DIRECTORS' REPORT THE MEMBERS OF SUTLEJ TEXTILES AND INDUSTRIES LIMITED Your Directors are pleased to present their Tenth Annual Report on the business and operations of your Company along with the audited financial statements for the year ended 31st March, 2015. 2. Dividend Your Directors are pleased to recommend dividend of Rs.10/-per share for the year ended 31st March, 2015, subject to shareholders' approval at the forthcoming Annual General Meeting. The total amount of dividend to be paid to the shareholders will be Rs.1,972 lakhs (inclusive of dividend tax). 3. Share Capital The paid up Equity Share Capital as on March 31, 2015 was Rs.1,638.29 lakhs comprising of 16382862 Equity Shares of Rs.10/- each. During the year under review, the Company has not issued any further shares to the members or general public. 4. Finance 4.1 Cash and cash equivalents as at 31st March, 2015 was Rs.222.74 Lakh. The company continues to focus on judicious management of its working capital. Receivables, inventories and other working capital parameters were kept under strict check through a process of continuous monitoring. 4.2 Rating Your Company rating was upgraded as under: i. CARE A+ (Single A+ Plus) for Long-Term Bank facilities (Term Loan) from CARE A- (Single A Minus) signifying adequate degree of safety regarding timely servicing of financial obligations and such instruments carry low credit risk & ii. CARE A1 + (A One Plus) for short term bank facilities (Fund based and Non-Fund based) from Care A2+ (A Two Plus) signifying a very strong degree of safety regarding timely payment of financial obligations and such instruments carry lowest credit risk. 4.3 Deposits The Company has discontinued its Fixed Deposit Scheme with effect from 31st March, 2014 and has not accepted Deposits from the public falling within the ambit of Chapter V of the Companies Act, 2013. As on March 31, 2015, there were no unclaimed/outstanding deposits or accrued interest with respect to deposits. 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. Expansions and Acquisition, and other Capital Projects The financial year under review witnessed a great deal of expansion activities carried out by your company through organic as well as inorganic means. The details of the expansion projects are given as under: 5.1. Expansion of Operations at Damanganga Home Textiles, Daheli, Bhilad Your Company is expanding the operations at one of its units viz, Damanganga Home Textiles, Daheli, Bhilad, Gujarat at a cost of H88.50 crore. The project is under implementation and will be completed in the beginning of FY 2016-17. The same will result in increasing its capacity in existing facility to 9.6 Mn metres p.a from 2.5 Mn metres p.a. The expansion of operations in Home Textile Division will ensure further strengthening of Company's end to end operations from Yarn to Home Textile. 5.2 Cotton Melange Expansion Project at CTM, Kathua Your Company has successfully completed expansion of its Kathua Unit by 31,104 spindles to manufacture value added cotton melange and cotton blended dyed yarn and commenced commercial production w.e.f 1st Nov 2014. Post this expansion, the Company's total yarn spinning capacity stands at 293,736 spindles, of which 96,720 spindles are utilized to make Cotton Melange and cotton blended dyed yarn. The rest of the spindles are utilized towards manufacturing mainly of synthetic dyed yarns. The addition of the new capacity will enable the Company to further strengthen its position as a leading player in the niche Cotton Melange and cotton blended dyed segment. 5.3 Expansion and modernisation 5.3.1 The Company has decided to expand its Unit Rajasthan Textile Mills, Bhawanimandi (Raj.) by 31,104 spindles to manufacture Cotton Melange and Cotton Blended Dyed yarn involving a capital outlay of about Rs.235 Crores which will be financed by internal accruals and loans from banks. 5.3.2 Further, the Company has spent Rs.58 Crores on modernization and balancing equipments at all its units during 2014-15. The capital purchases were financed by internal accruals and loans from Banks. 5.4 Acquisition Your Company has an existing spinning capacity of 2,93,736 spindles as on March 2015. The Company has been actively exploring further growth in spindlage to effectively expand its spinning capacity to a substantial extent. As organic growth through installation of additional spindles would have taken considerable time for project implementation. Your Board has approved acquisition of Birla Textile Mills, located at Baddi, Tehsil Nalagarh, District Solan, Himachal Pradesh [Textile Division of Chambal Fertilisers and Chemicals Limited] having 83,376 spindles to manufacture cotton, blended and synthetic grey and dyed yarns, as a going concern on slump sale basis. The acquisition which shall be effective from 1st April, 2015 (subject to requisite statutory and regulatory approvals) shall be at the total purchase consideration of Rs.232.63 crores (including net current assets less term loans), and subject to closing and other adjustments, if any. This acquisition will be financed by internal accruals and loans from Banks. Post acquisition the spinning capacity shall be 3,77,112 spindles. The acquisition of the Birla Textile Mills will have strong synergy with the business of the Company as it also manufactures cotton, blended and synthetic grey and dyed yarns. 