BOARD'S REPORT Dear Members, Your Directors are pleased to present the 96th Annual Report and the Audited Accounts for the year ended 31st March, 2016. 2. Dividend The Directors recommend for consideration of the Members, a dividend of Rs. 3.05 (305 %) per equity share of the nominal value of Rs. 1 each for the year ended 31st March, 2016. This dividend includes special dividend of Rs. 1.25 (125%) for the year. Compared to this, the total dividend paid last year was Rs. 1.40 (140%) on every equity share of the nominal value of Rs. 1 each. 4. Unclaimed Dividend During the year, dividend amounting to Rs. 4.71 lacs that had not been claimed by the shareholders for the year ended 31st March, 2008, was transferred to the credit of Investor Education and Protection Fund as required under Section 205A read with Section 205C of the Companies Act, 1956. As on 31st March, 2016, dividend amounting to Rs. 64.35 lacs has not been claimed by shareholders of the Company. Shareholders are required to lodge their claims with the Registrar, TSR Darashaw Ltd., for unclaimed dividend. Pursuant to the provisions of Investor Education and Protection Fund (Uploading of Information regarding unpaid and unclaimed amounts lying with Companies) Rules, 2012, the Company has uploaded the details of unpaid and unclaimed amounts lying with the Company on 3rd July, 2015 (date of the last Annual General Meeting) on the website of the Company, www.nerolac.com. The same is also available on the website of the Ministry of Corporate Affairs, www.mca.gov.in. 5. Collaboration The Directors record their appreciation for the contribution made and support provided by Kansai Paint Co. Ltd., Japan (Kansai). Kansai continues to provide support on process design, quality improvement, world class technology which has helped the Company in maintaining market leadership in the industrial business including automotive coatings, by servicing existing customers better and adding new lines. Kansai also provides technology for manufacture of architectural coatings. The Company also has Technical Assistance Agreement with Oshima Kogyo Co. Ltd., Japan, for manufacturing heat resistance coatings, Cashew Co. Ltd., Japan for manufacturing coatings products MICRON TXL SK-1 and Thinner for MICRON and with Protech Chemicals Limited, Canada for manufacturing powder coating products. The Directors record their appreciation for the co-operation from these collaborators. 6. Subsidiary in Nepal For the financial year ended 31st March, 2016, the Net Turnover of Kansai Paints Nepal Pvt. Ltd. increased to Rs. 40.08 Crores as compared to Rs. 39.36 crores for the financial year ended 31st March, 2015. Continous turmoil, post the earthquake has resulted in overall shrinkage of market in Nepal. Profit before Tax has declined to Rs. 4.22 Crores as compared to Rs. 4.60 Crores last year. Profit after Tax has declined to Rs. 3.18 Crores as compared to Rs. 3.52 Crores last year. Consolidated financial statement of the Company and of the subsidiary, Kansai Paints Nepal Pvt. Ltd., forms part of the Annual Report. A separate statement containing the salient features of the financial statement of Kansai Paints Nepal Pvt. Ltd. is part of this Annual Report. Annual Audited Accounts of Kansai Paints Nepal are available on the website of the Company. 7. Joint Venture in Sri Lanka As informed earlier, the Company has entered into a Joint Venture agreement with Capital Holdings Maharaja Pvt. Ltd., Sri Lanka, in the form of a company named Kansai Paints Lanka Pvt. Ltd. The construction of factory in Sri Lanka under the Joint Venture is as per schedule. It is expected to be completed by September 2016. All other activities to start the business have been lined up. 8. Sale of land at Perungudi, Chennai In the process of shifting of its manufacturing operations from Perungudi, Chennai to Saykha in Gujarat, during the year, the Company has sold its factory land and building in Perungudi for a total consideration of Rs. 537.86 Crores. Proceeds from monetization of assets of Perungudi plant will be utilized for setting up plant at Saykha. The Company has made a profit of Rs. 535.34 Crores from the sale transaction, which is disclosed as an exceptional item in the Statement of Profit and Loss forming part of this Annual Report. 9. New Projects The Company has been continuously investing in expanding its manufacturing footprint to serve customer demand. The Company undertook a comprehensive review of its manufacturing capacities and has started setting up of a paint manufacturing unit at Saykha Industrial Estate in Gujarat having capacity of 42000 MT per year at an estimated cost of Rs. 350 Crores. Also, in order to cater to increasing demand in the Northern part of the country, the Company has initiated a project at Goindwal Sahib near Amritsar in Punjab having capacity of 38000 MT per year at an estimated cost of Rs. 180 Crores. Similarly, in a move to boost its R&D capabilities, the Company will set up a Global R & D Centre at Vashi, Navi Mumbai at an estimated cost of Rs. 40 Crores to develop innovative product offerings. 