DIRECTORS' REPORT TO THE MEMBERS, Your Directors take pleasure in presenting the 18th Annual Report on the business and operations, together with audited statements of Accounts of your Company, for the financial year ended 31 March 2015. DIVIDEND Your Directors have recommended a dividend of Re. 1.00 per share (previous year Nil) on the Equity Shares of Rs. 10/- each and Re. 1.00 per share (previous year Re. 1.00 per share) on the Non-cumulative Redeemable Preference Shares of Rs.10/- each, for the year ended 31 March 2015 amounting to Rs. 387.26 lacs and to pay a dividend tax of Rs. 77.44 lacs thereon. OPERATIONS The production of paper during the year under review was 99,550 metric tonnes, as against 97,572 metric tonnes in the previous year. The quantitative figure for the sale of paper was 99,189 metric tonnes this year, leaving a closing stock of 399 metric tonnes, as against the sale of 97,534 metric tonnes in the previous year. The figures given in the Financial Highlights for the current year under review show the following trends over the previous year : For the year under review, the company has recorded satisfactory performance in its working results even in the midst of adverse circumstances emerging from import of paper and stagnancy in the sales prices. This performance is due to the improved operational efficiencies, productivity, quality and higher volumes of premium quality paper products like copier and surface sized paper, and despite the increase in input prices of agri- materials. The high volatility in Us $ and consequent high depreciation in the Indian currency and high interest costs have led to the higher costs of imported pulp and other materials which lent influence onto the squeezed margins. The company recorded gross sales turnover and other income at Rs.53,086.75 lacs, up by 4.35%; operating profit at Rs. 6,480.67 lacs, down by 16.32%, Profit before Tax at Rs. 3,169.28 lacs, down by 15.07%. Net profit after tax is down by 25.6% and stands at Rs. 2,503.79 lacs. Inspite of the markets remaining subdued during the entire period of last year, the initiatives taken by your company in the recent years in improving productivity and efficiency have led to achieving of the above operational performance. The results of cost reduction initiatives and operational efficiencies will be more visible in the current financial year 2015-16 as your company has continued the initiatives to optimize capacity utilization, cost reduction, innovation of new products and is further undertaking modification and up-gradation of the paper machines and other equipments for improving the product quality. The Mill Expansion Plan implemented in the previous years, has made your company not only one of the most cost competitive paper mills, but also as one of the large paper player in the writing and printing segment. Further continuous innovative initiatives have enabled the company to manufacture papers of distinctive prime quality, which is competing with the premium quality of other large paper mills. Writing & printing paper segment have witnessed optimum capacity utilizations levels over the past few years due to steady demand growth. This led to large capacity additions in recent years and demand is taking its time to absorb these capacity accretions, which is leading to the sluggish sales realizations. Despite this trend, your company has been able to operate at almost optimum levels of production and sale, and has been able to offset the associated negatives to a large extent. As per CRISIL Research, in 2014-15, paper demand slowed down on account of muted industrial activity as well as lower corporate spending on advertisement. However, CRISIL expects demand to grow by 5.5-6.0 per cent in 2015-16 due to economic recovery. Over the long run, CRISIL Research expects demand for paper to grow at about 6.5 per cent CAGR (2014-15 to 2019-20) to 18.5 million tonnes in 2019-20. Government spending on education, corporate spending on advertisement and stationary, and healthy growth in services sector will drive demand for W&P. On the supply front, capacity additions are expected to slow down over the next 5 years on account of aggressive expansions in the last 5 years. CRISIL expects capacity additions of about 2.0-2.5 million tonnes over the next 5 years (as compared to 3.0 million tonnes in the last 5 years) of which premium segments such as coated paper and boards will account for a major proportion. CRISIL Research expects profitability of W&P and paperboard players to improve in 2015-16 on account of lower raw material cost and improving demand scenario. As per CRISIL research, demand for W&P paper is projected to grow at a CAGR of about 5.7 per cent to 5.4 million tonnes in 2019-20 from 4.1 million tonnes in 2014-15; the segment wise growth is detailed below: • Within the W&P segment, copier paper is expected to grow at the fastest pace of 12 per cent CAGR (as compared to nearly 11 per cent CAGR over the last 5 years) on account of a rise in corporate spending on stationery. • During the same period, demand growth for coated paper is expected to remain healthy at 7.5 per cent CAGR led by an increase in circulation of magazines coupled with increasing use of higher quality paper in print media. • Demand for creamwove and maplitho paper, which is linked to growth in the education sector, is expected to grow at a steady pace of about 3.0 per cent CAGR in the next 5 years as more new educational institutions are likely to come up in the country, as an outcome of the Indian Government's Right