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IG Petrochemicals Ltd.
 
March 2015

DIRECTORS' REPORT

TO

THE MEMBERS

Your Directors hereby present the Twenty Sixth Annual Report together with the Audited Financial Statements of the Company for the year ended 31st March 2015 :

2. DIVIDEND

Your Directors are pleased to recommend a final dividend of Rs. 1/- per equity share of Rs. 10/- each. The total outgo for the current year amounts to Rs. 370.64 Lacs, including dividend distribution tax of Rs. 62.69 Lacs (previous year - Nil).

During the year, the unclaimed interim dividend for the year 2007-2008 was transferred to the Investor Education and Protection Fund after giving due notice to the Members.

3. OPERATIONAL REVIEW

The Company's expansion project was completed during September 2013 and had stabilized operations during the previous year. The Company delivered a solid performance and achieved a Net Sales Turnover from operations of Rs. 118,805.62 Lacs as against Rs. 120,429.59 Lacs for the previous year 2013-2014. The production was marginally lower due to closure of one of its Plant for change of Catalyst during September 2014. However the Profit before extraordinary item and Tax was substantially higher at Rs. 3236.96 Lacs as against Rs. 2177.20 Lacs in the previous year. After providing for arrears of Depreciation of Rs. 2111.10 Lacs for the previous years, the Net Profit during the year was Rs. 889.67 Lacs as against Rs. 313.08 Lacs during the previous year 2013-2014.

The operating margins were stable during the first half of the year. However due to steep fall in international crude oil prices since September 2014, all the downstream product prices plunged during the period which resulted in heavy inventory pile ups and losses during the third quarter of the year. The customers deferred their procurements till the crude oil prices stabilized during January 2015 and there were no imports during the period. However due to arrest of downfall of oil prices there was sudden reversal in trend with upward movement of oil prices, thereby pushing up prices of downstream petro products including Phthalic Anhydride (PA) prices. This led to steady price rise and heavy order position during the last quarter of the year thereby increasing the margins substantially.

The positive situation continues despite imports of PA as customers are still facing shortage of product and require to build up minimum inventory levels for their stable operations. The international markets are also picking up and the Company exports surplus stocks as and when available after meeting the domestic demand in India.

4. SHARE CAPITAL & FINANCE

4.1 Share Capital

The Paid-up Equity Share Capital of the Company as on 31st March, 2015 is Rs. 3079.81 Lacs. During the year under review, the Company has neither issued any shares nor granted stock options or sweat equity. As at 31st March, 2015 the Promoters and Persons Acting with Promoters hold 72.22% of equity capital of the Company.

4.2 Finance

The Company continues to focus on judicious management of its Working Capital requirements from Banks which were Rs. 371.20 Lacs (both fund based and non-fund based) during the year (previous year Rs. 228.23 Lacs). The Company had also availed Rupee Term Loan of Rs. 65 crores of which an amount of about Rs. 9.22 crores is converted into Foreign Currency loan and External Commercial Borrowings (ECB) of € 8.70 million outstanding as on 31st March 2015 for its PA-3 expansion project. There is continuous monitoring of the requirement of funds and the efforts to keep the interest outgo at the minimum.

4.3 Deposits

The Company has not accepted deposits from the Public falling within the ambit of Section 73 of the Companies Act, 2013 and The Companies (Acceptance of Deposits) Rules, 2014.

4.4 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.

5. CONTRIBUTION TO THE EXCHEQUER

The Company has contributed Rs. 15,654.03 Lacs to the Central and State exchequer by way of Excise Duty, Central Sales Tax, MVAT, VAT, Income Tax, Wealth Tax, Professional Tax and Customs Duty.

6. ECONOMIC SCENARIO AND OUTLOOK

The macro-economic situation of India improved during 2014 thereby helping the economy rise to 5.12% from 4.7% in the previous year. The proactive measures taken by the Government coupled with the falling oil prices has resulted in improving the wholesale and consumer price inflation to 4.12% and 7.4% from the previous year's figures of 6.3% and 10.1% respectively. The agricultural growth was strong at 4.5% in 2014, however the slow pace of reforms, lack of impetus for infrastructure projects, high interest rates, sluggish industrial growth and tightening of fiscal policies adversely impacted the industrial sector.

