AFFLUENCE

Directors Report

The Directors have pleasure in presenting their report along with the accounts for the year ended 31st March 2016.

CORPORATE RESULTS

The company has made a record profit of Rs.142.83 crores for the year ended 31st March 2016 on the back of a smart increase in the margins achieved on PVC operations and overall reduction in operating costs. This has been possible despite a drop in the sales and other income in 2015-16. Post taxes, the net profit of the company is Rs.81.88 crores.

After taking into account the brought forward loss of Rs.165.36 Crores, a loss of Rs.83.48 Crores is carried forward to the next year. Hence the directors do not recommend any dividend or transfer to reserves for the year.

OPERATIONS

PVC Business
During the year under review, domestic demand for suspension resin grew at 10% compared to the 6% growth seen in the previous year. The improved demand was on account of better off-take from the pipe sector especially in the first and last quarter. Domestic prices moved in line with import quotes for suspension resin. India, the fastest growing PVC market world-wide, continued to see significant interest from PVC suppliers around the world with dumping at low prices continuing. The share of imports in the total supply increased to 50%. Anti-dumping duty on imports from China which was imposed last year helped restrict dumping from China. However, this year saw Japan and Iran becoming major exporters to India.

PVC Paste demand grew at about 5% during the year. This is considerably below the 9% seen in the previous year. One of the major factors that accounted for this was the poor performance of the automobile sector during the first half of the year. However, unlike last year, price volatility was less despite fluctuating crude oil prices. As in Suspension PVC market, in Paste PVC also, India continued to be the focus area for imports from the rest of the world at low prices. Implementation of anti-dumping duty on imports from Norway and Mexico imposed last year helped address this problem to some extent.

Chlorochemical Business
Caustic soda prices in the Asian region were at USD 340-360 per dmt CFR. Total caustic soda lye imports were at 553kt during the year at an average price level of USD 358 per dmt CFR. There was a reduction in imports from China on account of anti-dumping duty. This largely favored imports from Iran. Domestic caustic soda manufacturers were compelled to operate at import parity prices. Chlorine prices improved from negative to marginally positive. Commissioning of a new chloromethanes plant in the south improved chlorine demand in the region.
For the year, the overall chloromethane business was lacklustre. Prices of chloromethane products from Europe and China were good during the first half but prices started to decline from October due to weak demand in global markets. This led to negative sentiments and lower realization in India. The commissioning of a new chloromethane plant in the south in December improved availability in India. Anti-dumping duties were imposed on imports of Methylene dichloride from China and Russia into India, in addition to those existing on imports from EU & Korea. Demand for Chloroform and CTC was weak and global prices of chloroform were at all time low levels.
Demand for HCFC 22 in India was good due to favorable summer conditions and good demand in the replacement segment. International demand remained weak. With export prices turning unviable, the company had to scale down its operating rate to meet only domestic sales.

Environment
The company continues to place great importance on protecting the environment and managing natural resources responsibly. These principles have been incorporated in all its operational systems, with stringent solid and hazardous waste management processes followed at all plants.

Finance
Your company has established a good track record with the bankers and financial institutions, thereby enjoying their full confidence.

Explanation to Auditor’s Opinion
The auditors in their report have expressed an opinion with regard to creation of deferred tax asset. The company has made a record profit before tax of Rs 14283 lacs and consequently has reversed deferred tax assets to the extent of Rs 4884 lacs bringing down the total net deferred tax asset to Rs. 4549 lacs as of 31st March 2016. In line with 2015-16, the Company expects to generate income from its installed asset base in future years also and the company believes that the requirements of the Accounting Standard 22 - Accounting for Taxes on Income relating to the creation of deferred tax asset, are satisfied.

Sub-division of Shares
During the year, equity shares of Rs.5,00,000 each in the capital of the Company were sub-divided into 50,000 Equity Shares of Rs.10/- each.

Risk Assessment and Management
The Company has a well defined Risk Management System. The System ensures that all risks that the organization faces such as strategic, financial, credit, market, liquidity, security, property, legal, regulatory, IT, reputational and other risks are identified, impact assessed, mitigation plans are drawn up and these plans are effectively implemented.

