. Bhalerao Non-Executive 4 2 Yes 9 Nil

Mr. Bradley Arnold Non-Executive 4 1 Yes 1 Nil

Mr. Blake G Palmer Non-Executive 4 Nil No 1 Nil

Mr. P.M. McNamara Non-Executive 4 3 No 1 Nil

Mr. Ashok Rao ExecutiveIndependent 4 4 Yes Nil Nil

Mr. C.K. Sabareeshan ExecutiveIndependent 4 4 Yes Nil Nil

Mr. Adelio Raschi ** Non-Executive 4 2 Yes Nil Nil

Number ofDirectorships

of otherPublic Limited

Companies

No. of BoardCommittees

of otherCompanies in

which a Member #

8

Mr. B. N. Kalyani 50,000 NIL NIL 50,000

Mr. S.S. Marathe 45,000 NIL NIL 45,000

Mr. Pratap Bhogilal 20,000 NIL NIL 20,000

Mr. P.C. Bhalerao 75,000 NIL NIL 75,000

Mr. Bradley A. Arnold NIL NIL NIL NIL

Mr. Blake G. Palmer NIL NIL NIL NIL

Mr. P.M. McNamara NIL NIL NIL NIL

Mr. Ashok Rao NIL 2,935,505 NIL 2,935,505

Mr. C.K. Sabareeshan NIL 2,343,219 NIL 2,343,219

� Quarterly details of foreign exchange exposure andthe steps taken by management to limit the risks ofadverse exchange rate movement; and,

� Non-compliance of any regulatory, statutory natureor listing requirements and shareholder service such

as non-payment of dividend and delay in sharetransfer.

The Board is presented with detailed notes asnecessary, along with the agenda, well in advance of themeeting.

- The employment of the Executive Directors is contractual.- None of the director is related to any of the directors.- Sitting Fee includes payment for board level committee meeting.

� Audit Committee

Audit Committee of your Board consists of only Non-ExecutiveDirectors, Mr. Pratap Bhogilal, (Chairman) (Independent),Mr. S.S. Marathe (Independent), and Mr. P.C. Bhalerao.M/s Price Waterhouse, Chartered Accountants, perform theinternal Audit function.

The terms of reference of audit committee includes the following:

� Oversight of Company’s financial reporting systemto ensure the disclosure of financial information iscorrect, sufficient and credible.

� Review of the annual financial statements, beforesubmission to the Board, focusing primarily onchanges if any, in the accounting policies or practices,compliance of accounting standards, Qualificationsin draft audit report, Compliance with Stock Exchangeand legal requirements concerning financialstatements, related party transactions etc.,

� Reviewing with the management, external andinternal auditors, the adequacy of internal controlsystems;

� Reviewing the effectiveness of the internal auditfunction;

The committee met four times during the course of theyear.

Attendance record of Audit Committee members

� Investors Grievances & Share transfers

In compliance with the Listing Agreements with the StockExchanges, your Company has a “Shareholders/Investors’Grievances Committee”, comprising Mr. B.N. Kalyani, (Chairmanand non-executive Director), Mr. S.S. Marathe, Mr. Ashok Rao(President & Wholetime Director) and Mr. C.K. Sabareeshan,- Executive Director (Finance) & Company Secretary).

To facilitate prompt and speedy disposal of requests for transfer/transmission, certain officers of the Company are authorizedto address out such matters.

The status on complaints is reported to the Board of Directors byMr. C.K. Sabareeshan, Company Secretary, who is the complianceofficer, and for the year under report is given below:

� Remuneration of DirectorsDetails of remuneration to Directors and their relationship with each other.

(Amount in Rupees)

Name of DirectorCommission

(Rs.)Total(Rs.)

SittingFee(Rs.)

Salaries,performance bonusand perquisites (Rs.)

No. of meetings held No. of meetings attended

Mr. Pratap Bhogilal 4 2

Mr. S.S. Marathe 4 3

Mr. P.C. Bhalerao 4 4

� Remuneration CommitteeYour company has a Remuneration Committee consists ofMr.B N Kalyani, Chairman, (Non Independent), Mr. PatrickMcNamara and Mr. P C Bhalerao, all of whom are Non ExecutiveDirectors. The Remuneration Committee is authorized toapprove any increase in remuneration payable to the Wholetime Directors of the Company. During the year, the committeemet once in 20th November 2004.

� Disclosures

(a) Materially significant related party transactions

- These are disclosed at Para 13 of Schedule 16to the Balance Sheet as at 30th September 2004.

Nature of Complaint No. of complaints No. of ComplaintsReceived Redressed

Non receipt of Dividend 31 31Non receipt of Rights application 1 1Non receipt of Shares 1 1Issue of Duplicate Certificates 3 3Non receipt of Annual Report 2 2Total 38 38

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(b) Details of non-compliance by the Company, penalties,strictures imposed on the Company by the StockExchange or SEBI or any authority, on any matterrelated to capital markets, during the last three years

- There was no instance of any penalty/strictureimposed on the Company by any authority for non-compliance on any matter related to the capitalmarkets during the last three years.

(c) Disclosures regarding appointment or re-appointment ofDirectorsThe information relating to the Directors being appointed /re-appointed at the ensuring Annual General Meeting, arefurnished in the Notice of the Annual General Meeting.

� Communication to Shareholders

Quarterly/half yearly/annual results and information relating toconvening of Annual General Meeting are published in leadingnewspapers and also notified to the stock exchanges as required

under the listing agreement. A report on the ManagementDiscussions & Analysis is enclosed as a part of the Directors’Report to the Members. Your company has a web site“www.autoaxle.com” also carries key information on thecompany.

� General Body-Meetings :

Date, time and Venue for the last three annual general meetingsare given below:

Financial Year Date Time Venue

2000-2001 16th January, 2002 10.30 a.m. Regd. Officeof the Company



General shareholder Information

Annual General Meeting Date & Time : 27th January 2005 at 12.30 p.m.Venue : Registered Office

Hootagalli Industrial AreaOff Hunsur RoadMysore 570 018

Financial Year 1st October 2003 to 30th September 2004

Book Closure Date 16.06.2004 – First Interim Dividend25.1.2005 to 27.01.2005 – Final Dividend (both days inclusive)

Listing The Stock Exchange, MumbaiNational Stock Exchange of India LimitedDuring the year, the company has voluntarily delisted its equity shares from the BangaloreStock Exchange Limited and Pune Stock Exchange Limited

Dividend Payment Date Within the time limit prescribed by Law.

Stock Codes BSE – 505010Demat ISIN Number : INE449A01011

Stock Data High Low No. of Shares(Rs.) (Rs.) Traded

October, 2003 212.60 185.00 129672November, 2003 272.00 201.25 124375December, 2003 306.00 260.00 173386

January, 2004 304.00 202.10 88290February, 2004 254.00 200.00 151920

March, 2004 231.00 171.00 255553April, 2004 218.00 172.90 23968May, 2004 208.00 162.00 8679

June, 2004 194.50 164.95 3418July, 2004 192.50 151.00 297264

August, 2004 207.70 180.00 215859September, 2004 205.90 190.00 218732

Share Transfer System In compliance with the SEBI circular dated 27th December 2002, requiring share registryin terms of both physical and electronic mode to be maintained at a single point, theCompany has appointed M/s. Alpha Systems Pvt Ltd., Ramana Residency, 4th Cross,Malleshwaram, Bangalore 560 003, as its Registrar and Share Transfer Agents.

Company’s shares are traded on the Stock Exchanges compulsory in demat mode. Company’sofficers authorized in this behalf, meet thrice a month for dealing with matter concerningsecurities of the company.

10

Shareholding pattern Pattern of shareholding by ownership as on 30th September, 2004.