The low economic growth appears to have bottomed out and a gradual increase in economic activity is expected in 2015. The medium term to long term prospects look positive in view of the Government's determination to bring in reforms. For the year 2015, the economy is expected to grow at a higher rate than in 2014. The long term prospects for the economy is optimistic.

7. PA INDUSTRY - OPPORTUNITIES, CONCERNS AND FUTURE OUTLOOK

The Indian PA industry has an installed capacity of 340,000 MT and the domestic consumption during the calendar year 2014 was about 3,00,000 MT. The overall PA demand is estimated to grow at the rate of 8 % in 2015. With more thrust and investment in infrastructure segment the consumption is expected to grow. With the gradual reduction in fiscal deficits and consumer price index, it is expected that the interest rates would gradually come down which would stimulate demand in the consumer sector. The Company's continued focus on cost reduction and increasing the sale of product and various other customer satisfaction initiatives should help in presenting an improved performance.

The business operations of the Company is exposed to general commercial risks viz. volatility in demand and supply, raw material prices, logistic issues, government policies, exchange rate risk, increasing in dumping of PA and other environmental and technical risks.

With the completion of expansion and stability achieved in production, the company is the largest producer of PA in India and amongst the top five producers of PA in the world. The integration of three units and advantages of economies of scale, the Company is one of the lowest cost producers of PA in the world which has helped in improving the profitability and hope to sustain in the years to come.

In view of the large production capacity the Company is exploring opportunities to de-risk its existing business by captive consumption of PA for certain value added products for further growth.

8. CORPORATE SOCIAL RESPONSIBILITY (CSR) INITIATIVES

As part of its commitment towards being a responsible corporate citizen, the Company has continued its efforts seamlessly by initiating various measures as a part of its CSR by undertaking projects in the field of education, healthcare and livelihood in the areas where its major operations are carried out i.e. Taloja. The Company, from time to time, has also contributed to the NGO's involved in the medical and child welfare schemes apart from the donations to the schools for purchase of education materials and computers. The contributions have been in accordance with Schedule VII of the Companies Act, 2013.

The Annual Report on CSR activities is annexed herewith as "Annexure A".  

9 RISK MANAGEMENT

The Company manufactures a single product PA which is produced by consumption of single raw material Orthoxylene (OX) by oxidation route. Hence there are only the general business risks which are inherent to any business. The Board of Directors do a periodic assessment of risks through properly defined framework and its mitigation resulting in minimization of risks.

The key business risks identified by the Company and its mitigation plans are as under:

9.1 Operational/Price Risk:

The Company's Plants operated uninterruptedly during the year except for minor technical interruptions and during the month of September/October for about four weeks for change of Catalyst. Also there was a steep fall in the international crude oil price from a high of about 115 US$ to 45 US$ during the period September 2014 to January 2015 due to which all the downstream petro products witnessed a sharp fall in their prices. The Company's Plants are adequately insured viz. Fire Policy, Loss of Profit Policy, etc. The preventive and predictive maintenance activities are carried out on a day to day basis. The down time during shut downs is utilized for carrying out routine maintenance work. Also the Company maintained minimum inventory of raw materials and finished goods which helped in minimizing the loss due to steep fall in the petro products feedstock which was witnessed during that period.

9.2 Exchange Rate Risk (raw material procurement and sale of finished goods):

The Company procures 75% of the raw material from local source at monthly Contract rate. The balance is either imported or bought domestically on spot basis. About 20% is exported and 80% is sold in DTA market. As Company procures 75% of its raw material requirement from local source, forex hedging is not required. As regards import of raw material, foreign exchange is booked whenever necessary. All the exports of goods are booked by forward cover. There is continuous monitoring of the price of Orthoxylene (raw material) and Phthalic Anhydride (finished goods) in the local and international markets due to fluctuation in prices.

9.3 Interest Rate Risk:

The Company has availed External Commercial Borrowings (ECB), Rupee Term Loans (RTL) and Working Capital Loans (WCL) for its project and working capital needs. Some of the RTL is converted to Foreign currency loan in order to save on interest cost. The loans are strictly repaid as per the repayment schedules. The Company reviews the loan position on regular basis to keep the interest cost at minimum levels.

