BOARD'S REPORT Dear Shareholders, 1. The Directors of your Company are presenting 35th Annual Report on the affairs of the Company together with Audited Financial Statements of the Company for the year ended 31st March, 2015. 2. Business Performance Your Directors are pleased to report the Company's business performance as follows: Sales Revenue During the year under review, net operating income of the Company was Rs. 94,240.69 lac as against Rs. 92,271.81 lac in 2013-14, registering a marginal increase of 2.09%. The FOB value of exports during the year has marginally decreased by 2.09% to Rs. 43,237.25 lac against Rs. 44,123.61 lac in 2013-14. Profitability During the year under review, the Company earned a profit before depreciation, interest & tax of Rs. 8,261.84 lac as against of Rs. 10,775.47 lac during the previous year. The Company has a net loss after tax of Rs. (2,880.20) lac during the current year against net profit of Rs. 477.51 lac in the previous year. 3. Management Discussion & Analysis Report a) Industry structure and developments India's textiles and garment industry is one of the significant contributing sectors to Indian economy in terms of direct and indirect employment generation and net foreign exchange earnings. Textile sector contributes about 14% to industrial production, 4% to the gross domestic product (GDP) and 27% to the country's foreign exchange inflows. It provides direct employment to over 45 million people and second largest provider of employment after agriculture. Thus, the growth and all round development of this industry has a direct bearing on the economy of the nation. The calendar year 2014 started with a low demand, falling yarn prices against high priced raw material inventory and subdued sentiments which continued till almost end of the year. With the arrival of new cotton in October/November 2014 at affordable prices, there was parity between raw material and finished goods which helped in recovering profit margins. Textile industry at international level, seems to be quite unpredictable and uncertain for various reasons including stagnant / diminishing demand as against increasing supply, Chinese policy on cotton, imports & currency and above all growing competition from some countries prominently Vietnam, Bangladesh, Cambodia, Thailand, Indonesia etc. Recently the Government's initiatives towards sick textile units and funds allocation for developing textile cluster and Facilitation Centre heal confidence among the spinners. In addition, the campaign launched by the government intends to provide a further boost to the Indian textile industry and enable it to achieve growth in exports and domestic market. The campaign also focused on providing investment opportunities for foreign companies and entrepreneurs across the entire value chain of synthetics, value-added and specialty fabrics, fabric processing set-ups for all kinds of natural and synthetic textiles, technical textiles, garments and retail brands. Real estate market has played a vital role in the Indian economy at least in the last about two decades. It is the fourth largest sector in the country in terms of foreign direct investment (FDI) inflows. FDI in the sector is estimated to grow to US$ 25 billion in 10 years. Real estate contribution to India's gross domestic product (GDP) is estimated to increase to about 13% by 2028, on the back of increasing industrial activity, improving income level and urbanization. Currently, the real estate segment is passing through a rough phase of its business cycle. The year 2014-15 was a bag full of mixed emotions and there was nothing much to excite the buyers, investors or the realtors, as a whole. There were many political changes that led to the amendments into otherwise hard and stringent policies. However, Union Budget 2014-15 has given hopes for this sector because this time it has brought in the much-needed relief for the Indian realty sector that may not only bring positivity for the domain/ sentiments but may also help hassle-free investments. b) Opportunities and Threats Opportunities: • Government initiatives to boost textile industry. • Make in India campaign. • Scope for automation. • Large overseas and domestic market. Threats: • Shortage of skilled labour. • Ever increasing input cost i.e. power, finance & logistics. • Volatile Government policies particularly for raw cotton. • Regional imbalance in taxation/ incentives by States. • Temporary phase of seemingly over supply. c) Segment wise Performance The Company has two segments i.e. Textile and Real estates. d) Economic Scenario and Outlook As per the IMF forecast, India is set to become the world's fastest growing major economy by 2016 ahead of China. India is expected to grow at 6.3 per cent in 2015, and 6.5 per cent in 2016 by when it is likely to cross China's projected growth rate. In the global exports of Textiles, India has improved its ranking. To perform consistently at global level appears to be challenge for the textile sector due to varied reasons including Indian Government's policy on cotton/fibres, Chinese policy on cotton, erratic demand, currency fluctuations, high conversion & logistic