Promoters 10735081 71.04

Bodies Corporate 640127 4.24

Financial Institutions / Banks 166 0.00

Foreign Institutional Investors 107417 0.71

Non Resident Indians / OCB 48343 0.32

Mutual Fund 1740583 11.52

Public 1840258 12.17

Total 15111975 100.00

Pattern of shareholding, by share class as on 30th September, 2004

Category No. of Share holders No. of Shares held ShareHolding %

Up to 500 9576 676011 4.47

501 to 1000 173 134366 0.89

1001 to 2000 69 103951 0.69

2001 to 3000 33 82893 0.55

3001 to 4000 12 41980 0.28

4001 to 5000 13 60953 0.40

5001 to 10000 10 71028 0.47

10000 & above 37 13940793 92.25

Total 9923 15111975 100.00

Dematerialisation The Company’s Equity Shares are under compulsory demat trading. As on 30th September 2004,dematerialised shares accounted for 62.42 % of total equity.

Details of Public funds obtainedin the last three year Nil

Outstanding warrants and There are no outstanding warrants.their implications on Equity

Plant Locations Hootagalli Industrial Area, Off Hunsur Road, Mysore 570 018

Investor Secretarial Department Share Transfer AgentsCorrespondence Automotive Axles Limited Alpha Systems Pvt Ltdaddress Hootagalli Industrial Area Ramana Residency, 4th Cross

Off Hunsur Road Sampige Road, MalleshwaramMysore 570 018 Bangalore – 560 003Phone : 2402582 - 86 (5 lines)Fax : 2402451 Phone : 23460815-818 Fax : 23460819E-Mail : [email protected] E-mail : [email protected]

To the Members of Automotive Axles Limited1. We have examined the compliance of conditions of corporate governance by Automotive Axles Limited, for the year ended on

30th September 2004, as stipulated in clause 49 of the Listing Agreement of the said Company with the stock changes.2. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination has been limited

to a review of the procedures and implementations thereof, adopted by the Company for ensuring compliance with the conditionsof Corporate Governance. It is neither an audit nor an expression of opinion of the financial statements of the Company.

3. In our opinion and to the best of our information and according to the explanations given to us, and the representations madeby the Directors and the management, except for matters stated below, we certify that the Company has generally complied withthe conditions of Corporate Governance as stipulated in clause 49 of the above-mentioned Listing Agreement.(a) The necessary quorum of independent directors was not available at the meetings of the audit committee held on

29th January 2004, 23rd July 2004 and 18th May 2004.(b) The time interval between meetings of the board of directors held on the 29th of January 2004 and 31st of May 2004 exceeded

the time limit prescribed in the listing agreement.4. As required by the Guidance Note issued by the Institute of Chartered Accountants of India, we have to state that, based on the

records maintained by the Sharehodlers/Investors Grievance Committee, there were no investor grievance matters against theCompany remaining unattended/pending for more than 30 days as of 30th September, 2004.

5. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency oreffectiveness with which the management has conducted the affairs of the Company.

For Deloitte Haskins and SellsChartered Accountants

Place : Bangalore V. SrikumarDate : November 30, 2004 Partner

Membership No. 84494

CERTIFICATE

11

DIRECTORS’ REPORT

Your Directors take pleasure in presenting the Twenty-Third Annual Report of the Company and audited accounts forthe year ended September 30, 2004.

1. Economy

During the fiscal year (Apr – Mar 04), India registereda GDP growth of 8.1 percent, driven to a large extentby the agriculture sector which benefited on account ofa good monsoon. It is also important to note that theperformance of the agricultural sector positively impactedboth the industrial and services sectors which alsorecorded satisfactory growth. The manufacturing sectorgrew by almost 7% while the service sector recorded8.4% growth.

The year saw many initiatives on the part of the UnionGovernment. Notably for the auto industry, reduction inthe peak customs duty and rationalization in the exciseduty structure for some segments were of particularrelevant as they contributed to growth in demand. Thelow interest rate regime and rising purchasing poweralso resulted in increased demand for vehicles. Foreignexchange reserves crossed the threshold $ 100 Billionmark. Stock markets reacted favourably to the excellentall round performance of the Indian economy.

2. Commercial Vehicles Market

During the year under report, Multi Axle Vehicles segmentregistered an impressive growth of 43.74%. Theproduction of MCVs and HCVs, in general, was alsosignificantly higher compared to last fiscal as shown in

the table below.

b) Net Profit:

Management Discussion & Analysis and a report onCorporate Governance are furnished separately.

(Rupees in Million)

Current Year Previous Year % increase

3064.09 2451.97 24.96%

3. Performance of the Company

a) Turnover:

During the year multi-axle vehicle segment registereda growth of around 43.74 %, and the requirement fromthe Army also increased which enabled your Companyto cross the milestone turnover of Rs. 3 billion.

(Quantity in Nos.)

Year (Oct-Sep) 2003- 2002- B/(W) % B / (W)2004 2003

M/H C Vehicles 193495 138013 55482 40.20

Multi-axle Vehicles 58716 40850 17866 43.74

Army 7727 6444 1283 19.91

(Rupees in Million)

Current Year Previous Year

Profit for the year before Taxation 357.45 310.05Provision for Taxation - Current 125.60 110.90 Deferred 5.70 (1.10)Net Profit 226.15 200.25Balance of Profit from Previous 203.71 151.42Year after adjusting transitionalprovision for deferred taxProfit available for appropriation 429.86 351.67Appropriations:Dividend for the year 151.12 113.34Tax on Dividend 19.75 14.52Transfer to General Reserve 23.00 20.10Surplus retained in Profit &Loss Account 235.99 203.71

Management Discussion & Analysis and a report on CorporateGovernnance are furnished separately.

4. Capital expenditure

During the year under report, your company initiated acapital expenditure aggregating to Rs. 271 million towardsreplacement and rebuilding of certain importantmachines, upgradation of plant and systems andenhancing capacities to 80,000 set drive axles and 18,000non drive axles. The Capital Expenditure was fundedthrough Internal accruals / Borrowings. For the year2004-05, the company proposes to incur Rs. 80.5 Mllliontowards sustaining capacity and general plantmaintenance and Rs. 274 million towards upgradationof Gear capacity by 50,000 gear sets per annum.

5. Dividend

For the year under report, an interim dividend of 35% Pershare was paid in May 2004. Your Directors are pleasedto recommend a final dividend of 65% per share aggregatingto 100% per share for the current year.

6. Directors

During the year Mr.Adelio Raschi resigned from theboard. The Board, while accepting the resignation,placed on record its appreciation of the services renderedby him during his tenure on the Board.

Mr. B.C. Prabhakar was appointed additional directoreffective 30th November 2004 and holds office upto thedate of ensuing Annual General meeting, where at, hisappointment is being sought as a Director retiring by rotation.

12

In accordance with the Provisions of the Companies Act,1956, and the Articles of Association of the Company,M/s S.S. Marathe, Pratap Bhogilal and P.C. Bhaleraoretire by rotation, and being eligible, offer themselvesfor re-appointment.

7. Directors’ Responsibility Statement

As required under Section 217 (2AA) of the CompaniesAct, 1956, it is hereby stated that:

• In the preparation of the annual accounts for theyear under report, the applicable accountingstandards have been followed;

• The Directors have selected such accountingpolicies and applied them consistently and makejudgments and estimates that are reasonable andprudent so as to give a true and fair view of thestate of affairs of the company at the end of thefinancial year and of the profit of the company forthat period;

• The directors have taken proper and sufficient carefor the maintenance of adequate accountingrecords in accordance with the provisions of theCompanies Act, 1956 for safeguarding the assetsof the company and for preventing and detectingfraud and other irregularities;

• The Directors have prepared the annual accountson an ongoing concern basis.

8. Conservation of Energy, Technology Absorption andForeign Exchange Earnings and Outgo

The additional information required under the provisionsof Section 217(1) (e) of the Companies (Disclosure ofParticulars in the Report of Board of Directors) Rules,1988, and forming part of the Directors’ Report is givenas Annexure “A” to this report.

9. Particulars of Employees

In accordance with the provisions of Section 217 (2A)of the Companies Act, 1956, read with Companies(Particulars of Employees) Rules, 1975, the particularsof employees are given in Annexure “B” forming partof the Directors’ Report.

10. Auditors

The retiring auditors Deloitte Haskins & Sells (Chennai),Bangalore, have confirmed their availability, if re-appointed as auditors. Board recommends theappointment of M/s Deloitte Haskins & Sells (Chennai)Bangalore, as auditors of the Company, to hold officefrom the conclusion of this meeting until conclusion ofthe next Annual General Meeting.

