DIRECTORS' REPORT (CIN: L17110GJ1988PLC010504) To, The Members, Your Directors have pleasure in presenting the 26th Annual Report on the business and operation of your Company together with the audited accounts for the year ended 31st March, 2015. DIVIDEND The Board of Directors has not recommended any dividend on Share Capital of the Company for the year ended on 31st March, 2015, considering the current cash flow position of the Company. PERFORMANCE DURING THE YEAR During the year under review, your Company reported top-line growth of 8.78% over the Previous Year. Gross Revenue from Operations stood at Rs. 74,551.14 lacs as compared to Rs. 685,31.57 lacs during the Previous Year. During the year under review, the Company has earned Profit Before Tax (PBT) of Rs. 339.40 lacs and Profit after Tax (PAT) of Rs. 18.77 lacs as compared to PBT of Rs. 641.16 lacs and PAT of Rs. 318.21 lacs during the Previous Year. FINANCE During the year under report your company has raised total Rs. 589.79 lacs through term loan and working facilities from various banks. During the year company has paid External Commercial Borrowing (ECB) of US$ 2.57 million (Rs. 1570.36 lacs) to Standard Chartered Bank (SCB) and US$ 0.87 million (Rs. 541.94 lacs) to Bank of Baroda (UAE). SHARE CAPITAL The paid up Equity Share Capital as at 31st March, 2015 stood at Rs. 2345.98 Lacs. During the year under review, the Company has not issued shares with differential voting rights nor has granted any stock options or sweat equity. The Company has no scheme of provision of money for purchase of its own shares by employees or by trustees for the benefit of employees. Hence the details under rule 16 (4) of Companies (Share Capital and Debentures) Rules, 2014 are not required to be disclosed. TRANSFER TO RESERVES No amount is appropriated from Statement of Profit and Loss and transferred to any Reserve Account. BUSINESS OVERVIEW As per the latest GDP growth estimates, India economy grew by 7.4% in financial year 2015 compared to 6.9% in financial year 2014, mostly driven by improved economic fundamentals and revision of GDP methodology calculation. Even inflation showed signs of moderation, a welcome sign - wholesale price and consumer price inflation declined to 4.2% and 7.4% respectively, compared with last year's 6.3% and 10.1% Reduced inflation, falling crude oil prices, stable rupee, improved purchasing power and consumer spending, higher capital inflows supported by the new government policy reforms have already put India on accelerating growth track and improved the business outlook. The Government envisages GDP growth to accelerate to 8% in financial year 2016 driven by strengthening macro-economic fundamentals and implementation of policy reforms recently announced. Indian textile and denim industry had faced multiple challenged such as global recession, less export orders due to reductions in inventories by global retail giants, over supply of goods in market, hike in power, fuel cost and man power cost. The Indian denims industry is facing out the in-house competition due to over expansions and introduction of new capacities in Denim. In the backdrop of above macro-economic scenario, your Company has closed the financial year 2014-15 with 8.78% growth in Revenue as compared to Previous Year. However Operating Earnings before Interest, Depreciation and Taxes (EBITDA) has declined to 9.63% as compared to 11.77% for the Previous Year. CORPORATE GOVERNANCE The Board of Directors supports to maintain highest standards of corporate governance and adhere to corporate governance requirements set out by SEBI. In addition to basic governance issues, Board lays strong emphasis on transparency, accountability and integrity. The Report on corporate governance as stipulated under Clause 49 of the Listing Agreement forms part of the Annual Report. The requisite certificate from the Auditors of the Company confirming compliance with conditions of corporate governance as stipulated under aforesaid Clause 49, is attached to the Report on corporate governance. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS Details of 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. FIXED DEPOSITS Your company has accepted the deposits aggregating to Rs. 1070.29 lacs during the year under review after complying with the provisions of the said act and Companies (Acceptance of Deposits) Rules, 2014. There are no deposits which are not in compliance with the requirements of Chapter V of the Companies Act, 2013. Your directors appreciate the support which the company has received from the public and shareholders to its fixed deposit scheme. INSURANCE AND CLAIMS All properties and insurable interests of the company including building, plant and machinery and stocks wherever necessary and to the extent required have been adequately insured. During the previous Financial Year a fire broke at Company's Inspection and Packing Department of Vijay Farm Unit resulting into loss of finished goods, semi-finished goods, Plant & Machinery, Factory Building, Furniture & Fixtures and Other Miscellaneous Items. The carrying value of the assets destroyed in fire is estimated at Rs.1732.21 lacs. The company has insurance policies of all affected assets, so the Company has lodged claims with the insurance companies which claims include claim towards loss of the above stated assets. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES All related party transactions that were entered into during the financial year were at arm's length basis. A detailed report on material contracts and arrangements made during the year 2014-15, being arm's length transactions have been reported and annexed hereto in form AOC-2 as Annexure - A and forms part of this report. There are no materially significant related party transactions made by the company with promoters, key managerial personnel or other designated persons which may have potential conflict with interest of the company at large. The Company has adopted a Related Party Transactions Policy. The Policy, as approved by the Board, is uploaded on the Company's website at the web link: <http://www.aarvee-denims.com/pdfs/related-party-transaction->policy.pdf SUBSIDIARY COMPANIES Your Company does not have any subsidiary. RISK MANAGEMENT The Company has adopted a Risk Management Policy in accordance with the provisions of the Act and Clause 49 of the Listing Agreement. It establishes various levels of accountability and overview within the Company, while vesting identified managers with responsibility for each significant risk. The Internal Audit Department facilitates the execution of Risk Management Practices in the Company, in the areas of risk identification, assessment, monitoring, mitigation and reporting. Through this programme, each Function and Unit addresses opportunities and risks through a comprehensive approach aligned to the Company's objectives. The Company has laid down procedures to inform the Audit Committee as well as the Board of Directors about risk assessment and management procedures and status. Sustainability is embedded in the Corporate Enterprise Risk Management programme, which gives an opportunity to increase the effectiveness of risk management practices and for improving business efficiency. This risk management process, which is facilitated by internal audit, covers risk identification, assessment, analysis and mitigation. Incorporating sustainability in the process also helps to align potential exposures with the risk appetite and highlights risks associated with chosen strategies. The current risk slate and the comprehensive risk policy have been further redefined during the year. The major risks forming part of the Enterprise Risk Management process are linked to the audit universe and are covered as part of the annual risk based audit plan. INTERNAL CONTROLS SYSTEMS AND ADEQUACY The Company's internal audit systems are geared towards ensuring adequate internal controls commensurate with the size and needs of the business, with the objective of efficient conduct of operations through adherence to the Company's policies, identifying areas of improvement, evaluating the reliability of Financial Statements, ensuring compliances with applicable laws and regulations and safeguarding of assets from unauthorized use. Details of the internal controls system are given in the Management Discussion and Analysis Report, which forms part of the Directors' Report. The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board. DIRECTORS AND KEY MANAGERIAL PERSONNEL 1) Changes in Directors and Key Managerial Personnel Mrs. Komal S. Majmudar resigned from the Board of Directors of the Company with effect from 29th May, 2015. Your Directors take this opportunity to express their deep sense of appreciation for the valuable services rendered during her tenure as a Director. Mrs. Komal Majmudar was appointed w.e.f. 30th September, 2014 during the year. Mr. Amish Shah, Company Secretary has resigned w.e.f. 30th September, 2014. Mr. K. K. Mohale, CEO of the Company retired w.e.f. 31st December, 2014 and Mr. Utsav Pandwar, CFO of the Company has resigned w.e.f. 30th May, 2015. Mr. Hardik Modi has been appointed as Company Secretary w.e.f. 8th October, 2014. Mr. Suketu Shah has been appointed as CEO of the Company w.e.f. 6th April, 2015 and Ms. Shivani Shah has been appointed as an Additional Director of the Company (Woman Director) w.e.f. 13th August, 2015. Mr. Kalpesh V. Shah, Director shall retire by rotation at the forthcoming Annual General Meeting of the Company and being eligible offer himself for re-appointment. 2) Declaration by an Independent Director(s) and reappointment, if any All Independent Directors have given declarations that they meet criteria of independence as laid down under Section 149 (6) of the Act and Clause 49 of the Listing Agreement entered into with the Stock Exchanges. In opinion of the Board, they fulfill conditions of independence as specified in the Act and the Rules made there under and are independent of management. 3) Procedure for Nomination and Appointment of Directors The Nomination and Remuneration Committee is responsible for developing competency requirements for the Board based on the industry and strategy of the Company. Board composition analysis reflects in-depth understanding of the Company, including its strategies, environment, operations, financial condition and compliance requirements. The Nomination and Remuneration Committee conducts a gap analysis to refresh the Board on a periodic basis, including each time a Director's appointment or re-appointment is required. The Committee is also responsible for reviewing and vetting the CVs of potential candidates vis-a-vis the required competencies and meeting potential candidates, prior to making recommendations of their nomination to the Board. At the time of appointment, specific requirements for the position, including expert knowledge expected, is communicated to the appointee. 