Internal Control Systems
Adequate internal controls, systems, and checks are in place, commensurate with the nature of the Company’s business and size. The management exercises financial control on the operations through a well defined budget monitoring process and other standard operating procedures.
Internal audit for the year 2015-16 was carried out by PKF Sridhar & Santhanam, Chartered Accountants covering all significant areas of operations. All significant observations of the Internal Auditors are placed before the Audit Committee and the Board together with corrective actions
The Internal Auditors monitor and evaluate the efficacy and adequacy of internal control in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the report of Internal Auditors, the management undertakes appropriate corrective action in their respective areas.

Internal Financial Control Over Financial Reporting
The Company has in place adequate internal financial controls with reference to the Financial Statements. Such controls have been assessed during the year taking into consideration the essential components of internal controls stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by The Institute of Chartered Accountants of India. Based on the results of such assessment carried out by management with the help of the internal auditors and no reportable material weakness or significant deficiencies in the design or operation of internal financial controls was observed.

Deposits
During the year under review, the Company has not accepted any public deposit within the meaning of the provisions of Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014 and as on 31st March 2016, the Company did not have any outstanding public deposit.

Particulars of loans, guarantees or investments under Section 186 of the Companies Act, 2013
Particulars of investments are given in the Notes forming part of the Financial Statements for the year ended 31st March 2016. The Company has not given any loan or provided any guarantee during the year.

Subsidiary/ Associate Companies
No company has become/ ceased to be the subsidiary or associate company of the Company during the year under review.

Particulars of contracts or Arrangement under Section 188 of the Companies Act, 2013
During the year under review, the contracts or arrangements with related parties did not attract the provisions of Section 188 of the Companies Act, 2013.

Significant and Material Orders passed by the Regulators or Courts or Tribunals impacting the going concern status of the company
There were no significant and material orders passed by the Regulators or Courts or Tribunals which would impact the going concern status of the company and Company’s operations in future.

Material Changes and Commitment affecting the financial position of Company that occurred after 31st March 2016
No material changes and commitments affecting the financial position of the Company have occurred between the end of the financial year to which this financial relate and on the date of this report.

Directors and Key Managerial Personnel
Mrs Lavanya Venkatesh retires by rotation at the ensuing Annual General Meeting and is eligible for reappointment.
Mr R Kalidas resigned from the Board in July 2015. The Directors place on record their appreciation of the services rendered by him during his tenure as Director of the Company.
Subsequent to the close of the year, Mr M N Radhakrishnan has resigned from the Board. The Directors place on record their appreciation of the services rendered by him during his tenure as Director of the Company. In resultant casual vacancy, Mr S Sankaran was co-opted as Director of the Company. Notice under Section 160 of the Companies Act, 2013 has been received from a shareholder of the Company, proposing his appointment as a Director of the Company.
Mr S V Mony and Mr V K Parthasarathy, Independent Directors have submitted declarations stating that they meet the criteria of independence as provided in Section 149(6) of the Companies Act, 2013.
Subsequent to the close of the year, Mr R Krishnan, Chief Financial Officer and Mr M Raman, Company Secretary have resigned. Mr M Chandrasekar and Mr Satya Narayan Nayak were appointed by the Board of Directors, as Key Managerial Personnel of the Company viz. Chief Financial Officer and Company Secretary respectively, pursuant to the provisions of Section 203 of the Companies Act, 2013 read with the rules thereunder.

Directors’ Responsibility Statement
To the best of our knowledge and belief and according to the information and explanations obtained by us, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013.
a) In the preparation of the annual accounts for the year ended 31st March 2016 the applicable accounting standards have been followed by the company.
b) 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 as at 31st March 2016 and of the profit of the company for the year ended that date.
c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.
d) The accounts of the company have been prepared on a going concern basis.
e) 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.

Number of Board Meetings
During the year, the Board of Directors met five times.

Audit Committee
The Audit Committee of Directors consists of the following Directors:
Mr V K Parthsarathy, Chairman
Mr P S Jayaraman, and
Mr S V Mony
The composition of the Audit Committee is in compliance with the provisions of Section 177 of the Companies Act, 2013 read with the rules thereunder. The scope of the activities of the Audit Committee is as set out in Section 177 of the Companies Act, 2013.