6. Closure of Company's Fabric Division, namely, Damanganga Fabrics, Bhilad, Gujarat During the financial year under review, your Company decided to permanently close the operations of one of the Company's weaving unit of, Damanganga Fabrics, Daheli, Bhilad Gujarat. In view of the continuous un-economic working, with no possibility of its revival in the future, your Company decided to permanently close the operations of the weaving Division of Damanganga Fabrics Unit, w.e.f. 1st October, 2014. The impact of the closure on the Company's operations was not significant in terms of the Unit's contribution to Company's turnover as well as to the profitability, as the turnover of the Unit in FY 2013-2014 was Rs.60.71 Crore, as against total turnover of the Company which was Rs.1,880.62 Crore that is 3.23 per cent only of the total turnover. The Unit had reported a net loss of Rs.9.38 Crore in FY 2013-2014, against total net profit (after tax) of the Company of Rs.131.38 Crore. 7. Directors 7.1 The company's Board of Directors comprises Nine members, Eight of whom are Non-executive Directors and one Wholetime Director. The Non-executive Directors are eminent professionals with vast experience of industry, finance and law. 7.2 Meetings of the Board A calendar of Meetings is prepared and circulated in advance to the Directors. During the year under review, Seven Board Meetings and Five Audit Committee Meetings were convened and held, the details of which are given in the Corporate Governance Report forming part of this Annual Report. The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013 and Listing Agreement. 7.3 At its Ninth Annual General Meeting held on 23rd August, 2014, your Company had appointed the existing Independent Directors viz., Shri U. K. Khaitan, Shri Amit Dalal, Shri Rajiv Podar, Shri Rajan Dalal and Dr. Mahmoodur Rahman as Independent Directors under the Act for a term of five years with effect from 23rd August, 2014. All Independent Directors have given declarations that they meet the criteria of independence as laid down under section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. 7.4 On the recommendation of the Nomination & Remuneration Committee, the Board of Directors has appointed Ms. Sonu Bhasin as Additional Director (NonExecutive Independent) on 7th May, 2015, subject to the approval of the Shareholders at the forthcoming Tenth Annual General Meeting of the Company. 7.5 Board Evaluation Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board has carried out an annual performance evaluation of its own performance, the directors individually as well as the evaluation of the working of its Audit, Nomination & Remuneration Committees. The manner of evaluation has been explained in the Corporate Governance Report. 7.6 In accordance with the provisions of the Companies Act, 2013 and in terms of the Memorandum and Articles of Association of the Company, Shri C. S. Nopany retires by rotation and is eligible for re-appointment at the forthcoming Tenth Annual General Meeting. 7.7 Remuneration Policy The Board on the recommendation of the Nomination & Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management personnel and their remuneration. The Remuneration Policy is stated in the Corporate Governance Report and is also available on the Company's Website. The Policy contains, inter-alia, directors' appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director, etc. The policy is available on the website of the Company at the weblink: <http://sutlejtextiles.com/pdf/policy/> Remuneration-Policy.pdf 8. Directors' Responsibility Statement To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013: a. that in the preparation of the annual financial statements for the year ended March 31, 2015, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any; b. that such accounting policies have been selected and applied consistently and judgment 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 March 31, 2015 and of the profit of the Company for the year ended on that date; 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 and 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. 9. Related Party Transactions All related party transactions that were entered into during the financial year were on an arm's length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons, except Acquisition of Birla Textile Mills (a Division of Chambal Fertilisers and Chemicals Ltd. (CFCL)) by virtue of Shri C. S. Nopany being Director in your Company as well as in CFCL and holding more than two percent of equity shares along with his relatives in CFCL. All Related Party Transactions are placed before the Audit Committee as also the Board for approval. Prior omnibus approval of the Audit Committee is obtained on a quarterly basis for the transactions which are of a foreseen and repetitive nature. A detailed statement of such related party transactions entered into pursuant to the omnibus approval so granted are placed before the Audit Committee and the Board of Directors for their review on a quarterly basis. Suitable disclosure as required by the Accounting Standards (AS18) has been made in the notes to the Financial Statements. The Form No. AOC-2 is annexed to this report. The Company has developed a Related Party Transactions Policy for the purpose of identification and monitoring of such transactions. The policy on Related Party Transactions as approved by the Board is uploaded on the Company's website at the weblink: <http://sutlejtextiles.com/pdf/policy/Policy-on->Related-Party-Transactions.pdf 10. Significant and Material Orders Passed By The Regulators Or Courts 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. 