costs and Trans-pacific partnership (TPP) agreement with Vietnam by US & other countries. Considerable cash incentives doled out by certain States in the country to attract investment will hasten build up of capacities in spinning sector which may lead to oversupply and unhealthy competition, resulting into eroded profit margins. In order to survive, sustain and thrive in the global market, it would be necessary to differentiate and improve presence in value added products in the near future. Further, Technical textile, which has been a thrust area for the Government, is expected to grow at a faster pace as compared to other textiles products. It would be prudent to be an early bird and earmark some investments for this area for better and sustainable profitability. e) Management perception of Risk & concerns In today's challenging and competitive environment, strategies for mitigating inherent risks in accomplishing the growth plans of the Company are imperative. The main risks inter alia include strategic risk, operational risk, financial risk and compliances & legal risk. The fast technology obsolescence, high cost of manufacturing and irrational taxation are the major risk/ concerns of the business. The Company has devised and implemented a mechanism for risk management and has developed a Risk Management Policy. The Policy provides for constitution of a Risk Management Committee, which consist directors and senior management personnel. The Company through a risk management committee oversees the Risk Management process including risk identification, impact assessment, effective implementation of the mitigation plans and risk reporting. f) Internal control system & adequacy Your Company has an adequate internal control system. There is a system of continuous Internal Audit which aims at ensuring effectiveness and efficiency of systems and operations. The internal audit is conducted by external agency/professionals together with in-house Internal Audit Department lead by a qualified Chartered Accountants alongwith sufficient qualified & experienced staff. The scope of the Internal Audit is not limited to accounts only but includes operations, inventories, costing records, physical verifications of immovable and movable assets etc on regular basis. The Audit Committee of the Board of Directors approves and reviews audit plans for the year based on internal risk assessment. Audits are conducted on an on-going basis and significant deviations are brought to the notice of the Audit Committee following which corrective action is recommended for implementation. All these measures facilitate timely detection of any irregularities and early remedial steps. g) Financial Performance • Resource utilisation Fixed assets The gross fixed assets as at 31st March, 2015 were Rs. 58,361.10 lac against Rs. 57,057.28 lac in the previous year. The Net block of assets as on 31st March, 2015 was Rs. 25,783.85 lac as against Rs. 28,322.86 lac in the previous year. Current assets Inventory levels as at 31st March, 2015 were Rs. 13,790.03 lac as against Rs. 9,219.17 lac in the previous year. The trade receivable as at 31st March, 2015 were Rs. 5,251.99 lac as against Rs. 6,595.01 lac in the previous year. Increase in current assets is due to conversion of land into stock in trade. h) Human Resources Management Your Company gives utmost importance to human resource. It considers "Human Resource as Human Capital" and believes in the development of Human Resource. The Company strongly believes in the Performance Management System and always tries to explore and tap high potential at the Group level to meet new challenges and competition. Our main tool is training and developing talent at various levels. Internal and external trainings are regularly organized for the development of the members/employees. i) Safety, Health & Environment The Company's top priority is safety, with regard to employment. It encourages safety measures at all operational levels, especially at floor level. Regular training programs are conducted to create awareness about the importance of safety at work. Medical Camps are organized periodically for welfare of the members. Additionally, regular medical facilities are also provided to them. 4. Share Capital During the year under review, paid-up share capital of the company was increased from Rs. 19.82 crore to Rs. 22.29 crore by allotment of 24.73 lac equity shares of Rs. 10/- each at a premium of Rs. 45/- per share to the Promoters/ Promoter Group Company. 5. Redefined the address of Registered Office During the year under review, the Board vide its resolution dated 31.03.2015 has redefined the address of registered office of the Company from 341-K-1, Mundian Khurd, P.O. Sahabana, Chandigarh Road, Ludhiana-141123 to Vardhman Park, Chandigarh Road, Ludhiana-141123. 6. Dividend The Board of Directors of your Company has not recommended any dividend for the financial year 2014-15. 