9.4 Economic and Geo-political Risk:

The political situation and the Government policies viz. import duty, taxes etc. and the international situation have an impact on the overall corporate growth. The Government has Notified the Anti-dumping duty during December 2012 for a period of five years on Korea, Taiwan and Israel. Application is made to the Directorate General, Safeguards for extension of Safeguard Duty on PA. Also Writ Petition has been filed with the Hon'ble High Court, Delhi in the matter of Anti-Dumping duty on imports of PA from Korea, Taiwan and Israel. The Company keeps abreast with the domestic and international economic developments and works on the strategies favourable to it.

10. VIGIL MECHANISM/WHISTLE BLOWER POLICY

The Board has established a Vigil Mechanism Policy which would help identify and deal with instances of actual or suspected unethical behavior, etc., if any. The details of the vigil mechanism have been elaborated in the Corporate Governance Report and posted on the Company's website www.igpetro.com

11. DIRECTORS

On the basis of the the recommendation of the Nomination and Remuneration Committee, the Board of Directors have appointed Dr. Vaijayanti Pandit (DIN-06742237) as an Additional Director - Independent effective 30th March 2015. The Company has received a notice under Section 160 of the Companies Act, 2013 from a member signifying Dr. Vaijanti Pandit for the office of Director. In terms of Section 149 read with Section 152 of the Companies Act, 2013 and the Companies (Appointment and Qualification of Directors) Rules, 2014, the Independent Directors can hold office for a term of up to five (5) consecutive years on the Board of the Company and are not liable to retire by rotation. Accordingly it is proposed to appoint Dr. Vaijayanti Pandit as Independent Director of your Company for a term of five (5) consecutive years i.e. up to 29th March, 2020.

Shri M M Dhanuka retires by rotation and being eligible has offered himself for re-appointment.

The brief profile of the Directors seeking appointment/re-appointment has been given in the notice conveing the Annual General Meeting.

All Independent Directors have given declarations that they meet the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

11.1 Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board has carried out an evaluation of its own performance, the directors individually as well as the working of the Committees. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report.

11.2 Remuneration Policy

The Board has, on the recommendation of the Nomination and Remuneration Committee framed a policy for selection and appointment of Directors and Senior Management personnel and determination of their remuneration. The Remuneration Policy forms part of the Corporate Governance Report.

11.3 Meetings

During the year four Board Meetings and an equal number of Audit Committee Meetings were convened and held. The details of the same are given in the Corporate Governance Report. The intervening gap between any two Meetings was within the period prescribed under the Companies Act, 2013.

12. DIRECTORS' RESPONSIBILITY STATEMENT

To the best of our knowledge and belief and according to the information and explanation obtained by us, in terms of Section 134(3)(c) of the Companies Act, 2013, we state:

a) t hat in the preparation of the annual financial statements for the year ended 31st March 2015, all the applicable accounting standards have been followed and no material departures have been made from the same;

b) that 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 at the end of the financial year ended 31st March 2015 and of the profit of the Company for that year;

c) that 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/ detecting fraud and other irregularities;

d) that the annual financial statements have been prepared on a going concern basis;

e) that proper internal financial controls were in place and that the financial controls were adequate and were operating effectively;

f) that systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.

13. RELATED PARTY TRANSACTIONS

The Company has certain long term related party transactions which are on arm's length basis and in the ordinary course of business. During the year under review, there were no related party transactions within the meaning of Section 188 of the Companies Act, 2013 read with Rule 15 of the Companies (Meeting of the Board and its Powers) Rules, 2014 and Clause 49 of the Listing Agreement. The Board has framed a policy on Related Party Transactions which is hosted on the Company's website www.igpetro.com

14. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

The Company received a boost when in respect of a case pending before the Supreme Court with regard to the valuation of Domestic Tariff Area (DTA) sales was decided in the Company's favour. This Order absolves the Company of the contingent liabilities related to Excise and Customs duties to the extent of Rs. 128.75 Crores pending before the Supreme Court, disputes in appeals and show cause notices received from the concerned departments.