11. Acknowledgements

The Directors wish to place on record their appreciationof the support and assistance received from theKalyani Group, Pune, and Meritor Heavy Vehicle SystemsLLC., USA. The Directors thank the financial institution/banks, Government of Karnataka and Government ofIndia for their understanding, co-operation and assistanceextended to the Company. The Directors also wishto place on record their appreciation of employeesat all levels for their hard work, dedication andcommitment.

For and on behalf of the Board of Directors

B.N. KalyaniChairman

Place : Mysore

Date : 30th November 2004

13

Information in accordance with the Companies (Disclosure of particulars in the report of Board of Directors) Rules, 1988

ANNEXURES TO DIRECTORS’ REPORT

A. Conservation of energy

a. Energy conservation measures taken 570 KVAR Auto Power factor controller panel with harmonicfilter installed for part of the shop (1000 KVA Transformer).

b. Additional investments and proposal, if any, beingimplemented for reduction of consumption of energy.

Additional 2000 KVAR APFCP, with harmonic filters plannedfor FY 05 at a cost of about Rs. 2 millions.

c. The impact of the measures at (a) & (b) a. (i) Power factor has increased from 0.916 to 0.94resulting in registered maximum demand and a costsaving of about Rs.0.15 million(ii) Amperage of the current output from transformerreduced from 870 Amps to 566 Amps enablingadditional load carrying capacity of the transformer,extended cable life and reduction in energy lossesapprox Rs.0.15 million per year(iii) Improvement in quality of power from reductionin voltage current-third harmonics

b. Power factor improvement to 0.99 and reduction incopper losses and cost savings will be around Rs. 0.50million per annnum and quality of Power will improve.

d. Total energy consumption and energy consumption perunit of production as per Form A of the Annexure inrespect of industries specified in the Schedules there to

Not applicable

B. I. Research and Development (R & D)

➣ Development of Induction Softening process.➣ Development of Power & free conveying system for

Housing.➣ Development of aqueous Cleaning processes for

various Axle components➣ Retrofitting of old mechanical gear cutting / lapping

equipment with CNC Control.

2. Benefits derived as a result of the above R & D Better product reliability, quality and faster thru put timesleading to better customer satisfaction

3. Future plan of action

1. Specific areas in which R & D carried out by Company

➣ Development of new Continuous Carburizing HeatTreatment facility with closed loop computer controls

➣ Upgradation of current 5 cut Gear Cutting Technologyto latest CNC Gear Hobbing Technology.

➣ Development of new CNC facility for machining thecomplete housing in one set up.

4. Expenditure on R & Da. Capitalb. Recurringc. Totald. Total R & D expenditure as a

percentage to total turnover

Rs. 10.08 MillionsRs. 0.79 MillionsRs. 10.87 Millions0.41

Annexure - A

14

II. Technology Absorption, Adaptation and Innovation

1. Efforts in brief, made towards technology absorption,adaptation and innovation

2. Benefits derived as a result of the efforts, e.g., productimprovement, cost reduction, product development and importsubstitution, etc

a) Development of MS 160 Axles Axle which is suited for the higher horse power enginesbeing introduced in the new Trade.

b) Development of R-Series Wheel End New generation, high performance wheel ends providing thecustomer with extended bearing life.

c) Development of U-series Wheel end New generation, high performance wheel ends for very heavyoff highway applications providing the customer with extendedwheel bearing life.

3. In case of imported technology (imported during the last five years reckoned from the beginning of the financial year) followinginformation may be furnished.

Technology imported (Product) Year ofImport

Has technology been fullyabsorbed

If not fully absorbed areas wherethis has not taken place, reasonsthere for and future plan of action

a. Activities relating to exports, initiative taken to increase exports,development of new export markets for products and servicesand export plans

III. Foreign Exchange Earnings and Outgo :

NIL

b. Total Foreign Exchange used and earnedUsedEarned


Place : Mysore B.N. KalyaniDate : 30th November, 2004 Chairman

Not applicable

Rs. 75.76 millionRs. 9.85 million

Annexure - B

Information required as per Section 217 (2A) (b) (ii) of the Companies Act, 1956 read with the Companies (Particularsof Employees) Rules, 1975 and forming part of the Directors’ Report for the year ended 30th September, 2004.

Name Designation/Nature of Duties

GrossRemuneration(Rs.)

Particulars of lastEmployment,Designation held,organisation & period

Ashok Rao

Age Qualification &Experience

Date ofCommencementof Employment

40 M.S (Mfg.Engineering)15 years.

President &WholetimeDirector

2,935,505 21.06.99 Deputy GeneralManager, MICO,Bangalore, 7 years


Place : Mysore B.N. KalyaniDate : 30th November, 2004 Chairman

15

TO THE MEMBERS OF AUTOMOTIVE AXLES LIMITED

We have audited the attached Balance Sheet of AUTOMOTIVE

AXLES LIMITED as at 30th September 2004, the Profit and

Loss Account and the Cash Flow Statement of the Company

for the year ended on that date, both annexed thereto. These

financial statements are the responsibility of the Management

of the Company. Our responsibility is to express an opinion

on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted

auditing standards in India. These Standards require that we

plan and perform the audit to obtain reasonable assurance

whether the financial statements are free of material

misstatement. An audit includes, examining on a test basis,

evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting

principles used and significant estimates made by the

Management as well as evaluating the overall financial

statements. We believe that our audit provides a reasonable

basis for our opinion.

As required by the Companies (Auditor’s Report) Order, 2003

issued by the Department of Company Affairs in terms of Section

227 (4A) of the Companies Act, 1956, we give in the Annexure,

a statement on the matters specified in paragraphs 4 and 5 of

the said Order.

Further to our comments in the Annexure referred to above,

we report that:

(a) 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;

(b) in our opinion, proper books of account as required bylaw have been kept by the Company, so far as it appearsfrom our examination of the books;

AUDITORS’ REPORT

(c) the Balance Sheet, the Profit and Loss Account and theCash Flow Statement dealt with by this report are inagreement with the books of account;

(d) in our opinion, the Balance Sheet, the Profit and LossAccount and the Cash Flow Statement dealt with by thisreport are in compliance with the Accounting Standardsreferred to in Section 211 (3C) of the Companies Act,1956;

(e) On the basis of the written representations from thedirectors, taken on record by the Board of Directors,none of the directors are disqualified as on 30thSeptember 2004 from being appointed as a directorunder Section 274 (1) (g) of the Companies Act, 1956;

(f) In our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts give the information required, by the CompaniesAct, 1956, in the manner so required and give a trueand fair view in conformity with the accounting principlesgenerally accepted in India:

(i) in the case of the Balance Sheet, of the stateof affairs of the Company as at 30th September2004;

(ii) in the case of the Profit and Loss Account, of theprofit for year ended on that date ; and

(iii) in the case of the Cash Flow Statement, of thecash flows for the year ended on that date.

For DELOITTE HASKINS & SELLSChartered Accountants

V. SRIKUMARPlace : Bangalore PartnerDate : 30th November, 2004 Membership No. 84494

16

ANNEXURE TO THE AUDITORS’ REPORT(Referred to in our report of even date)

(i) The nature of the Company’s business/activities during theyear is such that the provisions of clauses i (c), iii (b) to(d), v (b), vi, ix (b), x, xii, xiii, xiv, xv, xviii, xix and xx ofparagraph 4 of the Companies (Auditor’s Report) Order,2003 are not applicable to the Company for the currentyear.

(ii) In respect of its fixed assets:

(a) The Company has maintained proper recordsshowing full particulars, including quantitative detailsand situation of fixed assets.

(b) Some of the fixed assets were physically verifiedduring the year by the management in accordancewith a programme of verification, which in our opinionprovides for physical verification of all the fixedassets at reasonable intervals. According to theinformation and explanations given to us no materialdiscrepancies were noticed on such verification.

(iii) In respect of its inventories:

(a) As explained to us, inventories were physicallyverified during the year by the management atreasonable intervals.

(b) In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventories followed by themanagement were reasonable and adequate inrelation to the size of the Company and the natureof its business.

