DIRECTORS' REPORT AND MANAGEMENT DISCUSSION & ANALYSIS REPORT TO THE SHAREHOLDERS The Directors present their 29th Annual Report on the business and operations of your Company and the Audited Financial Statements for the year ended 31st March 2015. Operational Highlights The performance during the year was the best ever in the history of the Company with turnover surpassing the Rs. 800 crore mark. The export sales increased from Rs. 17.58 crore to Rs. 33.67 crore highest ever recorded by the Company. The net profit for the year was higher by about 51% at Rs. 43.99 crore against Rs. 29.05 crore in the previous year. Availability of bio mass fuel for the Captive Power Plant (CPP) continued to be limited and the input cost also went up substantially due to demand from other core industries such as paper mills. Alternate fuels for the CPP were used to ensure operations at optimum load, but with the cost becoming higher than the alternate power, the CPP was shut down during December 2014. The Company went in for purchase of power through energy exchanges and third parties to meet the short-fall. The bulk storage facility at Ennore Port became operational during the year under review thereby ensuring uninterrupted availability of input material for the derivative plants. Import of PO during the year was about 10,000 MT which helped in better production and achieving highest ever turnover. Financial Review The year 2014-15 witnessed moderate changes in interest rates and the bank rate came down from 9% in March 2014 to 8.5% in March 2015. There was decline in the overall bank credit growth and also aggregate of bank deposits. The inflation also declined sharply mainly on account of lower crude oil prices and other steps taken by the regulators. The Company has been reaffirmed with ratings of CARE A signifying low credit risk' for long-term bank facilities and CARE A1 signifying lowest credit risk' for short-term bank facilities. Dividend The Company is in the process of taking up capital expenditure plans to improve the sales and profitability further and needs to plough back the profits for the same to avoid interest burden. In the light of this, your Directors recommend a 10 % dividend i.e. fifty paise for every equity share of Rs. 5/- each fully paid-up, for the year 2014-15, aggregating to Rs. 8.60 crore, excluding dividend distribution tax. It may be noted that your Company has been declaring dividend continuously for the past ten years, in spite of the downturn in the economy experienced globally and in India during the earlier years. Industry structure and developments Your company specializes in propylene glycol, polyether polyol and operates in the Polyurethanes (PU) industry. Polyols find varied applications and caters to various industries such as automotive, refrigeration, insulation etc. Your company also manufactures propylene glycol for pharma, fragrance and industrial applications and continues to perform well in pharma, flavour and fragrance sectors. The off-take of PG for industrial applications was very low due to availability of alternate cheaper materials and unabated imports. Import of PG was also higher during the year opening up fierce competition, especially from major MNCs. It may be recalled that the market became stagnant in 2013 due to various factors like overall economic slowdown, impact of global economic crisis on Indian manufacturers, inflationary pressures, etc. Some revival was seen towards the end of 2013-14 which continued during the year under review. Automobile, pharma and refrigeration sectors registered substantial growth at 8.68%, 9% and 7% respectively. The market for MPL's products also grew by about 10% which helped improved performance of your Company. During the year, MPL's performance was impressive with increased production, turnover and margins. However, the ever increasing import of polyol into India continues to be a major concern for domestic manufacturers. Opportunities and Threats Polyurethane materials, due to their versatility, perform extremely well as part of any application that is subject to dynamic stress. They provide many advantages including: resilience, high tear resistance, low viscosity and low heat build-up. Polyurethane can be used for varied applications like building insulations, refrigeration, furniture, footwear, automotive, coatings and adhesives, sealants etc. The development of polyurethane materials is still evolving and new applications are regularly being created. The Indian PU market is rapidly growing which has registered double digit growth during the past five years and is expected to double every four years in the coming decade. This has thrown open excellent opportunity for MPL to improve the operations further. The Make in India initiative is also likely to give a thrust to local manufacturing to be achieved in the next 2-3 years which will also provide further opportunities to MPL to improve its performance. On the negative side the Indian PU market is flooded with import of Flexible Slabstock Polyol which is a major product of MPL. During the year under review, the FSP imports were close to 70,000 MT, 30% more than the previous year. The PG imports also continued to be higher in the range of over 54000 MT. With the major capacity additions by the competitors in Thailand for PG and in Singapore for Polyol becoming fully operational the imports into India are set to go up further, which could result in a price war and affect the margins of the Company. Market Scenario During the year under review, the Indian PU market performed better than the previous year. Though imports continued to flood the domestic market, your Company achieved a turnover of Rs. 814.13 crore against Rs. 618.51 crore in FY 2013-14, higher by about 32%. Export sales during the year increased by 91% over last year. The improved performance was mainly on account of foraying into new markets and adding new customers. The margins also improved through various actions