11. Vigil Mechanism / Whistle Blower Policy The Vigil Mechanism of the Company, which also incorporates a whistle blower policy in terms of the Listing Agreement, includes an Ethics & Compliance Task Force comprising senior executives of the Company. Protected disclosures can be made by a whistle blower through an e-mail, or dedicated telephone line or a letter to the Task Force or to the Chairman of the Audit Committee. The Policy on vigil mechanism and whistle blower policy may be accessed on the Company's website at the link: <http://sutlejtextiles.com/pdf/policy/> Whistle-Blower-Policy-adopted-13.05.14.pdf 12. Auditors Report The Notes on Accounts and the observations of the Auditors in their Report on the Accounts of the Company are self-explanatory and in the opinion of the Directors, do not call for any further clarifications. 13. Auditors 13.1 Statutory Auditor The Company's Auditors, M/s. Singhi & Co., Chartered Accountants, Delhi (Reg No. 302049E) who retire at the ensuing Annual General Meeting of the Company are eligible for reappointment. They have confirmed their eligibility under Section 141 of the Companies Act, 2013 and the Rules framed thereunder for reappointment as Auditors of the Company. 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. 13.2 Branch Auditor The Company's Branch Auditors, M/s. S.R. Batliboi & Co. LLP., Chartered Accountants (Reg No. 301003E), retire at the conclusion of Annual General Meeting and are eligible for re-appointment. Requisite Consent and Certificates from the Auditors have been received to the effect that their re-appointment, if made, would be within the limits prescribed under Chapter X of the Companies Act, 2013 and Companies (Audit and Auditors) Rules, 2014 under the said Act. Further, they also hold a valid certificate issued by the Peer Review Board of the ICAI as required under revised clause 41 of listing agreement. 13.3 Internal Auditors The Board of Directors upon the recommendation of the Audit Committee of the Board on 13th May, 2015 has appointed M/s. Vaish & Associates, Chartered Accountants (FRN:005388N) as Internal Auditors of the Company. They have confirmed their eligibility and has granted consent to act as Internal Auditors of the Company. 13.4 Cost Auditors Pursuant to Section 148 of the Companies Act, 2013 read with The Companies (Cost Records and Audit) Amendment Rules, 2014, the cost audit records maintained by the Company are required to be audited. Your Directors had, on the recommendation of the Audit Committee, appointed M/s. K. G. Goyal & Associates, Jaipur (Reg No. FRN-000024) to audit the cost auditing records relating to Company's units Rajasthan Textile Mills, Chenab Textiles Mills, Damanganga Home Textiles for the financial year 2015-16 on a remuneration of H1.35 lakhs. The appointment is subject to the approval of the Central government. As required under the Companies Act, 2013, the remuneration payable to the cost auditor is required to be placed before the Members in a general meeting for their ratification. Accordingly, a Resolution seeking Member's ratification for the remuneration payable to K.G.Goyal & Associates, Cost Auditors is included in the Notice convening the Annual General Meeting. 13.5 Secretarial Audit Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company appointed M/s. R. Chouhan & Associates, Company Secretary in Practice, to undertake the Secretarial Audit of the Company for the year under review. The Audit Report annexed along with observations of the Auditor is self-explanatory and, does not call for any further clarification. 14. Business Risk Management Pursuant to Clause 49 of the Listing Agreement, the Company has laid down a framework to inform the Board about the particulars of risk assessment and minimization procedures. These procedures are reviewed by the Board annually to ensure that executive management controls risk through the mechanism of a properly defined framework. The Company has a robust Business Risk Management framework to identify, evaluate, access business risks and their impact thereupon. The key business risk elements identified by the Company and bifurcated under different heads are as under: I. Operations : This head includes risk elements such as Non-availability of Labour, Labor Unrest, Non-availability of Power, Non-Availability of Water, Breakdown, Nonavailability of Competent Personnel, Pollution Control, Legal Compliance, Safety, Logistics / Transport, Machinery Spares and Equipment Issues, etc. II. Raw Materials : This head covers Cost of Raw Materials, Non-Availability of Raw Materials, etc. III. Financial : This head covers risk elements such as Dwindling Financial Ratios, Foreign Exchange Fluctuations, Drop in Credit Rating, Investor Relations, Fraud, Inadequate Insurance, etc. IV. Market : This head includes risk elements such as Price of Finished Products, Demand Supply Mismatch, Substitute Products, Bad Debts, Service / Product Complaints, Brand Image, etc. Each element of Risk mentioned above is measured on a scale of 100, based on the probability of risk and based on such assessment, the risk is further classified under 6 categories from "A" to "F" where "A" denotes highest risk perception and "F" denotes lowest risk perception. The Impact of each element of assessed risk is also measured on a scale of 100 in terms of impact on profits of the Company and is further classified under 6 categories from "A" to "F" as mentioned above. 