10. Cost Audit The Ministry of Corporate Affairs (MCA) vide Notification dated 31st December, 2014 made amendment in the Companies (Cost Records and Audit) Rules, 2014, through Companies (Cost Records and Audit) Amendment Rules, 2014. As per the Amendment Rules, our Company is exempted from the requirement to conduct Cost Audit. Our Company has availed the exemption granted by the MCA. 11. Directors In accordance with Articles of Association of the Company, Mr. P.D. Chaudhari and Mr. M. Tanaka retire by rotation at this Annual General Meeting and being eligible offer themselves for re-appointment. None of the Directors is disqualified for appointment/reappointment under Section 164 of the Companies Act, 2013. As required by law, this position is also reflected in the Auditors’ Report. All the Independent Directors on the Board have given a declaration of their independence to the Company as required under Section 149(6) of the Companies Act, 2013. The composition of the Board, meetings of the Board held during the year and the attendance of the Directors thereat have been mentioned in the Report on Corporate Governance in the Annual Report. Mr. H. M. Bharuka, Managing Director, is a member of the Global Steering Committee of Kansai Paint Co. Ltd., Japan, the holding company. Mr. H. M. Bharuka received a remuneration of Rs. 58.75 lacs during the year as a member of the Global Steering Committee. 12. Key Managerial Personnel As required under Section 203 of the Companies Act, 2013, the Company has noted that Mr. H. M. Bharuka, Managing Director, Mr. P. D. Chaudhari, Wholetime Director, Mr. P. D. Pai, Chief Financial Officer and Mr. G. T. Govindarajan, Company Secretary are the Key Managerial Personnel of the Company. 13. Board Evaluation The evaluation of all the Directors and the Board as a whole was conducted based on the criteria and frame work adopted by the Board. The evaluation process has been explained in the Report on Corporate Governance in this Annual Report. The Board noted the evaluation results that were collated and presented to the Board. 14. Remuneration Policy The Board of Directors of the Company has adopted a Remuneration Policy for determining qualifications, positive attributes and independence of a Director and criteria for Director’s appointment and remuneration. The features of the Policy are as follows: • The Company, while constituting the Board shall draw members from diverse fields such as finance, law, management, architecture, technical, marketing, manufacturing, corporate governance, operations or other disciplines related to the Company’s business. There shall be no discrimination on the basis of gender, while determining the Board composition. • A director shall be a person of integrity, who possesses relevant expertise and experience. He shall uphold ethical standards of integrity and probity and act objectively and constructively. He shall exercise his responsibilities in a bona-fide manner in the interest of the company; devote sufficient time and attention to his professional obligations for informed and balanced decision making; and assist the Company in implementing the best corporate governance practices. • An Independent director should meet the requirements of the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, concerning independence of directors. The Company shall also obtain certification of independence from the Independent Director in accordance with the Companies Act, 2013. • The objective of the policy is to have a compensation framework that will reward and retain talent. • The remuneration will be such as to ensure that the correlation of remuneration to performance is clear and meets appropriate performance benchmarks. • Remuneration to Key Managerial Personnel, Senior Management and other employees will involve a balance between fixed and variable pay reflecting short and long term performance objectives of the employees in line with the working of the Company and its goals. • For Directors, the Performance Pay will be linked to achievement of Business Plan. • For Heads of Department, the Performance Pay will be linked to achievement of functional plan which is derived from the business plan. The functional plan includes both, short-term and long-term objectives. • The above will take into consideration industry performance, customer performance and overall economic environment. • For other management personnel, the Performance Pay will be linked to achievement of individual set objectives and part of this will also be linked to overall company performance. 