Nomination and Remuneration Committee
The Nomination and Remuneration Committee consists of the following directors:
Mr S V Mony, Chairman
Mr V K Parthasarathy, and
Mr. S Sankaran
The composition of the Committee is in compliance with the provisions of Section 178 of the Companies Act, 2013. The Committee adheres to the provisions of the Companies Act, 2013 read with Rules thereunder in terms of its functioning, roles and powers.
The Company’s Policy on appointment of Directors and Remuneration policy is attached as Annexure 5 to this Report and forms part of this Report.

Board Evaluation
Pursuant to the provisions of the Companies Act, 2013, the Board has carried out evaluation of its own performance, the directors individually and evaluation of working of the committees of the Board during the financial year 2015-16. as per the criteria laid down by Nomination and Remuneration Committee. The evaluation process contained various aspects of the functioning of the Board and its committees, number of committees and their roles, frequency of meetings, level of participation, and independence of judgement, performance of duties and obligations.
The Board expressed its satisfaction of the performance of all the directors, Board and its committees which reflected the overall engagement of the directors, the Board and its committees with the Company.

Personnel
Industrial relations with employees remained cordial during the year. Human Resource Development activities continued to receive considerable attention. The emphasis was on imparting training and developing the skill set of employees to enable them face the challenges in an increasingly complex work environment.

Particulars of employees
Information in accordance with the provisions of Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in Annexure 6 to the Directors’ Report.

Disclosure under Sexual Harassment of Women at Workplace(Prevention, Prohibition and Redressal) Act, 2013
During the year, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace(Prevention, Prohibition and Redressal) Act, 2013.

Vigil Mechanism / Whistle Blower Policy
The Company has a Vigil Mechanism Policy to deal with an instance of fraud or mismanagement, if any.
The Company had adopted an ethical code of conduct for the highest degree of transparency, integrity, accountability and corporate social responsibility. Any actual or potential violation of the Code would be a matter of serious concern for the Company.
This policy has been formulated with a view:
• To provide a mechanism for employees of the Company and other persons dealing with the Company to report to the Chairman of the Audit Committee, any instance of unethical behaviour, actual or suspected fraud or violation of the Company’s Ethics Policy.
• To safeguard the confidentiality and interest of such employees / other persons dealing with the Company against victimization, who notice and report any unethical or improper practices, and
• To appropriately communicate the existence of such mechanism, within the organization and to outsiders.
• No personnel has been denied access to the Chairman of the Audit Committee in respect of reporting any of above instances.

Corporate Social Responsibility
The Company has all along attached utmost importance to sustainable development.
As mandated by the Companies Act, 2013 and the rules framed thereunder, the Company has formulated a Policy on CSR and has also constituted a CSR Committee to recommend and monitor expenditure on CSR. The details of CSR Expenditure are given in the prescribed format and forms part of this Report. The same is annexed as Annexure 4.

Auditors
S R Batliboi & Associates LLP, Chartered Accountants, Chennai, retire at the close of this Annual General Meeting and are eligible for reappointment. The Company has received confirmation from the firm regarding their consent and eligibility under Section 139 and 141 of the Companies Act, 2013 (Accounts) and rules framed thereunder for appointment as the Auditors of the Company.
The Audit Committee and the Board of Directors have recommended the appointment of the Auditors for the financial year 2016-17.

Cost Auditor
Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Amendment Rules 2014, the cost audit records maintained by the Company in respect of:
• PVC Suspension & Paste
• Caustic Soda Lye &
• Flakes Chloromethane Products
is required to be audited. The Directors had, on the recommendation of the Audit Committee, appointed M/s Geeyes & Co. to audit the cost accounts of the Company for the financial year 2016-17.
The Cost Auditors have given a Certificate to the effect that the appointment, if made, will be within the prescribed limits specified under Section 141 of the Companies Act, 2013.
The Audit Committee had obtained a certificate from the Cost Auditor certifying their independence and arm’s length relationship with the Company. The Cost Audit Report in respect of F.Y. 2015-16 will be filed within the prescribed time.
As required under the Companies Act, 2013, the remuneration payable to the Cost Auditor is placed before the Members for their ratification.