taken for higher productivity and better pricing strategies. Risk Management Policy The Company has over the years developed a frame work for risk management and laid down procedures to inform Board members about the risk assessment and minimization procedures. A risk management plan has been framed and implemented and monitored by the Board. As required under S. 177 of the Act, the Audit Committee also reviews the risk management process periodically. As part of the risk management plan MPL has two employee-level Committees viz., a sub-committee and an Apex Committee which is headed by the Wholetime Director (Works) to review and assess the risks that could affect the Company's business. The sub-committee brings out the matters that could affect the operations and the same are reviewed by the Apex Committee, which determines the issues that could become business risk. The mitigation actions are also suggested by the Committee and the report of the Risk Controller is submitted to the Risk Management Committee of Directors (RMC), constituted in compliance with the Listing Agreement. The Committee which comprises Ms. Sashikala Srikanth as Chairperson and Mr. Muthukrishna Ravi, Managing Director & Mr. T.K. Arun, Director as the other members reviews the report of the Risk Controller and the recommendations are presented to the Board for final decision/guidance. Risks and Concerns The duty concessions for import of polyols and other products under the free trade agreements with ASEAN countries led to dumping of overseas materials into India, denying level playing field to the local manufacturers and was a great cause for concern. As stated earlier the MNCs who have set up their new facilities elsewhere with high capacities have commenced seed marketing in India to provide a strong base for their products and hence the competition and the price war could worsen in the near future affecting the performance. Your Company's efforts to curb this hazard through avenues available under the applicable law are continued. Though the Company was successful in its efforts to bring Anti-Dumping Duty on import of FSP from Singapore, EU and Australia, this had no major impact on the imports, which continue unabated. Further new polyol capacities in Singapore, China, Saudi & Thailand will continue to keep the margins under pressure in the coming years. Outlook The WTO has forecast an aggregate trade growth of 3.3% for the year 2015, slightly more than the growth of 2.8% in 2014. This seems to be a good sign in terms of the possible increase in the domestic demand in the coming years. However, the huge capacities created by MNCs abroad could result in further dumping of PG and Polyols into India, again leading to a price war and cut in margins. In order to overcome the setback, your Company has taken steps to develop new applications for its products like footwear, seat cushions for two wheelers, specialty polyols, drilling applications, water proofing, etc., while also taking care of its commitment to environment. Some of these have been completed and commercialized during the year under review. The Company is in the process to develop product applications in medical devices. With the in-house PO capacity remaining static, the bulk storage facilities for imported raw materials in Ennore Port has become a shot in the arm for the Company to increase the capacity of the derivative plants and go for more of value added products. The PO capacity will also be increased through an arrangement with an Associate who have obtained Environmental Clearance for converting their existing facilities to make PO. This has paved way for considering further capacity additions for the derivative products. These are expected to help the Company in facing the tough competition from MNCs in a better way. As a way forward the Product Development team has been strengthened and new market avenues are being explored with specific thrust on exports. Environment and Safety Your Company has laid down clear policies for quality, environment and safety and has set-up various teams and committees to monitor and improve observance of the said policies. Besides periodical in-house reviews and audits, surveillance audits of ISO 9001 and ISO 14000 have been done regularly, ensuring proper adherence to the quality, environment and safety requirements. World Environment Day is celebrated and to mark the occasion tree planting and similar activities are undertaken. Your Company pays special attention to safety of men and material and various competitions are held during the Safety Week to create awareness among the employees about the need to adhere to safe manufacturing practices. Audit Committee The details of the Committee are furnished under the Corporate Governance Report (CGR) annexed to this Report. All the recommendations of the Committee were accepted by the Board. Vigil Mechanism As required under S. 177 of the Act and Clause 49 of the Listing Agreement, the Company has established a vigil mechanism for directors and employees to report genuine concerns through the whistle blower policy of the Company as published in the website of the Company. As prescribed under the Act and the Listing Agreement, provision has been made for direct access to the Chairman of the Audit Committee in appropriate or exceptional cases. Human Resources Your Company believes that achievement of its goals is reliant on the abilities of its workforce to convert the plans into actions. Therefore every effort is taken to retain the talents and also introduce newer ideas from the younger generation, for the success story to continue. Various HR initiatives are also taken to enhance the competency of the employees through inclusive decision making process by delegation, recognition, leadership development, etc. Your Company imparts need based training to its employees with special focus on youngsters, stimulating them to play an important role in shaping the Company's future. The industrial