DIRECTORS REPORT Dear Shareholders, Your directors hereby present the 53rd Annual Report along with the financial results for the year ended 31st March 2015 Economic overview and industry review The global economic growth during 2014 was at a modest level of 3.4% with positive contributions coming from developing economies. Going by the World Economic Outlook, the growth rate is not expected to be significantly higher and projected to be 3.5% for the year 2015. The new Indian government is setting the tone for achieving accelerated growth with a focus on manufacturing. Policy reforms, foreign investment inflows and reduced oil prices could play a key role in reaching the GDP target of around 8% in 2015-16 from the current level of 7.3%. The year under review, 2014-15, was not a good year for the textile industry. Over the past few years, China was the biggest importer of Indian cotton and yarn. A shift in China's cotton policy saw cotton exports from India to China drop significantly. The policy also resulted in increased production of yarn in China using local cotton, which led to a sharp decline in Indian yarn exports. This, coupled with weak demand, created an oversupply of yarn in the domestic market, which resulted in a drop in yarn prices of around 7 - 8% during the year under review. Review of operations Despite falling yarn prices your company has managed to achieve a turnover of Rs. 732 crores, which is close to that of the previous year. High priced cotton inventory carried from the last season coupled with declining yarn prices contributed to the margins turning negative. The technical textiles division has started showing signs of growth in terms of turnover. The cost of production continues to remain high due to underutilization of capacity. Our participation in global tenders and at exhibitions has started drawing the attention of global buyers but the process of retailers switching suppliers is a long drawn affair. We expect the division to break even at a cash level in the FY 2015-16. Outlook for the current year The current year's cotton production in India is expected to be around 400 lakh bales which will be higher than the previous year. With declining cotton exports, Indian cotton prices should have fallen. But the Cotton Corporation of India has been very active in purchasing cotton and maintaining prices. This has resulted in Indian cotton prices being higher than international prices which in turn put pressure on yarn exports. Higher input costs like salaries and wages and power are also shrinking margins. Only an overall growth in domestic demand will allow yarn prices to improve. Your company will continue to be prudent in expenditure and will take all steps to ensure maximum capacity utilization and efficiency. Opportunities, risks and concerns Though some of the developed economies are showing signs of recovery, the global economic scenario continues to be weak. European economic stability, oil prices and geopolitical unrests could hold the key for the economic revival and such revival could take some time. While the Indian economic growth forecast is positive, it is largely dependent on the internal policy reforms, monetary policy and pick up in domestic consumption. The mismatch between raw material and yarn prices along with a lack of availability of skilled labour is a major concern for the industry. Margins are also impacted on account of rising input costs. Personnel The company continues to maintain good relations with its labour across its units. The exercise of recruiting, training and deployment of trained labour, at added cost, continues in view of the shortage that has been persistent in Tamil Nadu. Internal control systems & risk management The company has adequate internal control systems to monitor business processes, financial reporting and compliance with applicable regulations. The systems are periodically reviewed by the audit committee. The committee also reviews the statutory auditors' report, key issues, significant processes and accounting policies. The company has constituted a risk management committee and adopted a policy on risk management. The audit committee of the board reviews the risk management report periodically. Postal ballot During the year, a special resolution was passed through postal ballot under section 180 (1)(a) of the Companies Act, 2013 ('the Act'), with requisite majority for authorising the board to create mortgage, charge or hypothecation of the assets of the company. Number of meetings of the board Five meetings of the board were held during the year. For details, please refer to the corporate governance report. Directors The independent directors have submitted their disclosures as per section 149 of the Act, so as to qualify themselves as independent directors. Mr Prashanth Chandran retires by rotation at the ensuing annual general meeting. He is eligible for re-appointment. Performance evaluation Pursuant to the provisions of the Companies Act, 2013 and clause 49 of the listing agreement, the board at its meeting held on 06th February 2015, had evaluated its own performance, the directors individually and also the working of its audit, nomination and remuneration, corporate social responsibility, stakeholders' relationship, finance