TO THE MEMBERS 
Mahindra Automotive Steels Limited 

Your Directors have pleasure in presenting their 7th Annual Report and audited statement of accounts for the year ended 31st March, 2006.

FINANCIAL HIGHLIGHTS
 

The Company was not operational till year ended March, 2005 and only preliminary and preoperative expenses had been incurred since inception.

OPERATIONS

In pursuit of its objective to carry on the business of forging, a Scheme of Arrangement (the Scheme) was entered into with Amforge Industries Limited (AIL), a leading player in forging industry for strategic acquisition of the latter’s plant at Chakan (near Pune). The Chakan unit of AIL is engaged in manufacturing crank shafts, connecting rods and stub axle forgings. 

Pursuant to the Scheme which was approved by the High Court of Judicature at Bombay on 21st March, 2006, the Chakan unit of AIL was demerged and transferred to your Company with effect from 1st April, 2005 . The Scheme resulted in accounting of goodwill of Rs. 86.92 crores for your Company which amount will be amortized over 5 years beginning with the current financial year. 

The Scheme also entailed an expansion of the capital base of the Company by issue of one equity share and one preference share to the equity shareholders of AIL for every one equity share held in AIL as consideration for the business acquired under the Scheme. In accordance with the Scheme the word ”Private” was dropped from your Company’s name in the current year. Arrangements are underway for listing the equity shares and preference shares on the Bombay Stock Exchange Limited. 

The gross income in the first year of operations amounted to Rs.204.26 crores and an operating profit of Rs.11.13 crores was registered. After depreciation and accounting for the major expenditure on business acquisition including provision for debt guaranteed under the Scheme as well as previously anticipated write off of obsolete items of stocks and doubtful book debts, the net resulted in a loss of Rs.11.94 crores. 

As a result of the transfer of the Chakan unit of AIL, your Company has made a foray into the forging industry. This is a strategic step which will help in synergizing resources in a meaningful manner. 

The general business environment in the industry has been buoyant owing to high growth being witnessed in the automobile sector. During the year, your Company set up a world class machining unit at Chakan and the same was commissioned in April, 2006.


OUTLOOK 

The demand in the automotive industry continues to be buoyant and the Company is expected to achieve better turnover and profitability in the coming years as a result of the organic and inorganic growth envisaged.


DIVIDEND

Your Directors have not recommended payment of dividend in view of loss during the year.


FINANCE

Your Company became a direct subsidiary of Mahindra & Mahindra Limited (M&M), effective from 2nd June, 2005 following purchase by it from Mahindra Holdings & Finance Ltd., also its subsidiary, of 10,160 equity shares held in the Company and additional direct acquisition of 82,11,866 equity shares of Rs. 10 each at a premium of Rs.87.42 per share aggregating Rs.80 crores. M & M also paid share application money to your Company towards subscription of 49,78,444 number of equity shares of Rs. 10 each at a premium of Rs. 87.42 each aggregating Rs. 48.5 crores. The shares will be allotted to M&M pursuant to the Scheme. The aforesaid amounts are being utilized for financing capital expenditure of Chakan machining unit and a part will also be applied towards redeeming the preference capital issued pursuant to the Scheme. 

In accordance with the Scheme the Authorised Share Capital of the Company was re-organised and increased from Rs. 40,00,00,000 (Rupees Forty Crores Only) to Rs. 78,9426,386 (Rupees Seventy Eight Crores Ninety Four Lakhs Twenty Six Thousand Three Hundred Eighty Six Only) comprising of 3,30,00,000 equity shares of Rs. 10 each aggregating to Rs. 33,00,00,000 (Rupees Thirty Three Crores Only) and 1,48,20,206, 4% non-cumulative, redeemable non convertible preference shares of Rs. 31 each aggregating Rs. 45,94,26,386 (Rupees Forty Five Crores Ninety Four Lakhs Twenty Six Thousand Three Hundred Eighty Six Only). Pursuant to the Scheme, one equity share and one preference share will be issued to the equity shareholders of Amforge Industries Limited (AIL) for every one equity share held in AIL. Consequent upon the aforesaid allotment of equity shares, your Company will cease to be a subsidiary of M&M.


DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to section 217(2AA) of the Companies Act, 1956, your Directors, based on the representation received from the Operating Management, and after due enquiry, confirm that:

1. in the preparation of the annual accounts, the applicable accounting standards have been followed;

2. they have, in the selection of the accounting policies, consulted the Statutory Auditors and these have been applied consistently and reasonable and prudent judgments and estimates have been made so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2006 and of the loss of the Company for the year ended on that date;

3. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act,1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4. the annual accounts have been prepared on a going concern basis.