Secretarial Audit
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the Board of Directors have appointed Dr. B Ravi, Company Secretary in Practice, Chennai to carry out the Secretarial Audit of the Company. The Report of the Secretarial Audit Report is annexed herewith as Annexure 3 and forms part of this Report.

Extract of Annual Return
An extract of Annual Return in Form MGT-9 as on 31st March 2016 is attached as Annexure 2 to this Report and forms part of this Report.

Other Particulars
Additional information on conservation on energy, technology absorption, foreign exchange earnings and outgo as required to be disclosed in terms of section 134(3)(m) of the Companies Act, 2013, read with Rule 9 of the Companies (Accounts) Rules 2014 is set out in Annexure 1 and forms part of this Report.

For and on behalf of the Board

P S JAYARAMAN
Chairman
DIN: 00011108

Chennai
September 6, 2016

Annexure 1

Information under Section 134(3)(m) of the Companies Act, 2013 forming part of the Directors’ Report for the year ended March 31, 2016.

1. CONSERVATION OF ENERGY
a. Measures Taken:
The company continues to accord high priority to conservation of energy. Details of some of the measures undertaken during the year to optimize energy conservation are given below

1. In PVC plant Monomer section at Mettur, we have improved the thermal efficiencies of EDC cracking furnaces by optimizing excess air with the help of an online Oxygen analyzer as well as stack temperature monitoring system. This has resulted in reduction of fuel (SKO) consumption in EDC Cracking furnaces. This has resulted in an annual savings of 365 KL of Superior Kerosene (SKO).

2. In PVC plant Monomer section at Mettur, we have reduced steam consumption in EDC purification distillation columns by optimizing reflux ratio. Flash steam utilization was effectively implemented in EDC stripper which has reduced the steam consumption. Consistent PVC slurry concentration has resulted in reduction steam consumption PVC Spray Dryers.

3. In PVC plant utility Section at Mettur - Utility section, we have improved the efficiencies of the refrigeration system in the chiller units by taking up certain modifications in M-8 and M-10 compressors system. This has improved the overall capacity of the compressors which resulted in energy savings. A study was taken up in the Compressed Air usage and the consumptions points were optimized / modified which has resulted in the reduction of compressor running hours. We have also installed a Variable Frequency Drive (VFD) for one of the cooling water pumps for optimization of cooling water circulation and this has reduced the power consumption.

4. In ZLD plant at Mettur, we have recycled about 10% of pretreated to HCL Absorbers and reused 7764 KL of reject for bleach liquor production in plant -III. These activities have reduced the operational hours of HERO and MVC Compressors which has resulted in annual savings of 7.80 lacs Kwh.

b. Additional Investment
The company has not made any major investment during the current year.

c. Impact of measures taken under (a) above.

2. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

RESEARCH AND DEVELOPMENT (R&D)

The Company’s R&D laboratory is engaged in carrying out process/product improvement programmes. In particular, the areas of focus have been on import substitution, optimising the utilisation of available resources, evolving alternative and more economic processes for the existing range of products and environment conservation.

3. FOREIGN EXCHANGE EARNINGS AND OUTGO

Annexure 2

FORM NO. MGT 9

EXTRACT OF ANNUAL RETURN

As on the financial year ended on 31.03.2016

Pursuant to Section 92 (3) of the Companies Act, 2013 and rule 12(1) of the Companies (Management & Administration) Rules, 2014.

I. REGISTRATION & OTHER DETAILS:

II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY

III. PARTICULARS OF HOLDING, SUBSIDIARY AND ASSOCIATE COMPANIES

IV. SHARE HOLDING PATTERN (Equity share capital breakup as percentage of total equity)

(i) Category-wise Share Holding

* 5 Equity Shares held by 5 individuals as nominees of Sanmar Speciality Chemicals Limited

** 6 Equity Shares held by 6 individuals as nominees of Sanmar Holdings Limited

(ii) Shareholding of Promoter

* Includes 6 equity shares held by 6 nominees of Sanmar Holdings Limited

* Includes 5 equity shares held by 5 nominees of Sanmar Speciality Chemicals Limited

(iii) Change in Promoters’ Shareholding (please specify, if there is no change)

(iv) Shareholding Pattern of top ten Shareholders

(Other than Directors, Promoters and Holders of GDRs and ADRs):

(v) Shareholding of Directors and Key Managerial Personnel:

* Holding 1 equity share as a nominee of Sanmar Holdings Limited. He has no beneficial shareholding interest in this share.