to Education (RTE) initiative. Creamwove continues to be the largest contributor to the W&P demand. Additionally, initiatives like Rashtriya Madhyamik Shiksha Abhiyan and Sarva Shiksha Abhiyan will continue to boost the paper demand. • Gross enrollment ratio in elementary schools to reach nearly 91 per cent in 2019-20 from about 84 per cent in 2014-15. The detailed performance of Company's operations for the year ended 31 March 2015 has been stated in the Management Discussion & Analysis Report, which appears as a separate statement in the Annual Report. FINANCE (a) Finance The Banks have sanctioned loan of Rs. 4,100.00 lacs during the year under review and the same have also been disbursed. The company has also raised low cost external commercial borrowings (ECB) funds from Export Development, Canada amounting to USD 3,350,000 (INR 2,096.79 lacs) for putting up Oxygen Delignification System and related equipments. (b) Working capital The working capital limits amounting to Rs. 8,325.00 lacs (fund based Rs. 3,500.00 lacs and non-fund based Rs. 4825.00 lacs) have been appraised and sanctioned by the Banks during the year under review. (c) Fixed Deposits As on 31 March 2015, your Company had Fixed Deposits of Rs. 2,176.37 lacs. There were no overdue deposits as on 31 March 2015. The above deposits have been accepted for a period of 1 year to 3 years as per the Fixed Deposit Scheme duly approved by the Board in its meeting held on 8 August 2014 pursuant to the compliance of the provisions of Companies Act, 2013 read with the Companies (Acceptance of Deposit) Rules 2014. Details of Deposits: (a) Accepted (including renewals) during the year- Rs. 1,396.02 lacs (b) Remained unpaid or unclaimed as at the end of the year- Nil There has been no default in repayment of deposits or payment of interest thereon during the year. CREDIT RATING CHANGE IN THE NATURE OF BUSINESS There is no change in the nature of business. MATERIAL CHANGE No material changes and commitments affecting the financial position of the Company have occurred during the year under consideration, or after closure of the financial year till the date of this report. SUBSIDIARIES/JOINT VENTURES/ASSOCIATE COMPANIES Your Company does not have any subsidiary/joint ventures or associate company within the meaning of the Companies Act, 2013. CORPORATE SOCIAL RESPONSIBILITY (CSR) Pursuant to Section 135 of the Companies Act, 2013, and the relevant rules, the Board of Directors of your Company has constituted a CSR Committee under the Chairmanship of Mr. Pavan Khaitan, Managing Director. The other members of the Committee are Mr. D.S. Sandhawalia and Mrs. Neena Singh. The CSR Policy has been framed by the Company which is placed on the Company's website. In pursuance of the Companies Act, 2013 and in alignment with its vision, the Company through its CSR initiatives will continue to enhance value creation in the society and in the community in which it operates, through its services, conduct and initiatives, so as to promote sustained growth for the society and community. Disclosures as per Rule 9 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 are given in the Annual Report on CSR activities at 'Annexure- A'. VIGIL MECHANISM Section 177(9) of the Companies Act, 2013 and Clause 49 of the Listing Agreement inter alia, provides for a mandatory requirement for all listed companies to establish a mechanism called the 'Whistle Blower Policy' for Directors and employees to report concerns of unethical behavior, actual or suspected, fraud or violation of the Company's code of conduct or ethics policy. In line with this requirement, the Company has framed a "Whistle Blower Policy". The same is placed on the Company's website. RISK MANAGEMENT COMMITTEE In line with the new regulatory requirements, the company has framed a 'Risk Management Policy' to identify and assess the key risk areas, monitor and report compliance and effectiveness of the policy and procedure. A Risk Management Committee under the chairmanship of Mr. Pavan Khaitan, Managing Director, has also been constituted to oversee the risk management process in the Company. The other members of the Committee are Mr. D.S. Sandhawalia, Director and Mr. Roshan Garg, President- Finance & CFO. The Company manages, monitors and reports on the principal risks and uncertainties that can impact its ability to achieve its strategic objectives. The Company's risk management systems and programs comprises of various processes, structures and guidelines which assist the Company to identify, assess, monitor and manages its risks, including any material changes to its risk profile. To achieve this, the Company has clearly defined the responsibility and authority of the Company's Management and the Risk Management Committee to oversee and manage the risk management Programs. The company has taken Industrial All Risk Policy to insure its fixed assets and inputs that cover known and unknown risk including fire. Details of the various risks, which can affect the Company's business and the management's perception, are more elaborately given in the 'Management Discussion & Analysis' attached to this Report. INTERNAL FINANCIAL CONTROL SYSTEM Effective and strong internal control systems are developed in the Company for all the major processes to ensure reliability of financial reporting, safeguarding of assets and economical and efficient use of resources as also the compliance of laws, regulations, policies and procedures etc. The Company's internal control systems are reviewed by M/s A. Gandhi & Associates, Chartered