15. Risk Management Policy Risk profiling is put in place for all the areas of operations in the Company and well integrated in the business cycle. The Company has identified the risk areas in its operations along with its probability and severity, department wise. The various risks to which the Company is exposed are as mentioned in the Management and Discussion Analysis Report under the relevant heading. An effective Risk Management Framework is put in place in the Company in order to analyze, control and mitigate risk. The Risk Management Framework comprises of Risk Management Committee and the Risk Officers. The Risk Management Committee consists of the Management Committee and the Chief Risk Officer of the Company. The Managing Director, the Executive Director and the functional heads constitute the Risk Management Committee. The Company Secretary is the Chief Risk Officer. The Risk Officers have been appointed by the functional heads and represent the various functions. The Board of Directors and the Audit Committee review the effectiveness of the Risk Management framework and provide advice to the Risk Management Committee at regular intervals. The functions of the Risk Management Committee includes preparation of Company-wide framework for Risk Management, fixing roles and responsibilities, communicating the Risk Management objective, allocating resources, drawing action plan, determining criteria for defining major and minor risks, deciding strategies for escalated major risk areas, updating Company-wide Risk register and preparing MIS report for review of Audit Committee. The Risk Management Framework aims to: (a) address our Company’s strategies, operations and compliances and provide a unified and comprehensive perspective; (b) establish the risk appetite; (c) be simplistic and intuitive to facilitate a speedy and appropriate identification of potential and actual risks and its communication; (d) seek escalation of the identified risk events to the appropriate persons to enable a timely and satisfactory risk response; (e) reduce surprises and losses, foresee opportunities and improve deployment of resources; (f) develop a mechanism to manage risks. Through the Risk Management framework, system and process are set to identify, gauge and mitigate any potential risk promptly and efficiently in order to manage and control them effectively. Clearly defined work profiles and assigned responsibilities are well at place, throughout the organization, at all levels and all functions, ensuring smooth flow of information across various levels within the organization. 16. Corporate Social Responsibility The Board has constituted a Corporate Social Responsibility (CSR) Committee as per the provisions of Section 135 of the Companies Act, 2013. The functions of the CSR Committee are to: (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the Company as specified in Schedule VII of the Act; (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the CSR policy of the Company from time to time. The members of the CSR Committee are Mr. D.M. Kothari, Mr. H.M. Bharuka, Mr. N.N. Tata and Mrs. Brinda Somaya. Mr. D.M. Kothari is the Chairman of the CSR Committee. The independent Directors on the CSR Committee are Mr. D.M. Kothari, Mr. N.N. Tata and Mrs. Brinda Somaya. The Board has also framed a CSR Policy for the Company, on the recommendations of the CSR Committee. The Report on CSR activities as required under Companies (Corporate Social Responsibility) Rules, 2014, including a brief outline of the Company’s CSR Policy, total amount to be spent under CSR for the financial year, amount unspent and the reason for the unspent amount, is set out at Annexure-1 forming part of this Report. 17. Particulars of Loans, Guarantees or Investments under Section 186 of the Companies Act, 2013 Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013, are given in the notes to the financial statements provided in this Annual Report. 18. Related Party Transactions All transactions entered into with the Related Parties in terms of Section 2(76) and Section 188 of the Companies Act, 2013 read with Regulation 2 (zc) and Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 during the financial year were in the ordinary course of business and on arm’s length basis and do not attract the provisions of Section 188 of the Companies Act, 2013. There were no Material Related Party transactions during the year. Thus disclosure in Form AOC-2 is not required. 19. Audit Committee The Company has an Audit Committee in place, constituted as per the provisions of Section 177 of the Companies Act, 2013. The members of the Audit Committee, its termsof reference, the meetings of the Audit Committee and attendance there of the members of the Committee is mentioned in the Corporate Governance Report under the appropriate heading. 20. Whistle Blower Policy The Company has a Whistle Blower Policy to report genuine concerns and grievances. The implementation of the Whistle Blower Policy has been mentioned in the Report of Corporate Governance. 