(c) In our opinion and according to the information andexplanations given to us, the Company hasmaintained proper records of its inventories and nomaterial discrepancies were noticed on physicalverification.

(iv) The Company has not granted or taken any loans to/fromcompanies, firms or other parties listed in the Registermaintained under Section 301 of the Companies Act, 1956.

(v) In our opinion and according to the information andexplanations given to us, and having regard to theexplanations that some of the Company’s transactions ofpurchase involve goods and materials of a specialisednature for which comparative prices are not available, thereare adequate internal control procedures commensuratewith the size of the Company and the nature of its businessfor the purchase of inventory and fixed assets and for thesale of goods and we have not observed any continuingfailure to correct major weaknesses in such internal controls.

(vi) To the best of our knowledgement and belief, and accordingto the information and explanations given to us, and therecords of the Company examined by us, there were notransactions that needed to be entered in the Registermaintained under Section 301 of the Companies Act, 1956.

(vii) In our opinion, the internal audit functions carried out duringthe year by a firm of Chartered Accountants appointed bythe management have been commensurate with the sizeof the Company and the nature of its business.

(viii) We have broadly reviewed the books of accounts andrecords maintained by the Company relating to themanufacture of automobile parts, pursuant to the ordermade by the Central Government for the maintenance ofcost records under Section 209(1) (d) of the CompaniesAct, 1956 and are of the opinion that prima facie theprescribed accounts and records have been made andmaintained. We have, however, not made a detailedexamination of the records with a view to determiningwhether they are accurate or complete.

(ix) With respect to statutory dues:(a) According to the information and explanations given

to us, the Company has been regular in depositingundisputed statutory dues, including Provident Fund,Investor Education and Protection Fund, Employees’State Insurance, Income-tax, Sales-tax, Wealth Tax,Custom Duty, Excise Duty, cess and any othermaterial statutory dues with the appropriateauthorities during the year.

(b) According to the information and explanations givento us, no undisputed amounts payable in respectof income tax, wealth tax, sales tax, customs duty,excise duty and cess were in arrears, as atSeptember 30, 2004, for a period more than sixmonths from the date they became payable.

(c) According to the information and explanations givento us, as at the year-end there are no dues ofincome tax, wealth tax, sales tax, customs duty,excise duty and cess which have not been depositedon account any dispute.

(x) In our opinion and according to the information andexplanations given to us, the company has not defaultedin the repayment of dues to financial institutions and banks.

(xi) To the best of our knowledge and belief and according tothe information and explanations given to us, in our opinion,term loans availed by the Company were, prima facie,applied by the Company during the year for the purposesfor which the loans were obtained, other than temporarydeployment pending application.

(xii) According to the information and explanations given to us,and on all over examination of the balance sheet of theCompany, funds raised on short term basis have, primafacie, not been used during the year for long term investmentand no long term funds have been used to finance shortterm assets other than temporary deployment pendingapplication.

(xiii) To the best of our knowledge and belief and according tothe information and explanations given to us, no fraud onor by the Company was noticed or reported during the year.

For DELOITTE HASKINS & SELLSChartered Accountants

V. SRIKUMARPlace : Bangalore PartnerDate : 30th November, 2004 Membership No. 84494

17

BALANCE SHEET AS AT 30TH SEPTEMBER

Schedule 2004 2003No. Rs. Rs.

SOURCES OF FUNDS

1. Shareholders’ Fundsa) Share Capital 1 151,119,750 151,119,750b) Reserves & Surplus 2 437,599,130 382,315,316

588,718,880 533,435,066

2. Loan Fundsa) Secured Loans 3 260,632,856 111,819,845b) Unsecured Loans 4 189,665,328 191,256,740

450,298,184 303,076,5853. Deferred tax liability (Net) 68,000,000 62,300,000

TOTAL 1,107,017,064 898,811,651

APPLICATION OF FUNDS

1. Fixed Assets 5a) Gross Block 1,233,212,547 1,116,838,362b) Less : Depreciation 672,567,611 589,862,343

c) Net Block 560,644,936 526,976,019d) Capital work-in-progress - at cost 108,045,469 37,075,903

668,690,405 564,051,922

2. Current Assets, Loans & Advancesa) Current Assets 6 889,388,493 654,648,540b) Loans & Advances 7 371,012,976 191,863,965

1,260,401,469 846,512,505

Less : Current Liabilities & Provisions

a) Current Liabilities 8 408,838,636 255,771,287b) Provisions 9 413,236,174 255,981,489

822,074,810 511,752,776

Net Current Assets 438,326,659 334,759,729

TOTAL 1,107,017,064 898,811,651

Significant Accounting Policies and Notes to 16Balance Sheet & Profit & Loss Account

As per our report of even date attached

For DELOITTE HASKINS & SELLS On behalf of the Board of Directors

Chartered Accountants

V. Srikumar B.N. Kalyani Ashok Rao C.K. Sabareeshan

Partner Chairman President and Executive Director (Finance)

Membership No. 84494 Wholetime Director & Company Secretary

Place : Bangalore Place : Mysore

Date : 30th November, 2004 Date : 30th November, 2004

18





Partner Chairman Wholetime Director Executive Director (Finance)

Membership No. 84494 & Company Secretary



PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH SEPTEMBER

Schedule 2004 2003No. Rs. Rs.

INCOME

Sales - Gross 2,917,612,735 2,381,592,902Less : Excise Duty 413,125,130 341,962,066

2,504,487,605 2,039,630,836

Other Income- Operational 10 141,662,451 63,646,215- Others 11 4,815,463 6,735,944

2,650,965,519 2,110,012,995

EXPENDITURE

Raw Materials Consumed 12 1,756,609,919 1,293,472,362

(Increase)/Decrease In Stock of Finished Goods &Work-in-Process 13 (79,309,427) 15,054,250

Manufacturing, Administration & Selling Expenses 14 507,125,400 387,124,023

Interest 15 9,435,737 11,489,171

Depreciation 99,650,864 91,680,337

Miscellaneous Expenditure amortised - 1,146,627

2,293,512,493 1,799,966,770

Profit before Tax 357,453,026 310,046,225

Provision for Taxation- Current Tax 125,600,000 110,900,000- Deferred Tax 5,700,000 (1,100,000)

Profit after Tax 226,153,026 200,246,225

Add : Balance brought forward from previous year 203,707,891 151,423,142

Profit available for appropriation 429,860,917 351,669,367

APPROPRIATIONS

Proposed Dividend 98,227,838 71,026,283Interim Dividend 52,891,912 42,313,530Tax on Dividend 19,749,462 14,521,663Transfer to General Reserve 23,000,000 20,100,000

Surplus carried to Balance Sheet 235,991,705 203,707,891

No of Equity Shares 15,111,975 15,111,975Basic and Diluted Earnings per Equity Share (Rs.) 14.97 13.25(Face value of Rs. 10 /- per share)

Significant Accounting Policies and Notes to 16Balance Sheet & Profit & Loss Account

19

CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH SEPTEMBER

2004 2003Rs. Rs. Rs.

I ) Cash Flow From Operating Activities

A) Net Profit before Tax and Extraordinary Items 357,453,026 310,046,225

B) AdjustmentsAdd :Depreciation 99,650,864 91,680,337Assets Scrapped - 2,831,263Miscellaneous expenditure amortised - 1,146,627Loss on sale of Asset 6,436 14,966Interest Expense 9,435,737 11,489,171

109,093,037 107,162,364

Less :Profit on sale of asset 664,374 363,908Interest Income 1,416,634 1,925,850

Operating Profit Before Working Capital Changes 464,465,055 414,918,831

C) Adjustments for

Inventory (218,089,513) (5,136,382)

Sundry Debtor 9,959,000 (232,513,588)

Loans & Advances (48,142,400) (7,229,481)

Current Liabilities & Provisions 152,576,285 90,086,357

(103,696,628) (154,793,094)

D) Cash Generated From Operations 360,768,427 260,125,737

Advance Tax (Net of refunds) (131,006,611) (102,920,288)

E) Net Cash From Operating Activities 229,761,816 157,205,449

II) Cash Flow From Investing Activities

Purchase of Fixed Assets(Net of exchange fluctuation capitalised & assetsacquired on finance lease & including CapitalWork-in-Progress) (201,153,613) (89,696,851)Sale of Assets 1,161,724 1,082,677Interest Income 1,416,634 1,925,850

Net Cash Used in Investing Activities (198,575,255) (86,688,324)

III) Cash Flow From Financing Activities

A) Inflow

Proceeds From Long Term Borrowings 137,574,285 11,400,000Proceeds From Short Term Borrowings 636,656,250 626,393,334

774,230,535 637,793,334

20





Partner Chairman President and Executive Director (Finance)

Membership No. 84494 Wholetime Director & Company Secretary



Note: 1. The above cash flow statement has been prepared under the “Indirect Method” as set out in the Accounting

Standard 3 Cash Flow Statement issued by the Institute of Chartered Accountants of India.