and risk management committees. The performance evaluation of each director is done by the entire board of directors, excluding the director being evaluated, taking into consideration inputs received from the other directors, covering various aspects of the board's functioning such as active participation and contribution during discussions, effective deployment of knowledge and expertise towards the growth and betterment of the company, impact and influence on the growth of the company and performance of specific duties, obligations and governance. Independent directors' evaluation was carried out by the entire board and that of the chairman and the non-independent directors was carried out by the independent directors. Policy on directors' appointment and remuneration The company's policy on directors' appointment and remuneration and other matters provided in section 178(3) of the Act has been disclosed in the corporate governance report. Key managerial personnel During the year under review, as per section 203 of the Act, the following employees were designated as whole-time key managerial personnel by the board of directors. i) Mr Ashwin Chandran, Managing Director ii) Mr M R Siva Shankar, Chief Financial Officer, and iii) Mr R Nithya Prabhu, Company Secretary Particulars of employees Statement pursuant to Section 197(12) of the Act, read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is as follows: Employed throughout the year and was in receipt of remuneration not less than Rs. 60 lacs per annum. Note:
1.Nature of employment is contractual. 2.Mr Ashwin Chandran is related to Mr D Sarath Chandran, Chairman and Mr Prashanth Chandran, Joint Managing Director. B The percentage increase in the median remuneration of employees in the financial year was 10%. c) The company has 1354 permanent employees on the rolls as on 31st March, 2015. d) Relationship between average increase in remuneration and company performance: The company's PAT has grown from Rs. 20.69 crores in the FY 12-13 to Rs. 30.45 crores in the FY 13-14, an increase of 47%, against which the remuneration has been increased by an average of 10% during the FY 14-15 and this is in line with HR policy of the company. e) Comparison of the remuneration of the Key Managerial Personnel (KMP) against the performance of the company: The remuneration of KMP increased by around 19% in FY 14-15, compared to FY 13-14, in line with the HR policy of the company. The increments and annual bonus payouts of the employees including KMP are linked to individual performance, company's performance, industry benchmark and current compensation trends. The turnover of the company for the FY 14-15 was Rs. 732 crores and profit after tax was Rs. (33) crores. f) Variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase or decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer Subsidiary companies The company has three subsidiaries namely 1. Suprem Textile Processing Limited 2. Multiflora Processing (CBE) Limited and 3. Precot Meridian Energy Limited. There are no associate companies within the meaning of section 2(6) of the Act. There has been no material change in the nature of the business of the subsidiaries. As informed in our earlier report, Benwood Corporation Sdn Bhd, a subsidiary incorporated in Malaysia, has ceased operations and the liquidation process was completed during the year. The statement pursuant to section 129 (3) of the Act, containing the salient features of the financial statements of subsidiary companies, forms part of this annual report. The company neither has any material subsidiary whose net worth exceeds 20% of the consolidated net worth of the holding company in the immediately preceding financial year nor has generated 20% of the consolidated income of the company during the previous financial year. The board has approved a policy for determining material subsidiaries which has been uploaded on the company's website www.precot.com The annual accounts of the subsidiary companies are kept for inspection by the shareholders at the registered office of the company. The company shall provide the copy of the annual accounts of subsidiary companies to the shareholders upon their request. Audit committee The details pertaining to composition of audit committee are included in the corporate governance report. The company has formulated and published a Whistle Blower Policy to provide vigil mechanism for employees including directors of the company to report genuine concerns on the website of the company www.precot.com The provisions of this policy are in line with the provisions of section 177(9) of the Act and the revised clause 49 of the listing agreement. Corporate governance A report on corporate governance is annexed to this report. This includes certain disclosures required under the provisions of the Companies Act, 2013. The company has complied with the conditions relating to corporate governance as stipulated in clause 49 of the listing agreement. Corporate social responsibility (CSR) The board at its meeting held on 30th May 2014 has formed a CSR committee comprising 1. Mr D Sarath Chandran, 2. Mr Ashwin Chandran and 3. Mr A Ramkrishna. The committee at its meeting held on 28th July 2014, has recommended