Accountants. The Internal Auditor independently evaluates the adequacy of internal controls and reviews major transactions. The Internal Auditors reports directly to the Audit Committee to ensure complete independence. RELATED PARTY TRANSACTIONS All related party transactions are entered at arm's length basis and as per the applicable provisions of the Companies Act, Accounting Standards and the Listing Agreement. No materially significant related party transactions have been entered by the Company with Promoters, Directors or Key Managerial Personnel, which had potential conflict with the interest of the Company at large. A statement of all related party transactions is presented before the Audit Committee on a quarterly basis duly certified by the CEO and CFO. The Related Party Transactions Policy as approved by the Board is placed on the Company's website. The details of the related party disclosures and transactions as prescribed in Form AOC-2 are given in the Note No. 4.5 of the notes on Financial Statements. All the related party transactions are done at arm's length and pertain to the FY 2014-15 period only as approved in the Board Meeting held on 26 May 2015. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS There are no significant and material orders passed by the Regulators, Courts or Tribunals, which would impact the going concern status of the Company and its operations in future. DIRECTORS In accordance with the provisions of the Companies Act, 2013 and Articles of Association of the Company Sh. Jagesh K Khaitan shall retire by rotation at the forthcoming Annual General Meeting and is eligible for re-appointment. During the year under review, Justice S.S. Sodhi (Retd), Sh. D.C. Mehandru, Sh. Yashovardhan Saboo, Sh. D.S. Sandhawalia and Mrs Neena Singh were appointed as Independent Directors, for a period of five years, w.e.f. 8 August 2014 by the Company. DECLARATION BY DIRECTORS The company has received declaration from all the independent Directors under Section 149(7) of the Companies Act, 2013 in respect of meeting the criteria of independence provided under Section 149 (6) of the said Act. INDUCTIONS & TRAINING OF BOARD MEMBERS The company is familiarizing the Independent Directors with regard to their role, rights, responsibilities, industry scenario and business model of the company at regular intervals. PERFORMANCE EVALUATION OF THE DIRECTORS AND MEETING OF INDEPENDENT DIRECTORS Nomination, Remuneration and Evaluation policy has been made by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee has laid down the criteria for performance evaluation of the individual Directors as well as the Board. The framework of performance evaluation of the Independent Directors captures the following points: A) Key Attributes of the Independent Directors that justify his/her extension/continuation on the Board of the Company; B) Participation of the Directors in the Board proceedings and their effectiveness. The Board adopted a formal mechanism for evaluating its performance as well as of its Committees and individual Directors including the Chairman of the Board. The exercise was carried out through a structured evaluation process covering various aspects of the Boards functioning such as composition of the Board and Committees, experience and competencies, performance of specific duties and obligation, governance issues, participation and effectiveness etc. During the year under review, a meeting of Independent Directors was held on 13 February 2015 wherein the performance of the Non Independent Directors and the Board as a whole vis-a-vis the performance of the Chairman of the Company was reviewed. NOMINATION AND REMUNERATION POLICY The Board has, on the recommendation of the Nomination and Remuneration Committee, approved a policy for selection, appointment and remuneration of Directors, Senior Management and Key Managerial Personnel. Details of the Nomination and Remuneration Committee are given in the Corporate Governance Report. PREVENTION OF SEXUAL HARASSMENT POLICY The Company has in place a 'Prevention of Sexual Harassment Policy' pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. 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. No complaint has been received in the year 2014-15. NUMBER OF BOARD MEETINGS During the year, 5 (five) Board meetings were convened and held. The details of the Board meetings and the attendance of the Directors are provided in the Corporate Governance Report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013. DIRECTORS' RESPONSIBILITY STATEMENT As required under section 134(3) (c) read with Section 134(5) of the Companies Act, 2013 and clause 49(3) (D) (4) (a) of the Listing Agreement, your Directors state that: (i) in the preparation of the annual accounts for the year ended 31 March 2015, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures; (ii) such accounting policies have been selected and applied consistently and judgments and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at 31 March 2015 and of the profit of the company for the year ended on that date; (iii) 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; (iv) the annual accounts have been prepared on a going concern basis; (v) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and (vi) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. COMPOSITION OF AUDIT COMMITTEE The Board has constituted the Audit Committee, which comprises of Mr. D.C. Mehandru as the Chairman, alongwith Mr. Jagesh K Khaitan, Justice S.S. Sodhi (Retd), Mr. Yashovardhan