21. Prevention of Sexual Harassment at workplace The Company has adopted a policy with the name “Policy on Appropriate Social Conduct at Workplace”. The policy is applicable for all employees of the organization, which includes corporate office, branches, depots and manufacturing locations etc. The policy is applicable to non-employees as well i.e. business associates, vendors, trainees etc. A Complaints Committee has also been set up to redress complaints received on sexual harassment as well as other forms of verbal, physical, written or visual harassment. During the financial year under review, the Company has not received any complaints of sexual harassment. 22. Change in Registrar and Share Transfer Agent The Company has terminated the services of Sharepro Services (India) Pvt. Ltd. (Sharepro) as its Registrar & Share Transfer Agent with effect from the close of business on 30th April, 2016, pursuant to certain irregularities discovered at Sharepro with respect to the share related operations and dividend encashment activities and in furtherance of SEBI Order No. WTM/ RKA/MIRSD2/41/2016 dated March 22, 2016 advising companies who are clients of Sharepro to shift their share transfer activities from Sharepro. The details of the aforesaid irregularities and the treatment of the same in the Accounts is provided in Note 34 of the Notes to the Financial Statements forming part of this Annual Report. The Company has appointed TSR Darashaw Ltd. having its address at 6-10 Haji Moosa Patrawala Industrial Estate, 20, Dr. E. Moses Road, Mahalaxmi, Mumbai-400 011 as its Registrar & Share Transfer Agent with effect from May 1, 2016. 23. Corporate Governance As required by Schedule V(C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a detailed report on Corporate Governance is given as a part of the Annual Report. The Company is in full compliance with the requirements and disclosures that have to be made in this regard. The Auditors’ Certificate of the compliance with Corporate Governance requirements by the Company is attached to the Report on Corporate Governance. 24. General Shareholder Information General Shareholder Information is given in Item No. 9 of the Report on Corporate Governance forming part of the Annual Report 25. Particulars regarding Employees Remuneration The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this Report as Annexure-2. 26. Directors’ Responsibility Statement As stipulated under the provisions contained in Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013 the Directors hereby state that: (i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; (ii) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period; (iii) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (iv) the Directors have prepared the annual accounts on a going concern basis; (v) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and (vi) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. 27. Energy, Technology Absorption & Foreign Exchange Statement giving the particulars relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 134(3)(m) read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is enclosed as Annexure-3 to this Report . 28. Extract of Annual Return In accordance with Section 134(3)(a) of the Companies Act, 2013, an extract of the Annual Return in the prescribed format is appended as Annexure-4 to this Report. 29. Statutory Auditors The Company Auditors, B S R & Co. LLP, Chartered Accountants, have been appointed for a period of 5 years from the 94th AGM till the 99th AGM. Pursuant to provisions of Section 139(1) of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014, the appointment of B S R & Co. LLP, as Auditors of the Company for a period of 5 years shall be subject to ratification by shareholders at every AGM. Accordingly, the appointment of B S R & Co. LLP, as the Auditors of the Company from this AGM till the conclusion of next AGM is put forth for your approval. The Auditors’ Report is clean and there are no qualifications in their Report. 30. Secretarial Auditor Pursuant to the provisions of Section 204 of the Companies Act, 2013, the Company had appointed M/s Ragini Chokshi & Co., Practicing Company Secretaries, as the Secretarial Auditor of the Company for the year 2015-16 to conduct secretarial audit and to ensure compliance by the Company with various Acts applicable to the Company. The Secretarial Audit Report for the financial year 2015-16 issued by M/s Ragini Chokshi &. Co., is annexed to this Report as Annexure-5. There are no qualifications or adverse remarks in their Report. 31. Acknowledgements Your Directors wish to express their grateful appreciation for the co-operation and support received from customers, parent company, collaborators, vendors, shareholders, financial institutions, banks, regulatory authorities and the society at large. Deep appreciation is also recorded for the dedicated efforts and contribution of the employees at all levels, as without their focus, commitment and hard work, the Company’s consistent growth would not have been possible, despite the challenging environment. For and on behalf of the Board P. P. Shah Chairman Place : Mumbai, date : 27th April, 2016 |