7. Directors & Committees During the financial year 2014-15, Mrs. Rakhi Oswal was appointed as Director of the Company w.e.f. 12.08.2014 being a woman director on the Board. Mr. Ajay Chaudhry, Mr. B. S. Bhatia, Mr. M. D. Kanitkar and Mr. Amit Jain were appointed as Independent Director for a term of five years upto 31.03.2019. All the Independent Directors have confirmed that they meet the criteria of independence as mentioned under clause 49 of the Listing Agreement and Section 149 of the Companies Act, 2013. Mr. Ashok Kumar Oswal was re-appointed as Chairman and Managing Director of the Company and Mr. Adish Oswal as Executive Director of the Company w.e.f. 01.04.2015 for a period of three years with the approval of shareholders vide resolution dated 30.03.2015. Mr. Adish Oswal, Director retires by rotation at this Annual General Meeting, and being eligible offers himself for re-appointment. Mr. Ashok Kumar Oswal, Chairman and Managing Director, Mr. Parvinder Singh, Chief Financial Officer and Mr. Sushil Sharma, Company Secretary were designated as "Key Managerial Personnel" of the Company pursuant to Sections 2(51) and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Remuneration Policy and Board Evaluation Pursuant to the provisions of Companies Act, 2013 and clause 49 of the Listing Agreement, the Company has adopted Nomination & Remuneration Policy for Directors, KMP and Senior Management Personnel. The independent directors in their meeting held on 27.12.2014, through discussion, evaluated the performance of non independent directors, Board, Managing Director and Executive Directors. The minutes of the said meeting were submitted to Chairman of the Company and also placed before the Board for their consideration. The Board has carried out annual performance evaluation of its own performance, the directors individually as well the evaluation of the working of its Audit, Nomination & Remuneration and Stakeholders' Relationship Committee. The Nomination & Remuneration Policy is enclosed as 'Annexure-I' and manner of evaluation of the Board is explained in Corporate Governance Report. Board Meetings During the year, 5 (Five) meetings of the Board of Directors were held. The details of the meetings are furnished in the Corporate Governance Report, which forms part of the directors' report. Board's Committee composition The composition of Audit Committee, Nomination and Remuneration Committee and other Board's Committee is furnished in the Corporate Governance Report, which forms part of the directors' report. 8. Corporate Social Responsibility The Company has constituted a Corporate Social Responsibility (CSR) Committee consisting of Mr. Ashok Kumar Oswal (Chairman), Mr. Adish Oswal, Mr. Ashok Kumar Goyal, Mr. Ajay Chaudhry and Mrs. Rakhi Oswal as members of the Committee. The Company has framed a CSR policy and the same has been available on the website of the Company www.owalgroup.com. As per the Policy, the Company considers CSR as social obligation, sustainability development, regulatory environment, human resource management, safety health & environment and a part of Corporate Governance. The projects/ programs to be undertaken under CSR are specified in the policy. Due to average loss during preceding three financial years, the company is not falling under the criteria for spending the amount under CSR. Hence, reporting on CSR activities as per the provisions is not required /applicable. 9. Listing of securities The Securities of the Company are listed on National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE). The Company has paid annual listing fee to exchanges for the year 2015-16. Further, Foreign Currency Convertible Bonds (FCCBs) of the company are listed at Singapore Exchange Securities Trading Ltd. 10. Subsidiaries, Associates and Joint Venture The Company has two subsidiaries, namely F.M. Hammerle Textiles Ltd (Formerly known as Oswal F.M. Hammerle Textiles Ltd) and F.M. Hammerle Verwaltungs GmbH, Austria, as on 31st March, 2015. There are no associate companies within the meaning of Section 2(6) of the Companies Act, 2013 ("Act"). There has been no material change in the nature of the business of the subsidiaries. The Company has published the audited consolidated financial statements for the financial year ended 31st March, 2015 and the same forms part of this Annual Report. Accordingly, the Annual Report does not contain the financial statements of our subsidiaries. As per the provisions of Section 129(3) of the Act, a statement containing salient features of the financial statements of the Company's subsidiaries in Form AOC-1 is annexed with this Annual Report. The audited financial statements of these subsidiaries and the related information will be made available to any Member of the Company/its subsidiaries seeking such information at any point of time and are also available for inspection at the Registered Office of the Company/its subsidiaries. Your Company divested its stake of 99.99% ownership in Oswal Industrial Enterprises Private Limited (OIEPL). Consequently, OIEPL ceased to be the subsidiary of the Company with effect from 31st March, 2015. Your Company continues to hold 1,000 equity shares of OIEPL. 11. Fixed Deposits During the year, the Company has not accepted any fixed deposits. The fixed deposits invited/accepted earlier from the public have been paid during the year and there is no outstanding deposit as at 31st March, 2015. 