DIRECTORS' REPORT TO THE MEMBERS 1. Your Directors have pleasure in presenting their 80th Annual Report and the Audited Accounts of the Company for the year ended 31st March, 2016. 2. SHARE CAPITAL The Paid-up Capital of the Company is Rs.737.62 Lakhs (Previous Year: Rs.737.62 Lakhs) consisting of 73,76,160 Shares of Rs.10/- each. 3. DIVIDEND Your Directors have already declared an Interim Dividend of Rs. 3/- per share for the financial year 2015-16 at the Board Meeting held on 16th March, 2016 (Previous Year Dividend: Rs.2.50 per share). The amount of Interim Dividend outgo for the year was Rs.221.28 Lakhs. The amount of tax on Interim Dividend was Rs.45.05 Lakhs. In view of conserving resources for repayment of loans, your Directors do not recommend any further dividend for the financial year 2015-16. The Interim Dividend already paid may be treated as total Dividend for the year 2015-16. 4. TAXATION An amount of Rs. 386.18 Lakhs towards Current Tax, Rs.107.57 Lakhs towards Income Tax expenses related to earlier years and Rs. 104.48 Lakhs towards Deferred Tax has been provided for the year. 5. MANAGEMENT DISCUSSION AND ANALYSIS TRADE CONDITIONS During the year, the Company has increased the spindle capacity by 6,048 Spindles and installed of 2 Nos. of Open End Machines having capacity of 576 Rotors and hence the production of yarn has increased from 143.53 Lakhs Kgs to 159.43 Lakhs Kgs. During the year, the cotton prices have come down by 12% and correspondingly the yarn price was also declined. Sluggish yarn demand in India as well as in export market coupled with oversupply situation in India, dragged the yarn prices both in Domestic as well as Export markets. The preferential access being given in major importing nations like European Union to other countries including Bangladesh, Cambodia, Pakistan, South Korea, Turkey and Vietnam has put India in disadvantageous position and hence the export volume of textile goods from India to Europe was severely affected. Indian textile goods attract 4 to 16 per cent duty in Europe, while the majority of the competitors in other countries enjoy zero duty access. The Chinese government's decision to offload its reserve cotton stock has reduced their dependence on import of yarn from India and the Pakistan government's decision to impose regulatory duty for import of cotton yarn into their country have affected the shipments of yarn from India. The power cut imposed in Tamil Nadu during the previous years was lifted during the year. However, the restrictions imposed by the Tamil Nadu Generation and Distribution Corporation (TANGEDCO) in evacuation of power generated by wind mills has continued and even worsened during this year, which has resulted in loss in generation of power from wind mills to the extent of approximately 22.30 million units, which translated into Rs.15 Crores in monetary terms. Due to shut-down of wind mills by TANGEDCO, the Company was forced to purchase the power from power generating companies / run the DG & HFO sets, which are costly compared to wind mills. Due to this, the power cost during the year has gone up substantially. In spite of reduction in yarn selling price and the increase in power & labour costs, the strategic decision taken by the Company to make investments in value added machines like compact spinning system, TFO, gassing machines, etc., has helped the Company to increase its volume of sales in export / corporate customers, who require high quality value added yarn and also helped the Company to control the costs and to increase its operational and financial performance. 6. EXPORTS On the export front during the year, we have made export of Cotton Yarn (including merchant exports) for a value of Rs. 114.97 Crores as against Rs. 111.44 Crores of the previous year. Your Directors are thankful to M/s. Mitsubishi Corporation, M/s. Doko Spinning Co. Ltd., and M/s. Unitika Ltd., Japan for their continued support and efforts for promotion of exports to Japan and other countries. 7. MODERNISATION / EXPANSION As a part of continuous thrust on modernization and expansion programme, the Company has invested about Rs. 13.52 Crores for investment in textile machinery & equipments like, Carding Machines, Comber Machines, Ring Spinning Machines, Auto Coners, Compact Retrofit system for Ring Spinning Machines, Open End Spinning Machines, Draw Frames, Uster Quantum III, Contamination Detecting Machines, Waste Collection System, etc., 8. PROSPECTS FOR THE CURRENT YEAR The cotton prices are showing increasing trend due to lower production of cotton projected during the current cotton season 2015-16 because of reduced acreage of cotton plantation and whitefly attack on cotton crops in Punjab and Haryana. Due to sluggish demand for yarn, the Spinning Mills are not able to increase the yarn prices in line with the increased cotton cost. With the flexibility to produce value added super fine counts and by using more imported contamination free cotton, the Company is now focusing more on expanding the marketing activities across the globe during the current year. The Company is maintaining high standards of yarn quality, cost effective production and stringent waste control measures and focusing on more automation with a view to utilize the skilled manpower more efficiently. The Company is making all efforts to cope up with the current challenges through continuous cost reduction, imparting training to the employees at all levels, re-engineering of process and improved customer service to protect & improve the profit margins. 