REPORT BY BOARD OF DIRECTORS TO SHAREHOLDERS 1. Your Directors have pleasure in presenting this Twenty Ninth Annual Report together with the Audited Statement of Accounts for the financial year ended on 31st March 2016. 2. DIVIDEND Taking into account the net profits earned by the Company in the financial year under review, your Directors are pleased to recommend a dividend of Rs.1.25 per equity share on 1,78,79,551 fully paid up equity shares of Rs.10/- each. The total cash outflow on account of this dividend, including dividend distribution tax, is Rs.268.99 lakhs. 3. REVIEW OF OPERATIONS Total net revenue from operations grew by 70.32% on a year-on-year basis from Rs.528.98 crores in financial year 2014-15 to Rs.900.94 crores in financial year 2015-16. Sales of branded products would have been higher, but for several challenges in the form of lacklustre, economic conditions, inflation, impact of free distribution schemes by the Tamil Nadu and Pondicherry governments and overall weak consumer sentiments during the festive season, especially in Tamil Nadu due to unfortunate floods. During the year, the Company has made steady progress in its initiatives to enhance its distribution network. The combined effect of high volatility in foreign exchange rates and market pressure against price revision resulted in lower profitability. In addition, the initiatives taken towards widespread advertising and marketing to augment sales and distribution network have resulted in an increase in cost for the Company, while these expenses are being incurred upfront, the benefit will accrue in later years through accelerated growth in sales. Hence, the management believes that the compression in profit margins of the Company is only temporary. 4. AWARDS AND RECOGNITION The Company was awarded 'Certificate of Appreciation' by the Petroleum Conservation Research Association of Government of India, New Delhi as the First Manufacturer authorised to use BEE Label with Star Rating "2" for its specific model of Domestic Gas Stove under the brand 'Butterfly'. 5. CURRENT YEAR'S OPERATIONS Supplies made to the Tamil Nadu Government and Pondicherry Co-operative Wholesale Stores Ltd., i.e. Government supplies, comprised the lion's share of Company's sales turnover for the financial year ended on 31.3.2016. Having completed these supplies, the Company, for its current year's operations, is giving vigorous thrust on its branded sales, which will be supplemented by sales through agents of Liquefied Petroleum Gas, Canteen Stores Department, Chain Stores and online sales.The Company is also planning to add more variants of premium products. With the above effective steps towards notching up the sales turnover/profitability of the Company, your Directors are optimistic of better performance during the current financial year. 6. DIRECTORS The present tenure of Mr.V.M.Seshadri, Managing Director (DIN 00106506) ends on 31.05.2017. The Nomination and Remuneration Committee and the Board of Directors at their meetings held respectively on 19.5.2016 and 09.06.2016 have recommended his reappointment with no change in remuneration package, as detailed in resolution no.5 of the Notice, for a further period of five years w.e.f. 01.06.2017 to 31.5.2022. The present tenure of Mr.V.M.Gangadharam, Executive Director (DIN 00106466) ends on 30.09.2016. The Nomination and Remuneration Committee and the Board of Directors at their meetings held respectively on 19.5.2016 and 09.06.2016 have recommended his reappointment with no change in remuneration package, as detailed in resolution no.6 of the Notice, for a further period of five years w.e.f. 01.10.2016 to 30.9.2021. Mr.V.R.Lakshminarayanan, Independent Director (DIN 00101895) resigned from the Board after conclusion of the Board meeting on 30.5.2016. Your Directors would like to place on record their admiration of his high and rare administrative skills and rich contribution to the growth of the Company for the past twenty three years as a Director. Mr.D.Krishnamurthy (DIN No.00085444), who was reappointed at the Annual General Meeting of the Company held on 26.07.2013 as wholetime Executive Director-cum-Company Secretary for a period of three years w.e.f.1.6.2013 to 31.5.2016 is not seeking reappointment. Your Directors place on record their high appreciation of the valuable services rendered by Mr.Krishnamurthy, who was the Company Secretary for over twenty five years. Mr.V.M.Kumaresan (DIN No.00835948), Director retire by rotation from the Board, pursuant to the provisions of section 152(6) (c) of the Companies Act, 2013 and, being eligible, offers himself for reappointment. 7. MANAGEMENT DISCUSSION AND ANALYSIS The Directors' comments on Management Discussion and Analysis, which forms a part of this report, are restricted to the areas which are relevant to the current scenario of the Company and outlook. 8. CREDIT RATING The Company is retaining the following CRISIL's credit ratings for its bank facilities Long Term Rating CRISIL A-/Stable (Reaffirmed) Short Term Rating CRISIL A2+ (Reaffirmed) 9. DIRECTORS RESPONSIBILITY STATEMENT In pursuance of Section 134(5) of the Act, the Directors hereby confirm that: a. In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; b. The directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and the profit of the Company for that period; c. The directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; d. The directors had prepared the annual accounts on a going concern basis; and e. The directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively. f. The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. 