12. Loans, Guarantees or Investments The particulars of loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 are given in the financial statements. 13. Company Petition A petition has been filed by M/s Maschinen Umwelttechnik Transportanlagen GmbH, Austria (a shareholder in F.M. Hammerle Textiles Ltd.) against the Company U/S 397, 398, 402 & 403 of the Companies Act, 1956 in the Hon'ble Company Law Board (CLB), Principal Bench, New Delhi. The said petition is pending at the Hon'ble CLB. 14. Directors' Responsibility Statement Pursuant to Section 134 of the Act, the Directors state that: (a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any; (b) Appropriate accounting policies have been selected and applied consistently and have 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, 2015 and of the profit and loss of the Company for the year ended 31st March, 2015; (c) Proper and sufficient care has been taken 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 annual accounts have been prepared on a going concern basis; (e) Proper internal financial controls were followed by the Company and such internal financial controls are adequate and were operating effectively; (f) Proper systems are devised to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. 15. Corporate Governance The Company has in place a comprehensive system of Corporate Governance. A separate report on Corporate Governance forms part of the Annual Report of the Company. A certificate from the auditors of the Company regarding compliance of the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is annexed to the Report on Corporate Governance. 16. Related Party Transactions All related party transactions that were entered into during the financial year were on arm's length basis and in the ordinary course of business. All Related Party transactions were placed before the Audit Committee for approval. The Audit Committee has granted omnibus approval for related party transactions as per the provisions and restrictions contained in the Listing Agreement. There was no material/significant transaction with the directors or the management, their subsidiaries or relatives etc. that have any potential conflict with interest of the Company at large read with details of transactions as disclosed in Notes on Accounts annexed in the Balance Sheet as per Accounting Standard (AS) -18. The Board has approved a policy for related party transactions which has been uploaded on the Company's website. No Material Related Party Transactions, i.e. transactions exceeding ten percent of the annual consolidated turnover as per the last audited financial statements, were entered during the year by your Company. Accordingly, the disclosure of related party transactions as required under Section 134(3)(h) of the Companies Act, 2013 is not applicable. 17. Prevention of Sexual Harassment at workplace The Company has in place a Prevention of Sexual Harassment policy in line with the requirements of the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013. An Internal Complaints Committee has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy. The Company has not received any compliant related to sexual harassment during the year 2014-2015. 18. Vigil Mechanism / Whistle Blower Policy In order to ensure that the activities of the Company and its employees are conducted in a fair and transparent manner by adoption of highest standards of professionalism, honesty, integrity and ethical behavior, the company has adopted a Vigil Mechanism Policy, which is available at Company's website. This brief contents of the policy are explained in corporate governance report. 19. Auditors i) Statutory Auditors M/s S.S. Kothari Mehta & Co. (Firm Registration No-000756N), Chartered Accountants have been appointed as statutory auditors of the Company at 34th Annual General Meeting held on 30.09.2014 for a period of three years subject to ratification by members at every consequent Annual General Meeting. Therefore, ratification of appointment of Statutory Auditors is being sought from the members of the Company at the ensuing Annual General Meeting. ii) Secretarial Auditors Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s Nesar & Associates, Practising Company Secretary, New Delhi to undertake the secretarial audit of the Company. iii) Internal Auditors M/s S C Vasudeva & Associates, Chartered Accountants performs the duties of internal auditors of the Company. The Company is also having full fledged internal audit department headed by qualified chartered accountant and supported by adequate qualified & experienced staff. iv) Cost Auditors The Board of Directors has appointed M/s Ramanath Iyer & Company, Cost Accountants, New Delhi, as the Cost Auditors of the Company to conduct cost audit for the financial year ended 31st March, 2016. As per the requirement of Section 148 of the Companies Act, 2013, read with rules made there under, the remuneration to be paid to M/s Ramanath Iyer & Company, Cost Accountants, New Delhi, for financial year 2015-16 is placed for ratification by the members at this Annual General Meeting. 