a CSR policy. The CSR policy deals with allocation of funds, activities, identification of programmes, approval, implementation, monitoring and reporting. For the FY 2014-15, the company is not required to spend on CSR activities because of the average net loss for the immediately preceding three financial years, as computed under the provisions of the Companies Act, 2013. Particulars of loans, guarantees and investments The particulars of loans, guarantees and investments have been disclosed in the financial statements. Auditors' report and secretarial auditors' report The auditors' report and secretarial auditors' report does not contain any qualifications, reservations or adverse remarks. Report of the secretarial auditor is given as Annexure A which forms part of this report. Extract of annual return The extract of annual return pursuant to section 92 read with rule 12 of the Companies (Management and Administration) Rules, 2014, in form MGT 9 is furnished as Annexure B to this report. Related party transactions All transactions entered into with related parties as defined under the Act and Clause 49 of the listing agreement during FY 14-15 were in the ordinary course of business and on an arm's length pricing basis. Therefore, it does not attract the provisions of section 188 of the Act and also there are no material contracts or arrangement or transactions and thus disclosure in form AOC-2 is not required. The board has approved a policy for related party transactions which has been uploaded on the company's website www.precot.com Directors' responsibility statement The directors confirm that: (a) The applicable accounting standards have been followed and proper explanations provided relating to material departures, if any (b) The company has adopted prudent and consistent accounting policies so as to give a true and fair view of the state of affairs of the company (c) Proper and sufficient care has been taken for maintenance of adequate accounting records under the provisions of the Companies Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities (d) The annual accounts of the company have been prepared on a going concern basis (e) The internal financial controls are adequate and are operating effectively (f) A proper system for ensuring compliance of all the applicable laws are put in place and are operating effectively Statutory Auditors M/s Haribhakti & Co. LLP, auditors of the company, retire at the ensuing annual general meeting. The audit committee and the board of directors of the company, pursuant to the provisions of section 139 of the Act and the rules framed thereunder, proposed the appointment of M/s Haribhakti & Co. LLP, as statutory auditors of the company from the conclusion of the forthcoming AGM till the conclusion of the 58th AGM to be held in the year 2020, subject to ratification of their appointment at every AGM. The company has received consent and confirmation from M/s Haribhakti & Co. LLP that, if appointed, it would be within the limits under the provisions of the Act. During the year, M/s Haribhakti & Co. had been converted into a limited liability partnership (LLP) Accordingly, the audit of the company for FY 14-15 was conducted by M/s Haribhakti & Co. LLP. Cost Auditors Pursuant to section 148 of the Act, read with the Companies (Cost Records and Audit) Rules 2014, the board of directors, appointed Mr R Krishnan, as the cost auditor of the company for the FY 15-16. Accordingly, a resolution seeking member's ratification for the remuneration payable to Mr R Krishnan, cost auditor is included as item no. 4 of the AGM notice. Fixed Deposits During the year the company did not accept or renew any fixed deposit and no fixed deposit remained unclaimed with the company as on 31st March 2015. Material Changes No material changes or commitments affecting the financial position of the company occurred between the end of the financial year as on 31st March 2015 and the date of this report. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The company has constituted an internal complaints committee to address the complaints regarding sexual harassment. All employees are covered under this policy. The company has not received any such complaints during the financial year under review. Unclaimed Shares As on date the company has only 0.63% of the total shares, lying unclaimed. These shares were transferred to the unclaimed suspense account as required under the listing agreement. Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo The details as required under section 134(3)(m) of the Act, read with rule 8 of the Companies (Accounts) Rules, 2014, is in Annexure C. Significant and Material orders passed by the regulators or courts or tribunal There are no significant and material orders passed by the regulators / courts / tribunals which would impact the going concern status and the company's operations in future. Acknowledgement Your directors thank the shareholders, customers, suppliers and bankers for their continued support during the year. Your directors also place on record their appreciation of the contributions made by employees at all levels towards the growth of the company. By order of the board Coimbatore D Sarath Chandran Chairman Date :15th May, 2015 |