10. CORPORATE GOVERNANCE In accordance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations), a Compliance Report on Corporate Governance as per Schedule V of the Listing Regulations, along with a Certificate of Compliance from the Statutory Auditors forms part of this report. 11. CONTRACTS AND ARRANGEMENTS WITH RELATED PARTY TRANSACTIONS All contracts/arrangements/transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an 'arm's length' basis. The Company had not entered into any contract/arrangement/transactions with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions. The Company enjoys distinct advantages in the form of competitive prices, product quality, economy in transportation cost and lower inventories by virtue of the existing related party transactions. Particulars of contract or arrangements with related parties referred to in Section 188 (1) in Form AOC-2 has been annexed as Annexure - I 12. RISK MANAGEMENT The Board has formulated the Company's Risk Management Policy, identifying the elements of risk that the Company may face, such as strategic, financial, credit, market, liquidity, security, property, legal, regulatory and other risks, pursuant to the provisions of Section 134 (3) (n), which has been exhibited in the Company's website. 13. INTERNAL FINANCIAL CONTROLS The Company has in place adequate and effective internal financial control system commensurate with its size and operations. 14. DECLARATION FROM INDEPENDENT DIRECTORS The Company has received necessary declaration from each Independent Director under section 149 (7) of the Act that they meet with the criteria of their independence laid down in Section 149 (6). 15. APPOINTMENT OF DIRECTORS AND THEIR REMUNERATION Pursuant to the provisions of Section 178 (3) read with Companies (Meetings of Board and its Powers) Rules 2014 and Regulation 19(4) read with Schedule II Part —D of SEBI (LODR) Regulations, 2015, the Nomination and Remuneration Committee has formulated the criteria for determining qualifications, positive attributes and independence of a Director and for evaluating performance of the Directors and Key Management Personnel, which can be viewed at the Company's website www.butterflyindia.com . 16. PROGRAMME FOR FAMILIARISATION OF INDEPENDENT DIRECTORS The details of programme for familiarization of independent directors of the Company, their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates, business model of the Company and related matters are put up on the website of the Company at its link www.butterflyindia.com . 17. NOMINATION AND REMUNERATION COMMITTEE The Nomination and Remuneration Committee of the Company has formulated and devised policies regarding qualifications, positive attributes and independence of a Director as also a policy relating to the remuneration for the Directors and Key Management Personnel. The Company's policy in this regard is exhibited in its website www.butterflyindia.com . 18. PERFORMANCE EVALUATION OF DIRECTORS The independent Directors of the Company held a separate meeting on 26.03.2016 without the attendance of non-independent Directors and members of management. At the said meeting, they reviewed the performance of non-independent Directors and the Board as a whole, including the Chairman of the Company, taking into account the views of Executive Directors and NonExecutive Director. Similarly, at a meeting of the Board of Directors held on the said date, the Board evaluated the performance of each Independent Directors and the Committees represented by such Independent Directors in accordance with the parameters for such evaluation formulated by the Nomination and Remuneration Committee of the Company. 19. AUDITORS AND AUDITORS REPORT At the twenty eighth Annual General Meeting of the Company held on 20.08.2015, members appointed M/s. Rudhrakumar Associates, Chartered Accountants (FRN.007033 S), Chennai, as statutory auditors of the Company from the conclusion of the said Annual General Meeting till the conclusion of the thirtieth Annual General Meeting of the Company. Pursuant to the first proviso to section 139(1) of the Act, the matter relating to his appointment is placed for ratification by members vide resolution No.3 of the Notice. 20. COST AUDITORS The Board has reappointed M/s.S.Mahadevan & Co., Cost Auditors (FRN.000007), No.1, Lakshmi Nivas, K.V.Colony, Third Street, West Mambalam, Chennai — 600 033 for conducting the audit of cost records of the Company for the financial year 2016-17. Their report for financial year 2014-15 was filed on the MCA Portal on 17.11.2015. 21. SECRETARIAL AUDIT The Board has appointed Mr.T.Murugan, Company Secretary in Practice, [COP No.4393], M22E, Sri Subah Colony, Munusamy Road, K.K.Nagar, Chennai — 600 078 to conduct Secretarial Audit for the financial year 2015-16. The Secretarial Audit Report for the financial year ended 31.3.2016 is annexed to this report as Annexure II. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. 