2. Cash and Cash equivalents at the end of the year include balance with Scheduled Banks in unpaid Dividend Accounts

Rs. 1,813,987/- (Previous Year Rs. 1,391,399/-)

2004 2003Rs. Rs.

B) Outflow

Repayment of Long Term Borrowings (54,545,260) (40,996,560)Repayment of Short Term Borrowings (576,103,196) (525,547,631)Dividend & Tax on Dividend (139,508,162) (137,839,651)Interest Paid (8,651,038) (11,883,989)

(778,807,656) (716,267,831)

Net Cash Used in Financing activities (4,577,121) (78,474,497)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS 26,609,440 (7,957,372)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,979,840 27,937,212

CASH AND CASH EQUIVALENTS AT END OF PERIOD 46,589,280 19,979,840

21

SCHEDULES FORMING PART OF THE ACCOUNTS

2004 2003Rs. Rs.

SCHEDULE - 1SHARE CAPITAL

Authorised:

23,000,000 Equity Shares of Rs.10 each 230,000,000 230,000,0002,000,000 Preference Shares of Rs.10 each 20,000,000 20,000,000

250,000,000 250,000,000

Issued, Subscribed & Paid up :

15,111,975 Equity Shares of Rs.10 each fully paid up 151,119,750 151,119,750

SCHEDULE - 2RESERVES & SURPLUS

Share Premium 115,588,500 115,588,500

General ReserveAs per last Balance sheet 63,018,925 42,918,925Add: Transfer from Profit & Loss Account 23,000,000 20,100,000

86,018,925 63,018,925

Surplus in Profit & Loss Account 235,991,705 203,707,891

TOTAL 437,599,130 382,315,316

SCHEDULE - 3SECURED LOANS

From Financial Institutions-Foreign Currency Working Capital Loans - 50,424,000-Finance Lease Obligations 1,640,514 -

1,640,514 50,424,000

From Banks-Foreign Currency Term Loans 139,380,000 -(No amounts due within one year)-Rupee Term Loans 19,676,918 47,630,766(Includes amounts due within one year Rs. 15,876,924/-previous year Rs. 27,953,848/-)-Working Capital Borrowings 99,935,424 13,765,079

258,992,342 61,395,845

TOTAL 260,632,856 111,819,845

1. Foreign currency term loan Rs. 139,380,000/- is secured by first pari-passu charge on the entire Plant & Machinery of the Company.

2. Rupee Term Loans include:

a) Loan of Rs. 12,076,918/- (Previous year Rs. 36,230,766/-) secured by a first charge by a joint equitable mortgage of immovable

properties of the Company, ranking pari passu and second charge on Current Assets subject to first charge in favour of Banks for

Working Capital borrowings.

b) Loan of Rs. 7,600,000/- (Previous year 11,400,000/-) secured by a first pari-passu charge by hypothecation of the Plant and Machinery

of the Company.

3. Working Capital Borrowings include:

a) Short term loan of Rs. 70,000,000/- secured by first pari-passu charge on Stocks and Book debts of the Company.

b) Working capital facilities of Rs. 29,935,424/- secured by a first charge ranking pari-passu inter-se, by way of hypothecation of current

assets, and by second charge by a joint equitable mortgage of immovable properties of the Company.

4. Finance lease obligations are secured by assets purchased under the respective agreements.

22

DESCRIPTIONGROSS BLOCK AT COST DEPRECIATION NET BLOCK

As at

01.10.2003

Additions/

Adjustments

during the

year

Disposals/

Adjustments

during

the year

As at

30.09.2004

Up to

30.09.2003

For

the year

Adjustments

during

the year

As at

30.09.2004

As at

30.09.2004

As at

30.09.2003

Land-Freehold 3,832,366 - - 3,832,366 - - - - 3,832,366 3,832,366

Building 79,045,900 13,464,982 - 92,510,882 23,607,350 2,661,668 - 26,269,018 66,241,864 55,438,550

Plant & Machinery 1,005,617,787 114,782,733 17,076,392 1,103,324,128 547,514,968 93,553,339 16,753,345 624,314,962 479,009,166 458,102,819

Furniture & Office

Equipment 25,537,427 3,232,047 201,054 28,568,420 17,130,131 2,842,448 150,618 19,821,961 8,746,459 8,407,296

Vehicles 2,738,840 2,343,805 171,936 4,910,709 1,543,854 593,409 41,663 2,095,630 2,815,079 1,194,986

Assets held for disposal 66,042 - - 66,042 66,040 - - 66,040 2 2

Total 1,116,838,362 133,823,567 17,449,382 1,233,212,547 589,862,343 99,650,864 16,945,596 672,567,611 560,644,936 526,976,019

Capital work in

progress (b) 108,045,469 37,075,903

Total 668,690,405 564,051,922

Previous Year 1,059,390,173 82,517,654 25,069,465 1,116,838,362 519,686,472 91,680,337 21,504,466 589,862,343 564,051,922 569,600,407

(a) Additions during the year include Rs. 1,805,715/- (Previous year Rs. Nil) towards Exchange Loss adjusted to the cost of the assets acquired out of Foreign Currency Loan.

(b) Capital work in progress includes Capital Advances Rs. 44,422,154 (Previous Year Rs. 20,763,174)

(c) Vehicles include Rs. 2,343,805/- (Previous year Rs. Nil) purchased under finance lease arrangements.

(in Rupees)

2004 2003Rs. Rs.

SCHEDULE - 4UNSECURED LOANS

From the Govt. of Karnataka-Development Loan - Interest free 517,033 1,757,033(Includes amounts due within one year Rs. 240,000/-,previous year Rs. 1,240,000/-)

-Sales tax Loan - Interest free 94,148,295 119,499,707(Includes amounts due within one year Rs. 25,872,000/-previous year Rs. 25,872,000/-)

94,665,328 121,256,740Short Term Loans & advances from banks *

- Short term Borrowings 95,000,000 70,000,000

TOTAL 189,665,328 191,256,740

* Note : Maximum amount raised during the year-Commercial Paper – 98,772,850

2004 2003Rs. Rs.

SCHEDULE - 6CURRENT ASSETS

Inventories (at the lower of cost and net realisable value)

Raw materials & Components 258,320,073 132,520,468Work-in-process 117,170,811 69,722,849Finished goods 48,090,298 16,228,833Stores & Spares 36,517,325 23,536,844

460,098,507 242,008,994

SCHEDULE - 5FIXED ASSETS

(a)

(c)

23

Sundry Debtors(Unsecured, Considered good)

Over Six months 89,504 374,239

Others 382,611,202 392,285,467

382,700,706 392,659,706

Includes amounts due fromMeritor HVS (India) Ltd., a Company under the same Management 343,010,923 367,331,264

Cash and Bank Balances

Cash on hand 91,152 42,519Cheques on hand 30,462,668 10,279,144Bank Balances

With Scheduled Banks- in Current accounts 16,035,460 9,391,751With Others- in Current accounts with Mysore

District Cooperative Central Bank - 266,426

46,589,280 19,979,840

In respect of balances with other banks :- Maximum amount outstanding during the year 266,426 407,620

- Extent of Directors’ interest Nil Nil

TOTAL 889,388,493 654,648,540

SCHEDULE - 7LOANS & ADVANCES

Advances recoverable in cash or in kind or for value to be received-Considered good 79,709,459 32,209,638-Considered doubtful - 205,735

79,709,459 32,415,373Less : Provision for Doubtful Advances - (205,735)

79,709,459 32,209,638Advance Income Tax 283,875,251 152,868,640Deposits with Govt. Authorities 7,120,112 6,205,112Balances With Customs & Central Excise Dept. 13,579 265,000

Deposits - Others 294,575 315,575

TOTAL 371,012,976 191,863,965

Note :-1. Of the above

- Secured 9,369,999 12,849,999- Unsecured 361,642,977 179,013,966

371,012,976 191,863,965

2. Advances recoverable includes amounts due fromMeritor HVS (India) Ltd., a Company under thesame Management 471,004 Nil

Maximum amount outstanding during the year 510,536 171,500

2004 2003Rs. Rs.