DIRECTORS

Mr. Sanjay Joglekar, Mr. Romesh Kaul and Mr. Nikhilesh Panchal were appointed as Additional Directors of the Company at the Board Meeting held on 18th August, 2005. 

Mr. S. Durgashankar and Mr. Sanjay Joglekar resigned as Directors of the Company at the Board Meeting held on 28th April, 2006. The Board has placed on record its appreciation of the services rendered by Mr. S. Durgashankar and Mr. Sanjay Joglekar during their tenure as Director of the Company. 

With a view to broad-base the Board and embarking on the wealth of experience and expertise of the Directors, 5 directors were appointed as Additional Directors of the Company subsequent to the year end viz. Mr. Anand G. Mahindra, Mr. V. K. Chanana, Mr. Zhooben Bhiwandiwala, Mr. Fali Mama and Mr. Mohit Burman. 

All the aforesaid Additional Directors hold office up to the date of the forthcoming Annual General Meeting. The Company has received notices from members signifying their intention to propose Mr. Anand G. Mahindra, Mr. V. K. Chanana, Mr. Romesh Kaul, Mr. Nikhilesh Panchal, Mr. Zhooben Bhiwandiwala, Mr. Fali Mama and Mr. Mohit Burman as candidates for the office of Directors of the Company. 

Mr. Anand G. Mahindra was also appointed as Chairman of the Company.

Mr. Hemant Luthra retires by rotation and, being eligible, offers himself for re-appointment. 


AUDIT COMMITTEE

Subsequent to the year end, the Audit Committee was constituted by the Company and the terms of reference were approved by the Board. The Committee comprises of Mr. V. K. Chanana (Chairman of the Committee), Mr. Nikhilesh Panchal, Mr. Mohit Burman and Mr. R. R. Krishnan. A meeting of the Audit Committee was held for the purpose of reviewing and recommending the Balance Sheet and Profit & Loss Account for the year to the Board of Directors of the Company.


REMUNERATION COMMITTEE

Subsequent to the year end, the Remuneration Committee was constituted by the Company and the terms of reference were laid down. The Committee comprises of Mr. Anand G. Mahindra, Mr. Hemant Luthra, Mr. V. K. Chanana, Mr. Nikhilesh Panchal and Mr. Mohit Burman.


AUDITORS

During the year under review, M/s. CVK & Associates, Chartered Accountants, resigned as Statutory Auditors of the Company. The Company wishes to place on record its sincere appreciation of the services rendered by them during their tenure. 

M/s. B. K. Khare & Co., Chartered Accountants were appointed as Statutory Auditors by the Company at its Extra-Ordinary General Meeting held on 7th March, 2006. The said Auditors retire at the forthcoming Annual General Meeting and have given their consent for re-appointment. The members will be required to appoint Auditors for the current year and fix their remuneration.

As required under the provisions of section 224 of the Companies Act, 1956, the Company has obtained a written certificate from the above Auditors proposed to be re-appointed to the effect that their re-appointment, if made, would be in conformity with the limits specified in the said section.


PUBLIC DEPOSITS AND LOANS/ADVANCES

The Company has not accepted any deposits from the public or its employees during the year under review. 

The Company has not made any loans/advances which are required to be disclosed in the Annual Accounts of the Company pursuant to Clause 32 of the Listing Agreement with the parent company, Mahindra & Mahindra Limited.


INDUSTRIAL RELATIONS

Industrial Relations remained satisfactory during the year under review. A productivity linked wage agreement was settled with Workmen’s union in April, 2006.


SAFETY, HEALTH AND ENVIRONMENTAL PERFORMANCE 

The Company has undertaken various initiatives on safety and health issues and has initiated various programmes to bring about general awareness among the employees on the same. 

The requirements relating to various environmental legislations and environment protection have been duly complied by the Company.


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

The particulars relating to energy conservation, technology absorption, foreign exchange earnings and outgo, as required under section 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 provided in the Annexure to this Report.


PARTICULARS OF EMPLOYEES AS REQUIRED UNDER SECTION 217(2A) OF THE COMPANIES ACT, 1956 AND RULES FRAMED THERE UNDER

The Company had no employee who was in receipt of remuneration of not less than Rs. 24,00,000 during the year ended 31st March, 2006 or not less than Rs. 2,00,000 per month during any part of the said year.

ANNEXURE TO THE DIRECTORS’ REPORT

PARTICULARS AS PER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988 AND FORMING PART OF THE DIRECTORS' REPORT FOR THE YEAR ENDED 31ST MARCH, 2006

A. CONSERVATION OF ENERGY

B. TECHNOLOGY ABSORPTION

C. FOREIGN EXCHANGE EARNINGS AND OUTGO :