Other than the above there are no significant material orders passed by the Regulators/courts which would impact the going concern status of the Company and its future operations.

15. AUDITORS

15.1 Statutory Auditors

The Statutory Auditors, M/s. Hariharan & Co. Chartered Accountants, Bengaluru (Firm's Registration No. 001083S) retire at the ensuing Annual General Meeting and are eligible for re-appointment for the financial year 2015-2016. The Company has obtained a written confirmation from M/s. Hariharan & Co. to the effect that they are eligible for re-appointment and that their re-appointment, if made, would be in conformity with the limits specified in Section 141 of the Companies Act, 2013. As required under Clause 49 of the Listing Agreement, 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 (ICAI).

Your Directors recommend their re-appointment as the Statutory Auditors to hold office for a term of two consecutive years from the conclusion of this Annual General Meeting (AGM) until the conclusion of the 28th AGM of the Company to be held in the year 2017 subject to the ratification of their appointment at the next AGM to be held in the year 2016.

Observations made by the auditors under "Emphasis of Matter" has been dealt with in Note No. 23 regarding certain disputed excise duty and custom duty matters amounting to Rs. 6383.84 Lacs ( Previous Year Rs. 7672.89 Lacs) pending before the Honourable Supreme Court.

15.2 Appointment of Joint Statutory Auditor

M/s ASA & Associates LLP, Chartered Accountants, Mumbai (Firm Registration No. 009571N/N500006) have been appointed as Joint Statutory Auditors of the Company for the financial year 2015-16 and to hold office, subject to the approval of the members, for a term of five consecutive years i.e. until the conclusion of the AGM to be held in the year 2020 (subject to the ratification of their appointment at each AGM).

The Joint Statutory Auditor have signified their assent and confirmed their eligibility in terms of the provisions of Section 141 of the Companies Act, 2013 and Rule 4 of the Companies (Audit and Auditors) Rules, 2014 and that they hold a valid certificate issued by the Peer Review Board of the ICAI.

Your Directors recommend their appointment as Joint Statutory Auditors for the financial year 2015-16 to hold office for a term of five consecutive years i.e. until the conclusion of AGM of the Company to be held in the year 2020 subject to the ratification of their appointment at each AGM.

15.3 Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Rules, 2014, the cost audit records maintained by the Company in respect of Phthalic Anhydride is required to be audited. Your Directors had, on the recommendation of the Audit committee, appointed M/s. Krishna S & Associates, Cost Accountant, Mumbai, to audit the cost records of the Company for the financial year 2015-2016 at a remuneration of Rs. 40,000/-. As required under the Companies Act, 2013, members approval is sought for the remuneration payable to the Cost Auditor.

15.4 Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rules 9 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board of Directors has appointed M/s. Makarand M Joshi & Associates, a firm of Company Secretaries in Practice to conduct the Secretarial Audit and their Report on the Secretarial Audit for the financial year 2014-15 is annexed herewith as "Annexure B".

16. LISTING OF SHARES

Your Company's shares are listed on BSE under Scrip Code No. 500199 and the NSE under the symbol "IGPL". The ISIN  code is INE 204A01010.

17. ISO 9001: (2008) AND ISO 14001 (2004) CERTIFICATION

Your Company continued to be certified under ISO 9001 : (2008) for quality management systems and ISO 14001 : (2004) for environment management systems by Beaureu Veritas as per their prescribed standards.

18. CORPORATE GOVERNANCE

As per Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section on corporate governance practices followed by the Company, together with a certificate from the Company's Auditors confirming compliance forms an integral part of this Report.

19. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND

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 C".

20. EXTRACT OF ANNUAL RETURN

Pursuant to the provisions of Section 92(3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, an extract of the Annual return in Form MGT-9 is annexed herewith as "Annexure D".

21. PARTICULARS OF EMPLOYEES

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/ Corporate 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..

22. ACKNOWLEDGEMENTS

Your Directors sincerely thank the Central and State Government Departments and various Organizations for their 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 their excellent support. 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 the Board  

M M Dhanuka

Chairman

Place : Mumbai  

Date : 10th July 2015

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