24

2004 2003Rs. Rs.

SCHEDULE - 8

CURRENT LIABILITIES

Sundry Creditors

- Small Scale Undertakings 9,363,840 10,621,539

- Others 256,396,936 158,310,254

Other Liabilities 16,440,321 14,074,671

Interest accrued but not due on loans 1,162,151 377,452

Unpaid Dividend # 1,813,987 1,391,399

Bills Payable 123,661,401 70,995,972

TOTAL 408,838,636 255,771,287

# There is no amount due and outstanding as at the

Balance sheet date to be credited to the Investor

Education and Protection Fund

SCHEDULE - 9

PROVISIONS

Taxation 293,438,114 167,838,114

Warranty 8,733,073 8,016,850

Proposed Dividend 98,227,837 71,026,283

Tax on Proposed Dividend 12,837,150 9,100,242

TOTAL 413,236,174 255,981,489

SCHEDULE - 10

OPERATIONAL INCOME

Jobbing Charges 46,309,653 16,768,082

Scrap Sales 72,800,228 40,292,833

Others 22,552,570 6,585,300

TOTAL 141,662,451 63,646,215

SCHEDULE - 11

OTHER INCOME

Profit on sale of assets 664,374 363,908

Interest (Tax deducted at source Rs.2,14,887/- 1,416,634 1,925,850

Previous year - Rs. 53,915/-)

Exchange gain 93,028 133,188

Miscellaneous Income 2,641,427 4,312,998

TOTAL 4,815,463 6,735,944

25

2004 2003Rs. Rs.

SCHEDULE - 12RAW MATERIAL CONSUMEDOpening Stock 132,520,468 112,558,390Add : Purchases 1,891,524,746 1,323,277,847Less : Cash Discount 9,115,222 9,843,407

1,882,409,524 1,313,434,440

2,014,929,992 1,425,992,830Less : Closing Stock 258,320,073 132,520,468

TOTAL 1,756,609,919 1,293,472,362SCHEDULE - 13

(INCREASE)/DECREASE IN STOCKOF FINISHED GOODS & WORK-IN- PROCESSClosing Stock

- Finished Goods 48,090,298 16,228,833- Work-in-process 117,170,811 69,722,849

165,261,109 85,951,682

Opening Stock- Finished Goods 16,228,833 30,099,899- Work-in-process 69,722,849 70,906,033

85,951,682 101,005,932

TOTAL (79,309,427) 15,054,250

SCHEDULE - 14MANUFACTURING, ADMINISTRATIONAND SELLING EXPENSESPayments to and provision for employees:

- Salaries & Wages 118,514,321 103,556,394- Contribution to Provident Fund and other funds 14,662,421 11,887,979- Welfare expenses 10,485,290 13,460,195

143,662,032 128,904,568

Stores & Spares consumed 78,470,534 59,590,868Power & Fuel 109,888,279 85,383,522Rates & Taxes 529,622 945,607Travelling Expenses 5,693,221 6,403,180Repairs & Maintenance

- Buildings 6,348,038 6,564,824- Plant & Machinery 39,796,778 31,437,691- Others 2,198,343 1,819,325

Insurance charges 3,874,407 3,495,215Postage,Telephone & Telegrams 1,241,185 1,271,333Vehicle Running Expenses 738,062 611,744Directors’ Sitting fees 190,000 80,000Bank charges/Commission 1,532,094 2,149,038Outside Processing Charges 72,723,643 30,353,107Lease Rent - 49,376Warranty 16,744,147 9,930,426Excise duty on Finished goods in stock 7,931,321 2,238,460

Miscellaneous Expenses 15,563,694 15,895,739

TOTAL 507,125,400 387,124,023

SCHEDULE - 15INTERESTInterest on term loans 2,635,673 5,200,624

Interest on Working capital borrowings 6,800,064 6,288,547

TOTAL 9,435,737 11,489,171

26

SCHEDULE 16

NOTES FORMING PART OF ACCOUNTS

1. Significant Accounting Policies:

a) Accounting convention

The financial statements are based on historical cost prepared on accrual basis, and are in accordance with MandatoryAccounting Standards.

b) Fixed Assets and Depreciation

(i) Fixed Assets

Fixed assets are stated at cost (net of CENVAT) less accumulated depreciation. Cost includes all costsrelating to the acquisition and installation of fixed assets including interest on borrowings for the project / FixedAsset till the date of Commercial Production / the assets are put in use.

Expenditure on reconditioning of machinery is capitalised where such expenditure results in increase in thefuture benefits from the asset and /or results in an extension of the useful life of the asset based on technicalassessment.

(ii) Depreciation

Depreciation on Buildings and Plant & Machinery is provided under the “Straight line method” and on otherassets under the “Reducing balance method” at the rates specified in Schedule XIV to the Companies Act,1956, based on technical estimates that indicate the useful lives would be comparable with or higher thanthose arrived at using these rates

In cases where the useful lives are estimated to be lower than those considered in determining the ratesspecified in that Schedule, depreciation is provided under the Straight Line Method over the useful lives of theassets as follows :

• Reconditioned machinery and related - as specifically estimated andExpenditure currently ranging between 4 and 6 Years

• Tools, Jig and Fixtures and Measuring Gauges - 2 to 5 Years

• Certain imported machinery - as per technical evaluation, of theiruseful life and currently rangingbetween 4 to 15 Years.

In case of diminution in value of the asset due to technological reasons, the difference between written downvalue and estimated net realisable value of assets is provided as depreciation in the year in which it is ascertained.

c) Inventories

Raw material, stores & spares, work-in process and finished goods are valued at the lower of cost and estimatedrealisable value. Cost of materials is determined on FIFO basis. In the case of work-in-process and finished goods,cost includes the cost of conversion. Closing stock of Finished Goods includes liability towards Excise duty payableon clearance of goods. Imported materials in transit at the year-end are valued inclusive of customs duty.

d) Foreign Currency Transactions

Foreign Currency Assets and Liabilities covered by Forward Contracts are stated at the Forward Contract rates whilstthose not covered by Forward Contract are restated at rates ruling at the year end. Premium in respect of ForwardContract is accounted over the period of the Contract.Gains or losses arising on settlement / restatement are adjustedto the related asset accounts / Profit & Loss account as appropriate.

e) Revenue Recognition

Sales : - Sales are recognised on despatch and are recorded at invoice value, net of Sales Taxes, but includingexcise duties.Export Incentives : - Export Incentives are accounted for on accrual basis at the time of Export of Goods if theentitlements can be estimated with reasonable accuracy and conditions precedent to claim are fulfilled.

f) Warranty

Warranty expenses are provided for in the year of sale based on technical estimates. In addition, specific provision isalso made against customer claims for manufacturing defects, where necessary.

g) Research and Development

Revenue expenditure on Research and Development is charged to the Profit and Loss Account in the year of incurrence.However capital expenditure on research and development is treated in the same way as other fixed assets.

27

h) Retirement Benefits

Liabilities towards Superannuation, Gratuity and Leave Encashment benefits are charged to the Profit and lossaccount as contributions towards Schemes with the Life Insurance Corporation of India. The adequacy of thecontributions is determined by periodical actuarial valuation by the Life Insurance Corporation of India.