4) Criteria for Determining Qualifications, Positive Attributes and Independence of a Director The Nomination and Remuneration Committee has formulated the criteria for determining qualifications, positive attributes and independence of Directors in terms of provisions of Section 178 (3) of the Act and Clause 49 of the Listing Agreement. Independence: In accordance with the above criteria, a Director will be considered as an 'Independent Director' if he/ she meets with the criteria for 'Independent Director' as laid down in the Act and Clause 49 of the Listing Agreement. Qualifications: A transparent Board nomination process is in place that encourages diversity of thought, experience, knowledge, perspective, age and gender. It is also ensured that the Board has an appropriate blend of functional and industry expertise. While recommending the appointment of a Director, the Nomination and Remuneration Committee considers the manner in which the function and domain expertise of the individual will contribute to the overall skill-domain mix of the Board. Positive Attributes: In addition to the duties as prescribed under the Act, the Directors on the Board of the Company are also expected to demonstrate high standards of ethical behavior, strong interpersonal and communication skills and soundness of judgment. Independent Directors are also expected to abide by the 'Code for Independent Directors' as outlined in Schedule IV to the Act. 5) Annual Evaluation of Board Performance and Performance of its Committees and of Directors Pursuant to the provisions of the Act and Clause 49 of the Listing Agreement, the Board has carried out an annual evaluation of its own performance, performance of Directors as well as evaluation of working of its Committees. The Nomination and Remuneration Committee has defined the evaluation criteria, procedure and time schedule for Performance Evaluation process for the Board, its Committees and Directors. The Board's functioning was evaluated on various aspects, including inter alia degree of fulfillment of key responsibilities, Board structure and composition, establishment and delineation of responsibilities to various Committees, effectiveness of Board processes, information and functioning. Directors were evaluated on aspects such as attendance and contribution at Board/ Committe Meetings and guidance/ support to the management outside Board/ Committee Meetings. In addition, the Chairman was also evaluated on key aspects of his role, including setting the strategic agenda of the Board, encouraging active engagement by all Board members and motivating and providing guidance to the Managing Director. Areas on which the Committees of the Board were assessed included degree of fulfillment of key responsibilities, adequacy of Committee composition and effectiveness of meetings. The performance evaluation of Independent Directors was carried out by entire Board, excluding Director being evaluated. The performance evaluation of the Chairman and the Non Independent Directors was carried out by Independent Directors who also reviewed performance of the Board as a whole. The Nomination and Remuneration Committee also reviewed performance of the Board, its Committees and of Directors. The Chairman of the Board provided feedback to the Directors on an individual basis, as appropriate. Significant highlights, learning and action points with respect to the evaluation were presented to the Board. REMUNERATION POLICY The Company has adopted a Remuneration Policy for the Directors, Key Managerial Personnel and other employees, pursuant to the provisions of the Act and Clause 49 of the Listing Agreement. The philosophy for remuneration of Directors, Key Managerial Personnel and all other employees of the Company is based on the commitment of fostering a culture of leadership with trust. The Remuneration Policy of the Company is aligned to this philosophy. The Nomination and Remuneration Committee has considered following factors while formulating Policy: (i) The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate Directors of the quality required to run the Company successfully; (ii) Relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and (iii) Remuneration to Directors, Key Managerial Personnel and Senior Management 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. It is affirmed that the remuneration paid to Directors, Key Managerial Personnel and all other employees is as per the Remuneration Policy of the Company. Details of the Remuneration Policy are given in the Corporate Governance Report. NUMBER OF MEETINGS OF THE BOARD During the year, four board meetings and four audit committee meetings were convened and held, the details of which are given in the corporate governance report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the provisions of section 134 (5) of the Companies Act, 2013, your directors would like to state that: a. in the preparation of the annual accounts, the applicable accounting standards have been followed; 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 at the end of the financial year as on 31st March, 2015 and of the profit of the company for that period; 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 directors have prepared the annual accounts on a "going concern" basis; 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; and 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. CORPORATE SOCIAL RESPONSIBILITY The Board has constituted a Corporate Social Responsibility Committee headed by Mr. Ashish V. Shah as Chairman and Mr. Amol Dalal and Mr. Vinod P Arora as Members of the Committee. The Company has adopted a Corporate Social Responsibility (CSR) Policy in compliance with the provisions of the Act. As part of its CSR initiatives, the Company could not initiate CSR activities because of shortage of funds due to volatile textile market during the Previous Year. Further, it is to be noted that one of unit suffered sudden major fire accident on 1st March, 2015, which affected heavy loss of stock, building, plant and