15. Internal Control Systems and their adequacy The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The scope and authority of the Internal Audit (IA) function is defined in the mandate provided to the internal Auditors. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee of the Board. 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 and its subsidiaries. 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. 16. Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo The requisite information with regard to conservation of energy, technology absorption and foreign exchange earnings and outgo, in terms of the Section 134(3)(m) of the Companies Act, 2013, read with Companies (Accounts) Rules, 2014 is given in "Annexure I", to this report. 17. Management Discussion and Analysis Report The detailed review of the operations, performance and outlook of the Company is given separately in the Management Discussion and Analysis Report as required under Clause 49 of the Listing Agreement, by way of "Annexure II" to this report. 18. Corporate Governance Your Company is committed to maintain the highest standards of ethics and governance, resulting in enhanced transparency for the benefit of all stakeholders. The Company fully complies with the governance practices as enunciated in the Listing Agreement. As per Clause 49 of the Listing Agreement with stock exchanges, and the requirements set out by the Securities and Exchange Board of India, the Company has implemented all the stipulations prescribed. The Company has adopted a Code of Conduct, which is applicable to the Board members and senior management, in accordance with the recently enacted statutory changes. The Report on Corporate Governance as stipulated under Clause 49 of the Listing Agreements forms a part of this report as "Annexure III". The requisite Certificate from the Statutory Auditors of the Company, M/s Singhi & Co., Chartered Accountants, confirming compliance with the conditions of Corporate Governance as stipulated under the aforesaid Clause 49, is annexed to the Report on Corporate Governance. The General Shareholders Information annexed to the Report forms a part of the Report. 19. Corporate Social Responsibility Your Company had formed a Corporate Social Responsibility ("CSR") Committee in conformity with Section 135 of the Companies Act, 2013 and Rules made thereunder to oversee the CSR Activities initiated by the Company during the financial year under review. The details of Committee and its terms of reference are set out in the Corporate Governance Report forming part of the Board's Report. The CSR Committee had adopted a CSR Policy for the Company which provides a broad framework with regard to implementation of CSR Activities carried out by the Company in accordance with Schedule VII of the Companies Act, 2013 which may be accessed on the Company's website at the link: <http://sutlejtextiles.com/pdf/>policy/SUTLEJ-CSR-Policy-2014-Adopted-13.05.2014.pdf. A report on CSR activities as prescribed under the Companies Act, 2013 and Rules made thereunder is annexed herewith as "Annexure IV". 20. Prevention of Sexual Harassment at Workplace As per the requirement of The Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013 ('Act') and Rules made thereunder, your Company has constituted Internal Complaints Committees (ICC) at its workplaces. During the year, no complaints were filed with the Company. 21. Extract of Annual Return The details forming part of the extract of the Annual Return in form MGT-9 is annexed herewith as "Annexure V". 22. 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, is provided herewith as "Annexure VI", which forms part of the Report. 23. Acknowledgements Your Directors would like to express their sincere appreciation for assistance and co-operation received from the various stake holders including financial institutions and banks, Governmental authorities and other business associates who have extended their valuable support and encouragement during the year under review. Your Directors take the opportunity to place on record their deep appreciation of the committed services rendered by the employees at all levels of the Company, who have contributed significantly towards Company's performance and for enhancing its inherent strength. Your Directors also acknowledge with gratitude the encouragement and support extended by our valued shareholders. For and on behalf of the Board C.S. Nopany Chairman Dated : 07.05.2015 Place : Mumbai |