Fixed Contribution to Provident Fund and the cost of other benefits are determined as per the Schemes at the actualcost to the Company.

i) Events subsequent to the Balance Sheet date

Events occurring after the balance sheet date, which have a material impact on the financial affairs of the Company,are taken into cognisance.

j) Prior period and Extraordinary items

Prior period and extraordinary items, and changes in accounting policies, having a material impact on the financialaffairs of the Company are disclosed.

k) Income Tax

Income tax comprises the current tax provision and the net change in the deferred tax asset or liability in the year.

Provision for current tax is made taking into account the admissible deductions/ allowances and is subject to revisionbased on the taxable income for the fiscal year ending 31 March each year.

Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences betweencarrying values of the assets and liabilities and their respective tax bases and are measured using enacted tax ratesapplicable on the Balance Sheet date. Deferred tax assets are recognized subject to management’s judgement thatrealization is virtually certain.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income statement in theperiod of enactment of the change.

2. (a) Installed Capacity:

As on 30.09.04 As on 30.09.03

Axle Housing * (Nos) 86,000 70,224(a component of Axle)Complete Axles (Nos) 65,000 62,400Brake Assemblies ** (Nos) 240,000 240,000Gear Sets (MT) 3,800 3,800

(as certified by management and relied upon by the auditors, being a technical matter)

(b) Actual Production: 2003-04 2002-03

Axle Housings * (Nos) 77,240 55,709(a component of Axle)Complete Axles (Nos) 58,251 46,059Brake Assemblies (Nos) 40 90,285Gear Sets (MT) 2,578 @ 2,070

@ Includes jobbing 187.46 MT( previous year 157 MT)

* Includes quantities used in the production of complete Axles** Brake Assemblies includes Sub-assemblies.

3. Details of Gross Sales : (Excluding Warranty replacements & Samples)

2003-04 2002-03Quantity Amount Quantity Amount

(Nos) (Rs.) (Nos) (Rs.)

• Axle Housing 18,545 155,341,336 9,692 81,762,257• Axles 57,458 2,457,763,880 46,570 1,884,459,859• Brakes 50 229,623 91,491 236,208,351• Spares 304,277,896 179,162,435

2,917,612,735 2,381,592,902

28

4. Income - Jobbing Charges:



• Gear Sets 181 M.T. 7,243,600 174 M.T 7,186,400• Brakes - 39,066,053 - 9,581,682

46,309,653 16,768,082

5. Opening and Closing Stock of Finished Goods:



Opening Stock:• Axle Housing 44 298,787 86 658,563• Axles 365 11,183,489 876 22,399,387• Brakes 10 12,364 1,216 2,632,662• Others 4,734,193 4,409,287

16,228,833 30,099,899

Closing Stock:• Axle Housing 488 4,040,376 44 298,787• Axles 1158 40,207,992 365 11,183,489• Brakes - 10 12,364• Others 3,841,930 4,734,193

48,090,298 16,228,833

6. Raw Materials and Components consumed:


(Rs.) (Rs.)

• Steel (M.T) 15,685 386,725,369 10,601 210,453,100• Castings (Nos.) 502,904 218,468,647 393,936 147,028,003• Forgings (Nos.) 826,115 428,348,652 649,260 267,097,108• Bought out Finished Components 563,526,526 405,166,349• Others 159,540,725 263,727,802

1,756,609,919 1,293,472,362

7. Value of Raw Materials, Stores & Spares consumed during the year:

2003-04 2002-03Consumption Rs. Consumption Rs.

% %

a) Raw Materials• Imported 4 64,115,042 6 83,221,873• Indigenous 96 1,692,494,877 94 1,210,250,489

100 1,756,609,919 100 1,293,472,362

b) Stores & Spares• Imported 1 865,211 4 2,588,745• Indigenous 99 77,605,323 96 57,002,123

100 78,470,534 100 59,590,868

8. Value of imports on C.I.F. basis:

2003-04 2002-03 (Rs.) (Rs.)

i. Raw Materials 56,774,734 70,267,930ii. Consumables & Spares 2,030,487 1,304,749iii. Capital Goods 12,497,352 1,031,373

71,302,573 72,604,052

29

9. Expenditure in Foreign Currency:

2003-04 2002-03(Rs.) (Rs.)

a) Foreign Travel 2,090,915 3,723,630c) Bank Charges 421,388 487,404d) Others 2,386,750 6,692,896

10. Remittances in Foreign Currency on account of dividends to non resident share holders.

2003-04 2002-03 (Rs.) (Rs)

a. No. of Non resident Shareholders 1 1b. No. of equity shares held 5,367,275 5,367,275c. Amount of dividend paid (Rs.) 44,011,655 47,232,020d. Year to which dividend relates Final Dividend 2001-2002

Interim Dividend 2002-2003 2002-2003Interim Dividend 2003-2004

11. Managerial Remuneration :

2003-04 2002-03(Rs.) (Rs.)

Salary and allowances 4,190,554 4,008,108Contribution to Provident and other funds 645,302 467,056Perquisites 442,868 329,787

Total 5,278,724 4,804,951

12. Payment to Auditors:

2003-04 2002-03(Rs.) (Rs.)

As Auditors 840,000 700,000In other capacity 450,000 400,000Service Tax 129,600 85,000(including Education Cess as applicable)Reimbursement of expenses 144,133 75,465

1,563,733 1,260,465

13. Related party transactions :

a. List of Related Parties and Relationship

Relationship Related parties

(i) Controlling Enterprises Meritor Heavy Vehicle System LLC., USA,Arvin Meritor Inc.,

(ii) Other related parties with whom the Company had transactions :-

Enterprises under Common Control Bharat Forge LimitedKalyani Forge LimitedKalyani Steels LimitedMeritor HVS Cameri, SPAMeritor Do Brasil LTDAMeritor HVS (India) LtdArvin Meritor CVA, AustraliaDirona SA, Moneterry, Mexico

Key Management Personnel Mr. B.N. Kalyani, Chairman (Non-retiring)Mr. Ashok Rao, President and Wholetime DirectorMr. C.K. Sabareeshan, Executive Director(Finance) & Company Secretary

Relative of Key Management Personnel Mrs. Jayashree Sabareeshan

30

b. Transactions with Related Parties

Transactions Controlling Enterprises Key TotalEnterprises under Common Management

Control Personnel andtheir Relatives

1) Purchase of GoodsBharat Forge Limited 168,652,144 168,652,144

(136,198,865) (136,198,865)Others 10,383,526 16,121,307 26,504,833

(17,072,933) (10,030,679) (27,103,612)10,383,526 184,773,451 - 195,156,977

(17,072,933) (146,229,544) Nil (163,302,477) 2) Sale of goods

Meritor HVS (India) Limited 2,779,496,325 2,779,496,325(2,322,699,342) (2,322,699,342)

3) Purchase of Fixed AssetsBharat Forge Limited 17,877,766 17,877,766

Nil Nil 4) Services Received

Bharat Forge Limited 68,067,209 68,067,209(46,493,033) (46,493,033)

Others 4,234,447 4,234,447(8,679,259) (8,679,259)

4,234,447 68,067,209 - 72,301,656(8,679,259) (46,493,033) Nil (55,172,292)

5) Services RenderedBharat Forge Limited 7,243,600 7,243,600

(7,186,400) (7,186,400)Others 149,100 149,100

(140,410) (140,410)- 7,392,700 - 7,392,700

Nil (7,326,810) Nil (7,326,810) 6) Rent - -

(13,000) (13,000) 7) Other Recoveries

Meritor HVS (India) Limited 473,242 473,242(209,246) (209,246)

Bharat Forge Limited 104,616 104,616(1,158,901) (1,158,901)

- 577,858 - 577,858Nil (1,368,147) Nil (1,368,147)

8) Trade AdvancesBharat Forge Limited 4,473,000 4,473,000

(12,152,000) (12,152,000) 9) Managerial Remuneration and Sitting Fees

Mr. Ashok Rao 2,935,505 2,935,505(2,465,833) (2,465,833)

Mr. C.K.Sabareeshan 2,343,219 2,343,219(1,855,678) (1,855,678)

Others 50,000 50,000(490,440) (490,440)

- - 5,328,724 5,328,724Nil Nil (4,811,951) (4,811,951)

Amounts Outstanding at the Balance Sheet Date 10) Amounts Receivable

Meritor HVS (India) Limited 343,010,923 343,010,923(367,331,264) (367,331,264)

Others 687,813 - 687,813Nil (1,301,980) (1,301,980)

687,813 343,010,923 - 343,698,736Nil (368,633,244) Nil (368,633,244)

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11) Amounts PayableBharat Forge Limited 49,453,534 49,453,534

(28,869,747) (28,869,747)

Others 1,993,744 2,811,131 1,461,735 6,266,610(327,718) Nil (1,415,469) (1,743,187)

1,993,744 52,264,665 1,461,735 55,720,144(327,718) (28,869,747) (1,415,469) (30,612,934)

12) Advance / Deposit receivable

Bharat Forge Limited 329,440 - 329,440(9,499,734) (250,000) (9,749,734)

1. Related Party relationships are as identified by the Company on the basis of information available with them and accepted by the auditors.2. No amount is/has been written off or written back during the year in respect of debts due from or to related party.3. Figures in brackets relate to the previous year.