20. Comments on Auditors' Report and Secretarial Auditors' Report Auditors' Report The Statutory Auditors of the Company have submitted Auditors' Report on the Accounts of the Company for the financial year ended 31st March, 2015. In their reports (standalone and consolidated), they have made certain qualifications/observations. The explanation/comments of the Board on the same are as under: Standalone Auditor's Report a) The variance with Accounting Standard (AS-2) 'Valuation of Inventories' and Accounting Standard (AS-10) 'Accounting for Fixed Assets' relating to Real Estate Business, resulted in overstating the reserves, current assets, revenue and of cost of development. The land price has been assessed by the management. The difference between book value and assessed price was transferred to capital reserve, while conversion of land into stock in trade. The capital reserve thus created, will be transferred to the Statement of Profit & Loss in proportion of revenue recognized under the percentage of completion method on entering into an agreement to sales on year to year basis, thus showing actual profit earned on sale of real estate. b) No provision has been made for other than temporary diminution in the value of investment in one of the subsidiary company, F.M. Hammerle Textiles Limited. We state that in view of continuous losses suffered by the company i.e. F.M. Hammerle Textiles Limited which has eroded 100% of the share capital, the company falls under "Sick Company" under the Sick Industrial and Companies (Special Provisions) Act (SICA) of 1985 and is filing an application to the Board for Industrial and Financial Reconstruction (BIFR). c) Observation that the company has incurred cash losses in the current financial year but not in the immediately preceding financial year. We state that the loss incurred during the year is due to volatility in the yarn market which is temporary business phase. The management has initiated steps to control cost and efficient/judicious resource utilization, which will help to improve the margins. d) Observation in respect to default in repayment of dues to financial institutions/banks in respect of various loans and interest. We state that the Vardhman Polytex Ltd, is regular in meeting its obligations since January, 2015. However, in F.M. Hammerle Textiles Ltd, due to financial stress, the delay has happened. Further, the company is making application to BIFR. Consolidated Auditor's Report The explanation, of qualifications/observations which are also common in consolidated auditor's report, has been provided above, except observation in point no (xii) regarding 'a fraud committed by canteen contractor in a subsidiary - F.M. Hammerle Textiles Ltd'. We state that the company i.e. F.M. Hammerle Textiles Ltd has initiated the appropriate civil and/ criminal legal proceeding against the contractor and others for the recovery of the amount assessed. Other points of Auditors' Reports on the Accounts of the Company for the year under review are self-explanatory and require no comments. Secretarial Auditors' Report The Secretarial Auditors' report does not contain any qualifications, reservations or adverse remarks. Report of the secretarial auditor is annexed herewith as 'Annexure II', which forms part of this report. 21. Energy conservation, technology absorption and foreign exchange earnings and outgo The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of The Companies (Accounts) Rules, 2014, is annexed herewith as 'Annexure III'. 22. Particulars of Employees The information required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is annexed herewith as 'Annexure IV'. 23. Extract of Annual Return The details forming part of the extract of the Annual Return in form MGT 9 is annexed herewith as 'Annexure V'. 24. Significant and material orders passed by the regulators or courts or tribunals impacting the going concern status of the Company There are no significant and material orders passed by the Regulators or Courts or Tribunals which would impact the going concern status of the Company. 25. Acknowledgements Your directors are pleased to place on record their sincere gratitude to the Government, Financial Institutions, Bankers and Business Constituents for their continued and valuable co-operation and support to the Company. They also take this opportunity to record their appreciation of the valuable contribution made by the employees in the successful operations of the Company during the year. 26. Cautionary Statement Certain statements made in the Management Discussion and Analysis Report relating to the Company's objectives, projections, outlook, expectations, estimates and others may constitute 'forward looking statements' within the meaning of applicable laws and regulations. Actual results may differ from such expectations whether expressed or implied. Several factors could make significant difference to the Company's operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, natural calamities over which the Company does not have any direct control. For and on behalf of the Board Sd/- (Ashok Kumar Oswal) Chairman & Managing Director (DIN-00009403) Place: Ludhiana Dated: 25th May, 2015 |