V. INDEBTEDNESS

Indebtedness of the Company including interest outstanding/accrued but not due for payment.

VI. REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL

A. Remuneration to Managing Director, Whole-time Directors and/or Manager:

B. Remuneration to other Directors

C. Remuneration to Key Managerial Personnel other than MD/Manager/WTD

VII. PENALTIES / PUNISHMENT/ COMPOUNDING OF OFFENCES:

Annexure 3 to the Directors’ Report is disclosed Seprately in the "Disclosure in secretarial audit report explanatory [Text Block] in XBRL document.

Annexure 4 to the Directors’ Report is disclosed Seprately in the "Disclosure of corporate social responsibility explanatory [Text Block] in XBRL document.

Annexure 5

Policy on appointment of Directors and Remuneration policy:

The Company’s policy on Directors appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and policy relating to remuneration for the directors, Key Managerial Personnel and other Senior Executives of the Company as approved by the Nomination and Remuneration Committee of Directors and by the Board of Directors, is set out hereunder.

(a) Appointment of Directors

The Nomination and Remuneration Committee of Directors of the Company (the Committee) shall recommend to the Board of Directors, for appointment as Directors, persons who have the background and experience relevant for the Company’s operations. In so recommending the Committee may taken to account factors such as understanding of the Company’s business, dynamics, educational and professional background, personal and professional ethics, integrity and values.

The proposed appointee shall also fulfill the following requirements:

1. Shall possess a Director Identification Number.
2. Shall not be disqualified under the Companies Act, 2013.
3. Shall give his written consent to act as a Director.
4. Shall endeavor to attend all Board Meetings and wherever he is appointed as a Committee Member, the Committee Meetings.
5. Shall abide by the Code of Conduct established by the Company for Directors and Senior Management Personnel.
6. Shall disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals including his shareholding at the first meeting of the Board in every financial year and thereafter whenever there is a change in the disclosures already made.
7. Such other requirements as may be prescribed, from time to time under the Companies Act, 2013 and other relevant laws.

(b) Criteria of Independence

The Committee shall assess the independence of Directors at the time of appointment and re-appointment. Independence shall also be re-assessed when any new interests or relationships are disclosed by Director. The criteria of independence laid down by the Companies Act, 2013 shall be guiding factor. Independent Director shall abide by the Code for Independent Directors as specified in Schedule IV of the Companies Act, 2013.

(c) Remuneration Policy

The Company’s Remuneration Policy shall be in keeping with the following objectives:

(i) Ensuring that the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate, to run the company successfully.

(ii) Ensuring that relationship of remuneration to performance is clear and meets the performance benchmarks.

(iii) Ensuring that remuneration involves a balance between fixed and incentive pay reflecting short and long term performance objectives appropriate to the working of the company and its goals.

(d) Remuneration to Whole-time Directors

The Board on the recommendation of this Committee, shall review and approve the remuneration payable to the Whole-time Directors of the Company within the overall limits approved by the Shareholders.

The remuneration structure to the Whole-time Directors shall comprise of:

(i) Basic pay,
(ii) Allowances,
(iii) Retiral benefits, and
(iv) Performance related payments

(e) Remuneration to other employees including Key Managerial Personnel

Employees shall be assigned grades according to their qualifications and work experience, competences as well as their roles and responsibilities in the organization. Individual remuneration shall be determined within the appropriate grade and shall be based on various factors such as job profile, skill sets, seniority, experience and prevailing remuneration levels for equivalent jobs.

Annexure 6 TO THE DIRECTORS REPORT

Statement of Particulars of employees under Rule 5(2) of Companies (Appointment and Remuneration to Managerial Personnel) Rules, 2014

Remuneration includes Salary, Allowances and contribution to Provident Fund. In addition, the employees are entitled to Gratuity in accordance with the Company Rules.
The conditions of employment are non-contractual and are governed by the rules and regulations of the company applicable from time to time.
None of the employees is related to any director of the Company.