I. RevenueSales to external 2,865,571,148 112,587,253 2,978,158,401Customers (2,343,744,209) (60,580,000) (2,404,324,209)Segment Result 305,376,511 28,598,431 333,974,942

(297,763,966) (15,102,030) (312,865,996)Unallocated Expenses net of -32,913,820unallocated income (-8,669,400)Operating Profit 366,888,762

(321,535,396)Interest Expenses 9,435,736

(11,489,171)Income Taxes 131,300,000

(109,800,000)Net Profit 226,153,026

(200,246,225)II. Other information

Segment Assets 798,382,390 44,416,823 842,799,213(609,699,319) (24,969,380) (634,668,699)

Unallocated Assets 1,086,292,661(775,895,727)

Total Assets 1,929,091,874(1,410,564,426)

Segment LiabilitiesUnallocated Liabilities 1,272,372,994

(814,829,361)Total Liabilities 1,272,372,994

(814,829,361)Depreciation 92,248,436 3,788,920

(84,811,248) (3,463,093)Non Cash Charges other than depreciation - -

1. The Company has identified its primary segment as geographical, i.e., domestic and exports. Export Markets have been consideredtogether as the product sold to these markets have comparable risks and rewards.

2. Sales for Exports represent export sales channelised through Meritor HVS (India) Limited and includes DEPB ( Refer Note No.16 (a) )3. There are no Inter-segment Transactions during the year (Previous year Rs. Nil).4. Fixed Assets of the Company have not been identified to the segments as they are common to the segments. Depreciation has been

allocated to segments based on standard rates determined by the Company.5. Secondary Segment disclosures have not been furnished as there is only a Single Business Segment.6. Figures in brackets relate to the previous year.

Domestic Sale for Exports(Note 2 Below)

(Rs.) (Rs.) (Rs.)

Consolidated

14 Segment Reporting

Tranasactions Controlling Enterprises Key TotalEnterprises under Common Management

Control Personnel andtheir Relatives

32

15. Deferred Tax

The net deferred tax liability comprises the tax impact arising from timing differences on account of :

2003-04 2002-03

(Rs.) (Rs.)

Depreciation & Amortisation 212,066,859 193,389,737

Provisions for warranty & Other Provisions (26,715,974) (20,127,804)

185,350,885 173,261,933

Net deferred tax liability relating to the above 68,000,000 62,300,000

16 Changes in accounting policies, etc.,

a) During the year, the Company has recognised export incentives under the Duty Entitlement Pass Book Scheme, on

accrual basis, at the time of export, which was hitherto recognized on receipt of the DEPB license from the authorities.

Consequent to this change the Operating income and the profits for the year are higher by Rs.5,892,143/-.

b) During the year, the Company has revised the balance estimated useful lives of certain assets based on a technical

evaluation. Consequent to such revision, the depreciation charge is higher by Rs 872,847/- (Previous year –

Rs.1,303,775/-) and the profit for the year is lower to that extent.

17 Finance Lease: The lease transactions of the Company represent lease of vehicles on a non-cancelable basis. The minimum

lease payments under the various agreements are given below:

2003-04

Rs.

For the next one year 477,300

One year to five years 1,520,236

Total 1,997,536

Less: Interest 357,022

Present value of minimum lease payments 1,640,514

18 During the year, the Company purchased and sold 2,000,000 units of JM Mutual fund – High Liquidity fund at Rs. 10 per unit.

19 Estimated amount of contracts remaining to be executed on capital account, net of advances and not provided for,

Rs. 121,453,432/- (Previous year- Rs. 36,244,925)

20 Claims against the company not acknowledged as debt for Rs. 339,828/-(Previous year – Rs. 241,948/-).

21 Contingent Liability : Company has certain labour disputes which are pending adjudication. The liability that may arise on

account of these disputes cannot be reasonably estimated.

22 There are no overdue amounts outstanding for over 30 days at the year end to Small Scale Industrial Undertakings.

23 Previous year’s figures have been regrouped / reclassified wherever necessary.

On behalf of the Board of Directors

B.N. Kalyani Ashok Rao C.K. Sabareeshan

Chairman President and Executive Director-Finance &

Wholetime Director Company Secretary

Place: Mysore

Date: 30th November, 2004

33

SCHEDULE 17

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I Registration details

Registration No. 4198 State Code 8

Balance Sheet date 30.09.2004

II Capital Raised during the Year (Amount in Rs. Thousands)

Public Issue Nil Rights Issue Nil

Bonus Issue Nil Private Placement Nil

III Position of Mobilisation and Deployment of funds (Amount in Thousands)

Total Liabilities 1,107,017 Total Assets 1,107,017

Sources of Funds

Paid-up Capital 151,120 Reserves & Surplus 437,599

Secured Loans 260,633 Unsecured Loans 189,665

Deferred Tax Liability (net) 68,000

Application of Funds

Net Fixed Assets 668,690 Investments Nil

Net Current Assets 438,327 Misc. Expenditure Nil

Accumulated Losses Nil

IV Performance of Company (Amount in Rs. Thousands)

Turnover 2650,965 Total Expenditure 2293,512

Profit before Tax 357,453 Profit after Tax 226,153

Earning per Share in Rs. 14.97 Dividend rate 100%

V Generic Names of Three Principal Products/Services of Company (as per monetary terms)

Item Code No. 870850.00(ITC CODE)

Product Description Drive Axles (Rear)


Product Description Brakes-Brake Parts


Product Description Other parts

Signatures to Schedules 1 to 17.

On behalf of the Board of Directors

B.N. Kalyani Ashok Rao C.K. SabareeshanChairman President and Executive Director -Finance

Wholetime Director Company SecretaryPlace : MysoreDate : 30th November, 2004

34

Financial Ratios

2003-04 2002-03 2001-02 2001-01 1999-00% % % % %

PBT / Total Income 13.48 14.69 13.28 11.79 9.02

PAT / Total Income 8.53 9.49 8.3 7.32 6.06

Return on Capital Employed 24.84 26.19 20.5 14.91 12.27

Return on Net Worth 34.44 33.61 28.28 23.17 17.96

Earning per Share 14.97 13.25 9.79 7.09 4.85

Dividend Pay Out Ratio 76 64 61 45 50

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AUTOMOTIVE AXLES LIMITED

Regd. Office : Hootagalli Industrial Area, Off Hunsur Road, Mysore - 570 018

PROXY

I ..........................................................................................................................................................................................................

of .............................................................................................................................................................................................................

being Member(s) of Automotive Axles Limited hereby appoint Mr. ...........................................................................................

......................................................................................................................................................................................or failing him

Mr.........................................................................................................................................................................................................

of ............................................................................................................................................................................................................

as my/our Proxy to vote for me/us and on my/our behalf at the 23rd Annual General Meeting of the Company to be held

on Thursday the 27th January 2005 and at any adjournment thereof.

Signed this .................................................... day ........................................... 2005.

Regd. Folio No./Demat Account No. ...............

No. of Shares .................... Signature ..........................................................

Note : Proxy must reach the Company’s Registered Office not less than 48 hours before the time of holding the aforesaid meeting.

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