9. WIND MILL The Company has wind mills with installed capacity of 35.15 MW for its captive power consumption. There was delay in the on-set of wind season during the year under review. These wind mills continued to face evacuation constraints imposed by Tamil Nadu Generation and Distribution Corporation (TANGEDCO). Because of this, the windmills were not able to generate power to its full potential and the generation of electricity during the year was less compared to the previous year. The wind farm has generated 394 Lakhs Kwh as compared to 515 Lakhs Kwh of the previous year. All the Units generated by wind mills were adjusted for captive consumption at our Mills in Tamil Nadu. The income during the year from the Wind Mill Division was Rs.26.27 Crores as against Rs.30.15 Crores of previous year. 10. INTERNAL FINANCIAL CONTROLS In accordance with Section 134(5)(e) of the Companies Act, 2013, the Company has Internal Financial Controls Policy by means of Policies and Procedures commensurate with the size & nature of its operations and pertaining to financial reporting. In accordance with Rule 8(5)(viii) of Companies (Accounts) Rules, 2014, it is hereby confirmed that the Internal Financial Controls are adequate with reference to the financial statements. ERP System developed by Ramco Systems Limited has been installed for online monitoring of all functions and management information reports are being used to have better internal control system and to take decisions in time. 11. VIGIL MECHANISM / WHISTLE BLOWER POLICY In accordance with Section 177(9) and (10) of the Companies Act, 2013 and Regulation 22 of SEBI (LODR) Regulations, 2015, the Company has established a Vigil Mechanism and has a Whistle Blower Policy. The policy is available at the Company's website. 12. DIRECTORS Smt. R. Sudarsanam, (DIN: 00433926) was reappointed as Managing Director of the Company for a period of three years starting from 01-04-2014 to 31-03-2017 at the AGM held on 04-08-2014. Based on the recommendations of the Nomination and Remuneration Committee and Audit Committee made at their meetings held on 27-05-2016, the Board of Directors at their meeting held on 28-05-2016 have reappointed her as Managing Director for a further period of 3 years starting from 01-04-2017. Approval of the Members has been sought for her reappointment in the Notice convening the AGM. In accordance with the provision of the Companies Act, 2013 and in terms of the Memorandum and Articles of Association of the Company, the following Directors retire by rotation at the ensuing Annual General Meeting and they are eligible for re-appointment. 1. Shri P.R. Venketrama Raja (DIN: 00331406) 2. Shri A.V. Dharmakrishnan (DIN: 00693181) Shri K.B. Nagendra Murthy (DIN: 00359864) has been appointed as an Independent Director for a period of five years with effect from 04-08-2014 at the Annual General Meeting held on 12th August, 2015. Smt. Soundara Kumar (DIN: 01974515) has been co-opted on 27th August, 2015 as an Additional Director under Independent Director category. She will hold the office till the date of the forthcoming Annual General Meeting. A Notice in writing has been received from a Member signifying his intention to propose the appointment of Smt. Soundara Kumar as a Director under Independent Director category at the Annual General Meeting to hold office for 5 consecutive years with effect from 27th August 2015, without being subject to retirement by rotation. Pursuant to Rule 8(5)(iii) of Companies (Accounts) Rules, 2014, it is reported that, other than the above, there have been no changes in the Directors or Key Managerial Personnel during the year. The Company has received necessary declarations from all the Independent Directors under Section 149(7) of the Companies Act, 2013, that they meet the criteria of independence as provided in Section 149(6) of the Companies Act, 2013. The Audit Committee has four members, out of which three are Independent Directors. Pursuant to Section 177(8) of the Companies Act, 2013, it is reported that there has not been an occasion, where the Board had not accepted any recommendation of the Audit Committee. In accordance with Section 178(3) of the Companies Act, 2013 and based upon the recommendation of the Nomination and Remuneration Committee, the Board of Directors have approved a policy relating to appointment and remuneration of Directors, Key Managerial Personnel and Other Employees. The objective of the Nomination and Remuneration Policy is to ensure that the level and composition of remuneration is reasonable, the relationship of remuneration to performance is clear and appropriate to the long term goals of the Company. As required under Regulation 25 (7) of SEBI (LODR) Regulations, 2015, the Company has programmes for familiarization for the Independent Directors about the nature of the Industry, business model, roles, rights and responsibilities of Independent Directors and other relevant information. As required under Regulation 46 (2) of SEBI (LODR) Regulations, 2015 the details of familiarisation programme for Independent Directors are available of the at the Company's website at the following link at <http://www.rajapalayammills.co.in/pdf/familiarisation-programme-for->independent-directors.pdf The details of the familiarisation programme are explained in the Corporate Governance report also. 13. EVALUATION OF BOARD Pursuant to Section 134(3)(p) of the Companies Act, 2013, and Regulation 25(4) of SEBI (LODR) Regulations, 2015, Independent Directors have evaluated the quality, quantity and timeliness of the flow of information between the Management and the Board, performance of the Board as a whole, its committee and its Members and other required matters. Pursuant to Schedule II, Part D of SEBI (LODR) Regulations, 2015, the Nomination and Remuneration Committee has laid down evaluation criteria for performance evaluation of Independent Directors, which will be based on attendance, expertise and contribution brought in by the Independent Director at the Board Meeting, which shall be taken into account at the time of reappointment of Independent Director. 14. MEETINGS During the year, five Board Meetings were held. The details of the Meetings of the Board and its various Committees are given in Corporate Governance Report. 15. PUBLIC DEPOSITS Pursuant to Rule 8(5)(v) & (vi) of Companies (Accounts) Rules, 2014, it is reported that the Company has not accepted any deposit from public during the financial year under review. There has been no default in the repayment of deposits / payment of interest thereon during the year. The Company has no deposit, which is not in compliance with the Chapter V of the Companies Act, 2013. 16. ORDERS PASSED BY REGULATORS Pursuant to Rule 8(5)(vii) of Companies (Accounts) Rules, 2014, it is reported that, no significant and material orders have been passed by the Regulators or Courts or Tribunals, impacting the going concern status and Company's operations in future. 17. PARTICULARS OF LOANS, GUARANTEES AND INVESTMENTS Pursuant to Section 186(4) of the Companies Act, 2013, it is reported that: (a) the Company has not given any loans during the year 2015-16 under Section 186 of the Companies Act, 2013. (b) the particulars of the guarantees and investments are provided under Note No.26(18)(h) and Note No. 10 respectively of Notes forming part of financial statements. The guarantees are to secure the loans from Banks / Financial Institutions to the borrowers. 18. CORPORATE SOCIAL RESPONSIBILITY In terms of Section 135 and Schedule VII of the Companies Act, 2013, the Board of Directors have constituted a Corporate Social Responsibility (CSR) Committee and adopted a CSR Policy which is based on the philosophy that "As the Organisation grows, the Society and Community around it also grows." The Company has undertaken various projects in the areas of education, health, rural development, water and sanitation, promotion and development of traditional arts, protection of national heritage, livelihood enhancement projects, etc., largely in accordance with Schedule VII of the Companies Act, 2013. Your Directors are pleased to inform that the Company has fulfilled its CSR obligations pursuant to Section 135(5) of the Companies Act, 2013, for the year 2015-16. As against the requirement of Rs. 58.58 Lakhs, the Company has spent Rs. 168.17 Lakhs on CSR. The Annual Report on CSR activities as prescribed under Companies (Corporate Social Responsibility Policy) Rules, 2014 is attached as Annexure - I. 19. AUDITS STATUTORY AUDIT M/s. M.S. Jagannathan & N. Krishnaswami, Chartered Accountants, and M/s. Ramakrishna Raja and Co., Chartered Accountants, are the Statutory Auditors of the Company. At the 78th Annual General Meeting, the above Auditors have been appointed as a statutory auditors for a period of 3 consecutive years being their remaining eligible period in terms of Rule 6 of Companies (Audit and Auditors) Rules, 2014. The matter relating to their appointment for the third year of their term is being placed before the Members for ratification at the ensuing Annual General Meeting, in accordance with the requirements of Section 139(1) of the Companies Act, 2013. The Auditors have confirmed their eligibility for their reappointment, under Section 141 of the Companies Act, 2013. As required under Regulation No: 33(1)(d) of SEBI (LODR) Regulations, 2015, the Auditors have also confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India. The report of the Statutory Auditors for the year ended 31st March, 2016 does not contain any qualification, reservation or adverse remark and no instance of fraud has been reported by Auditors under Section 143(12) of Companies Act, 2013. SECRETARIAL AUDIT Shri M.R.L. Narasimha, a Practicing Company Secretary has been appointed to conduct the Secretarial Audit of the Company. Pursuant to Section 204(1) of the Companies Act, 2013, the Secretarial Audit Report submitted by the Secretarial Auditor for the year ended 31st March 2016 is attached as Annexure - II. The report does not contain any qualification, reservation or adverse remark. COST AUDIT Cost Audit is not applicable to the Company for the financial year 2014-15. However, Ministry of Corporate Affairs has amended the Companies (Cost Records and Audit) Rules, 2014 vide its notification dated 31-12-2014 and Textile Mills are required to file cost audit report with effect from the financial year 2015-16. The Board of Directors had approved the appointment of Shri M. Kannan, Cost Accountant as the Cost Auditor of the Company to audit the Company's Cost Records relating to manufacture of textile products for the year 2015-16 & 2016-17. The remuneration of the cost auditor is required to be ratified by the Members in accordance with the provisions of Section 148(3) of the Companies Act, 2013 and Rule 14 of the Companies (Audit and Auditors) Rules, 2014. Accordingly, the matter is being placed before the Members for ratification at the ensuing Annual General Meeting. The Cost Audit Report for the financial year 2015-16 is due to be filed within 180 days from the closure of the financial year and will be filed within the stipulated period. 20. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Pursuant to Section 134(3)(m) of the Companies Act, 2013 and Rule 8(3) of Companies (Accounts) Rules, 2014, the information relating to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo is attached as Annexure - III. 21. EXTRACT OF ANNUAL RETURN In Accordance with Section 92(3) of the Companies Act, 2013, read with Rule 12(1) of Companies (Management and Administration) Rules, 2014, an extract of the Annual Return in Form MGT-9 is attached herewith as Annexure - IV. 22. CORPORATE GOVERNANCE The Company has complied with the requirements regarding Corporate Governance as stipulated in SEBI (LODR) Regulations, 2015. As required under Schedule V(C) of SEBI (LODR) Regulations, 2015, a Report on Corporate Governance being followed by the Company is attached as Annexure - V. As required under Schedule V(E) of SEBI (LODR) Regulations, 2015, a Certificate from the Auditors confirming compliance is also attached as Annexure - VI to this Report. 23. PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES The disclosures in terms of provisions of Section 197(12) of the Companies Act, 2013 read with Rule 5(1), (2) and (3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, relating to remuneration are provided in Annexure- VII. Having regard to the first proviso to Section 136(1) of the Companies Act, 2013, the physical copy of the Annual Report excluding the aforesaid information is being sent to the members of the Company. The said information is available for inspection at the Registered Office of the Company during working hours and any Member interested in obtaining such information may write to the Company Secretary and the same will be furnished on request. The full Annual Report including the aforesaid information is being sent electronically to all those Members who have registered their email addresses and is also available on the Company's website. 24. INDUSTRIAL RELATIONS AND PERSONNEL The Company has 3,198 employees as on 31-03-2016. Industrial relations with employees remained cordial during the year. Human Resources Development activities received considerable focus. The emphasis was on imparting training and development of the skill-set of the employees to enable them to face the challenges in the work environment. 25. RELATED PARTY TRANSACTION Prior approval / Omini bus approval is obtained from the Audit Committee for all Related Party Transactions and the transactions are also periodically placed before the Audit Committee for its approval. No transaction with the related party is material in nature, in accordance with Company's "Related Party Transaction Policy" and Regulation 23 of SEBI (LODR) Regulations, 2015. In accordance with Accounting Standard - 18 (Related Party Disclosure), the details of transactions with the related parties are set out in Note No. 26 (18) of disclosures forming part of Financial Statements. As required under Regulation 46 (2) (g) of SEBI (LODR) Regulations, 2015, the Company's Related Party Transaction Policy is disclosed in the Company's website and its web link is <http://www.rajapalayammills.co.in/pdf/related-party-transaction-policy.pdf> 26. RISK MANAGEMENT POLICY Pursuant to Section 134(3)(n) of the Companies Act, 2013 and Regulation 17(9) of SEBI (LODR) Regulations, 2015, the Company has developed and implemented a Risk Management Policy. The Policy envisages identification of risk and procedures for assessment and minimization of risk thereof. 27. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to Section 134(5) of the Companies Act, 2013, the Directors confirm that: (a) they had followed the applicable accounting standards along with proper explanation relating to material departures, if any, in the preparation of the annual accounts for the year ended 31st March, 2016; (b) they had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on 31st March, 2016 and of the profit of the Company for the year ended on that date; (c) they had 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; (d) they had prepared the Annual Accounts on a going concern basis; (e) they 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) they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. ACKNOWLEDGEMENT The Directors are grateful to the various Departments and agencies of the Central and State Governments for their help and co-operation. They are thankful to the Financial Institutions and Banks for their continued help, assistance and guidance. The Directors wish to place on record their appreciation of employees at all levels for their commitment and their contribution. On behalf of the Board of Directors, For RAJAPALAYAM MILLS LIMITED, P.R. RAMASUBRAHMANEYA RAJHA CHAIRMAN RAJAPALAIYAM, 28th May, 2016 |