22. DISCLOSURES Audit Committee The Audit Committee comprises Independent Directors, viz., Messrs.K.Ganesan (Chairman), V.R.Lakshminarayanan, M.Padmanabhan and A.Balasubramanian (Members), and also V.M.Lakshminarayanan, Chairman & Managing Director of the Company as a Member. All the recommendations made by the Audit Committee were accepted by the Board. Vigil Mechanism The Company has established vigil mechanism for directors and employees to report genuine concerns pursuant to section 177 (9) and (10) of the Act and Regulation 22 of the Listing Regulations, 2015. The Vigil Mechanism of the Company also incorporates a Whistle Blower Policy in terms of the Listing Regulations. Protected disclosures can be made by a Whistle Blower through an" email or dedicated telephone line or a letter addressed to the Chairman of the Audit Committee/Executive Director of the Company. The Company's Whistle Blower Policy may be accessed on its website at the link www.butterflyindia.com . Meetings of the Board Eight meetings of the Board of Directors were held during the financial year. For further details, please refer to Report on Corporate Governance in this Annual Report. Conservation of energy, technology, absorption and foreign exchange out go Information relating to energy conservation, technology absorption, foreign exchange earned and spent and research and development activities undertaken by the Company in accordance with Section 134 (3) (m) of the Act read with Rule 8(3) (A) of Companies (Accounts) Rules, 2014, are given in Annexure - III of the Directors' Report. Extract of Annual Return As required pursuant to Section 92(3) of the Act and Rule 12(1) of the Companies (Management and Administration) Rules 2014, an extract of Annual Return in Form MGT-9 is given in Annexure - IV of the Directors' Report. Statement pursuant to Rule 5(2) & (3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 Statement showing the details of employees pursuant to the provisions of Rule 5(2) & (3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 is annexed as Annexure- V Details/disclosure of ratio of remuneration to each Director to the median employee's remuneration, pursuant to provisions of Section 197 (12) read with Rule 5(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are annexed as Annexure - VI Payment of remuneration made to managerial personnel is in conformity with Schedule V Part II Section II (A) to the Companies Act 2013. Corporate Social Responsibility Committee Pursuant to the provisions of Section 135(1) of the Act, the Company has constituted a Corporate Social Responsibility Committee, consisting two Independent Directors and the Chairman & Managing Director of the Company. The said Committee has formulated and recommended to the Board a Corporate Social Responsibility Policy (CSR Policy), indicating the activities to be undertaken by the Company, which has been approved by the Board. An amount of Rs.58.10 lakhs has been provided in the Audited accounts for the financial year ended 31.3.2016. This amount will be utilised towards the Corporate Social Responsibility (CSR) activities as enumerated in Schedule VII to the Act, (as amended up to date), read with the Company's CSR Policy. Listing with Stock Exchanges The Company confirms that it has paid the Annual Listing Fee for the year 2015-16 to both National Stock Exchange of India Ltd and Bombay Stock Exchange Ltd., with whom the equity shares of the Company have been listed. 23. GENERAL Your Directors state that no disclosure or reporting is required in respect of the following items, as they are not applicable for the financial year under review: 1. Details relating to deposits covered under chapter V of the Act; 2. Details regarding investment/loan/guarantee, attracting the provisions of section 186 of the Act; 3. Issue of equity shares with differential rights as to dividend, voting or otherwise; 4. Issue of shares (including sweat equity shares) to employees of the Company under any scheme; 5. Material orders, if any, passed by the Regulators or Courts or Tribunals which may impact the going concern status and Company's operations in future; 6. Case, if any, filed under the Sexual Harassment of Women at the Work Place (Prevention, Prohibition and Redressal) Act 2013. There are no material changes and commitments, affecting the financial position of the Company which have occurred between financial year ended 31.03.2016 and the date of this report. 24. PERSONNEL The spirit of trust, transparency and team work has enabled the Company to build a tradition of partnership and harmonious industrial relations. Your Directors record their sincere appreciation of the dedication and commitment of the employees to achieve excellence in all areas of the business. 25. ACKNOWLEDGEMENTS Your Directors take this opportunity to thank, in particular State Bank of Travancore, Industrial Development Bank of India Ltd., Axis Bank, Kotak Mahindra Bank Ltd, State Bank of India, Ratnakar Bank Ltd., Aditya Birla Finance Ltd., Fullerton India Credit Company Ltd, Tamil Nadu Civil Supplies Corporation, Pondicherry Co-operative Wholesale Stores, Pondicherry, Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. for the co-operation extended by them. Our thanks are also due to employees at all levels, suppliers, distributors, dealers and customers for their strong support. Your Directors also thank the shareholders for their continued confidence and trust placed by them with the Company. For and on behalf of the Board V.M.LAKSHMINARAYANAN Chairman & Managing Director Navalur — 600 130 Date : 09.06.2016 |