machineries due to fire. Report on CSR activities is annexed as Annexure - B. POLICY ON PREVENTION, PROHIBITION AND REDRESSAL OF SEXUAL HARASSMENT AT WORKPLACE The Company has zero tolerance for sexual harassment at workplace and has adopted a Policy on Prevention, Prohibition and Redressal of Sexual Harassment at the Workplace, in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Policy aims to provide protection to employees at the workplace and prevent and redress complaints of sexual harassment and for matters connected or incidental thereto, with the objective of providing a safe working environment, where employees feel secure. The Company has not received any complaint of sexual harassment during the financial year 2014-15. VIGIL MECHANISM/ WHISTLE BLOWER POLICY The Company has adopted a Whistle Blower Policy, to provide a formal mechanism to the Directors and employees to report their concerns about unethical behaviour, actual or suspected fraud or violation of the Company's Code of Conduct or ethics policy. The Policy provides for adequate safeguards against victimization of employees who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee. It is affirmed that no personnel of the Company has been denied access to the Audit Committee. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS No significant material orders have been passed by the Regulators or Courts or Tribunals which would impact the going concern status of the Company and its future operations. AUDITORS (1) Statutory Auditors Pursuant to the provisions of Section 139 of the Act and the rules framed thereunder, M/s. Deloitte Haskins & Sells, Chartered Accountants, Ahmadabad (Registrant No. 17365W) and M/s N.C. Shah & Associates, Chartered Accountants, Ahmedabad (Registration No. 109692W) were appointed as Joint Auditors of the Company from conclusion of the 25th Annual General Meeting (AGM) of the Company held on 30th September, 2014 till the conclusion of the 28th AGM to be held in the year 2017, subject to ratification of their appointment at every AGM. (2) Cost Auditors The company has received a letter from the cost auditors M/s N. D. Birla and Co., Cost Accountant to the effect that their appointment, if made, would be within the prescribed limits under section 141(3) (g) of the Companies Act, 2013 and that they are not disqualified for appointment. The board of directors of the company at its meeting held on 29th May, 2015 appointed M/s. N. D. Birla & Co., Cost Accountants as the cost auditors of the Company to conduct the audit of cost records maintained by the Company as required by the Companies (Cost Records and Audit) Rules 2014 as amended from time to time. The members are requested to ratify the remuneration to be paid to the cost auditors of the company (3) Secretarial Auditors Pursuant to the provisions of Section 204 of the Act and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board of Directors of the Company had appointed Mr. Tapan Shah, Company Secretaries in Practice to undertake the Secretarial Audit of the Company for the year ended 31st March, 2015. The Secretarial Audit Report is annexed as Annexure - C. CONSERVATION OF ENERGY, 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 Act read with Rule 8 (3) of The Companies (Accounts) Rules, 2014, is annexed as Annexure - D. PARTICULARS OF EMPLOYEES AND REMUNERATION The information required pursuant to Section 197 read with Rule, 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, will be provided upon request. In terms of Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employees' particulars which is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing Annual General Meeting. If any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary in this regard. EXTRACT OF ANNUAL RETURN Pursuant to Section 92 (3) of the Act and Rule 12 (1) of The Companies (Management and Administration) Rules, 2014, the extract of Annual Return in form MGT.9 is annexed as Annexure - E. MANAGEMENT DISCUSSION AND ANALYSIS REPORT The management discussion and analysis report as required under clause 49 of the listing agreement with the Stock Exchanges has been attached and forms part of this report. AUDITORS' REPORT The Auditors' Report to the members on the Accounts of the Company for the financial year ended 31st March, 2015 does not contain any qualification. Members' attention is invited to the observation made by the Auditors under "Emphasis of Matter" appearing in the Auditors' Report. INDUSTRIAL RELATIONS The industrial relations continued to be generally peaceful and cordial. REGULATORY STATEMENT In conformity with provision of Clause 32 in the Listing Agreement(s) the Cash Flow Statement for the year ended 31st March, 2015 is annexed hereto. The Equity shares of your company are listed on the BSE Limited and the National Stock Exchange of India Limited (NSE). The Company has paid the listing fees for the year 2015-16 to above stock exchanges. ACKNOWLEDGEMENTS Your Directors thank the various Central and State Government Departments, Organizations and Agencies for the continued help and co-operation extended by them. The Directors also gratefully acknowledge all stakeholders of the Company viz. customers, members, dealers, vendors, banks and other business partners for the excellent support received from them during the year and look forward to their continued support in future. The Directors place on record their sincere appreciation to all employees of the Company for their unstinted commitment and continued contribution to the Company. For and on behalf of Board of Directors Vinod P. Arora Chairman and Managing Director (DIN: 00007065) Place : Ahmedabad Date : 13/08/2015 |