Saboo, Mr. D.S. Sandhawalia and Mr. Pavan Khaitan as the members. During the year, 4 (four) Audit Committee meetings were convened and held. The details of the Audit Committee meetings, attendance of the members and terms of reference are provided in the Corporate Governance Report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013. AUDITORS & AUDITOR'S REPORT M/s BSR & Co. LLP, Chartered Accountants, Statutory Auditors of the company, hold office until the conclusion of ensuing Annual General Meeting and are eligible for reappointment. The company has received a certificate from the Statutory Auditors to the effect that their reappointment, if made, would be within the prescribed limit under section 139 (1) of the Companies Act, 2013 and they are not disqualified for appointment within the meaning of Section 141 (3) (g) of the said Act. Pursuant to the provisions of Section 139 and other applicable provisions of the Companies Act, 2013 and rules made thereunder (including any statutory modification(s) or re-enactment thereof for the time being in force), M/s BSR & Co. LLP, Chartered Accountants (ICAI Firm Registration No. 101248W/W-100022), shall be re-appointed as the Auditors of the Company to hold office for five years i.e. from the conclusion of 18th Annual General Meeting till the conclusion of 23rd Annual General Meeting to be held in the year 2020, subject to ratification at every Annual General Meeting, at such remuneration as may be fixed by the Board of Directors. The Notes on Accounts referred to in the Annexure to the Auditor's Report are self-explanatory and do not call for any comments. COST AUDITORS M/s R.J. Goel & Co., Delhi were appointed as Cost Auditors for conducting the cost audit of the Company for the year ended 31 March 2015. The Company's Cost Audit Report for the year ended 31 March 2014 was filed on 10.09.2014 (Due date 30.09.2014). The said firm has been appointed as Cost Auditors of the Company for the financial year 2015-16 as well. SHARE CAPITAL During the year under review, the Company has not issued any equity shares with differential rights, sweat equity shares or employee stock option. Provision of money by Company for purchase of its own shares by employees or by trustees for the benefit of employees is not applicable on the Company. There is no change in the share capital during the year under review. Details pertaining to the shares in 'Unclaimed suspense account' in terms of Clauses 5(A)(I)(g) and 5(A)(II)(h) of the Equity Listing Agreement are given in the Corporate Governance Report annexed with this report. POSTALBALLOT Pursuant to Section 110 of the Companies Act, 2013 read with relevant Rules thereunder, the Company had conducted Postal Ballot (including e-Voting) from 24 February 2015 to 25 March 2015 for seeking the approval of members. The details are given in the Corporate Governance Report. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO The information relating to conservation of energy, technology absorption and foreign exchange earnings & outgo as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is given in Annexure-1 which forms part of this Report. No foreign technology has been availed by the Company. EXTRACT OF THE ANNUAL RETURN The extract of annual return in form no. MGT-9 is attached with this report as Annexure -2. SECRETARIAL AUDITORS Pursuant to Section 204 of the Companies Act, 2013 M/s S.K.Sikka & Associates, Company Secretaries have been appointed as Secretarial Auditors to conduct Secretarial Audit of the Company for the financial year ending 31 March, 2015. They have submitted the Secretarial Audit Report which is annexed to this Board's Report as Annexure-3. CORPORATE GOVERNANCE A Report on Corporate Governance along with a Certificate from the Practicing Company Secretary regarding compliance of the conditions of Corporate Governance pursuant to Clause 49 of the listing agreement with stock exchanges is annexed and forms part of the Annual Report. PERSONNEL Relationship with the employees remained cordial throughout the year in the Company. The Directors express their appreciation for the contribution made by the employees at all levels to the operations and operational efficiencies of the Company during the year. PARTICULARS OF EMPLOYEES The information required under section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 is given in the statement annexed herewith as Annexure-4. The information required pursuant to the Provisions of Rule 5(2) & (3) of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, requiring disclosure of particulars of the employees in receipt of remuneration in excess of Rs. 60 lacs per annum, is given in the statement annexed herewith as Annexure-4. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 OF THE COMPANIES ACT, 2013 The Company has not extended any loan, guarantee or investment under Section 186 of the Companies Act, 2013. ACKNOWLEDGMENT Your Directors convey sincere thanks to the various agencies of the Central and State Governments, Banks and other concerned agencies for all the assistance and cooperation extended to the Company and for their continued support. The Directors also deeply appreciate and acknowledge the trust and confidence the vendors, suppliers, dealers, customers, shareholders and investors reposed in the Company. Your Directors also place on record their appreciation for the dedicated services rendered by the workers, staff and officers of the Company. For and on behalf of the Board Jagesh K Khaitan Chairman Dated: August 08, 2015 Place: Chandigarh |