relations have generally been cordial, except in relation to a wage dispute with the workmen from 2001, being contested in the Supreme Court. The Management's efforts to settle the issue through dialogues have not been fruitful. As on 31st March 2015, your company had 312 employees on its roll at different locations including Senior Management Personnel, Engineers, Technicians and Trainees. Related Party Transactions During the year under review, there were no transactions with related parties referred to in S. 188(1) of the Act. The other transactions with such parties were not material in terms of the policy framed by the Audit Committee of the Company as published in its website viz., <http://manalipetro.com/Policy_1.html>. Board of Directors and related disclosures The Board comprises of eight directors of whom four are independent including a woman director. All the Independent Directors have furnished necessary declaration under Section 149 (7) of the Act and as per the said declarations they meet the criteria of independence as provided in Section 149 (6) of the Act. The Board met six times during the year under review and the relevant details are furnished in the CGR. The Board has approved the Remuneration Policy as recommended by the Nomination and Remuneration Committee (NRC) which inter alia contains the criteria for determining the positive attributes and independence of a director as formulated by the NRC. The policy on remuneration to directors is disclosed in the CGR annexed to this Report. Mr. Sanjiv Ralph Noronha (DIN: 01905639) resigned as a Director effective from 11th August 2014. At the Board Meeting held on 13th August 2014 Mr. G Chellakrishna (DIN: 01036398) and Ms. Sashikala Srikanth (DIN: 01678374) have been appointed as Additional and Independent Directors of the Company for a period of five years under Section 149 of the Act. Approval of the members for the same under Sections 150, 152, 160 read with Schedule IV to the Act will be considered at the ensuing AGM. Mr. Ashwin C Muthiah, (DIN 00255679) Chairman retires by rotation and being eligible offers himself for re-election. Mr. R Kothandaraman was appointed as the Company Secretary (CS) and Mr. Anis Tyebali Hyderi as the Chief Financial Officer (CFO) in the place of the erstwhile CFO & CS Mr. S Vasudevan, who separated from the Company on 31st May 2014. Annual Evaluation of the Board, Committees and Directors The formal evaluation of the Board and its Committees was done taking into account the various parameters such as their roles and responsibilities, composition and the adequacy, decision making processes and related practices, focus on important and critical issues, progress monitoring, governance and the like. The evaluation of the individual directors, including the independent directors was done taking into account their qualification and experience, understanding of their respective roles (as a Director, Independent Director and as a member of the Committees of which they are Members/Chairpersons), adherence to Codes and ethics, conduct, attendance and participation in the meetings, etc. In compliance with the requirements of Schedule VII to the Act and Clause 49 of the Listing Agreement a separate meeting of the Independent Directors was held during the year. The details of familiarization programme for the Independent Directors has been disclosed in the Company's website viz., <http://manalipetro.com/famaliar_polici.html>. Director's Responsibility Statement Pursuant to the requirement of sub-sections 3 (c) and 5 of Section 134 of the Act it is hereby confirmed that a) in the preparation of the annual accounts for the financial year ended 31st March 2015, the applicable Accounting Standards had been followed along with proper explanation relating to material departures; (b) t he Directors had selected such accounting policies and applied them consistently and made judgments and estimates that were 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 and of the profit of the Company for the year under review. (c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. (d) the Directors had prepared the accounts on a "going concern" basis. (e) the directors, had laid down internal financial controls to be followed by the Company and that such internal financial controls were adequate and operating effectively and (f) t he directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Details of Unclaimed Share Certificates In accordance with the requirements of the Clause 5A of the Listing Agreement, shares remaining unclaimed have been transferred and held in a separate demat account. As per the information provided by the Registrars and Transfer Agent, out of the 16,10,076 shares which remained unclaimed by 6,628 shareholders at the beginning of the year, 7,725 shares were released to 16 shareholders during the year. As at the end of the year 16,02,351 remained unclaimed by 6,612 shareholders. Auditors M/s. Deloitte Haskins & Sells, Chartered Accountants, Chennai were appointed as the Auditors of the Company at the 28th Annual General Meeting (AGM) held on 13th August 2014 to hold office till the conclusion of 30th Annual General Meeting. As required under Section 139 of the Act, ratification of their appointment to hold office from the conclusion of the 29th AGM till the conclusion of the 30th AGM will be taken up at the ensuing AGM. Cost Audit The Cost Audit Report for the year ended 31st March 2014, duly certified by Mr. S Gopalan, Cost Accountant, due to be filed on or before 27th September 2014 was filed on 26th September 2014. Mr. S Gopalan, Proprietor, S Gopalan & Associates, Cost Accountants, Chennai was appointed as the Cost Auditors of the Company for the financial year 2014-15 on a remuneration of Rs. 3 lakh plus applicable taxes and reimbursement of out of pocket expenses. He has been re-appointed as the Cost Auditor for the year 2015-16 on the same remuneration. As required under S. 148 of the Act, read with the relevant Rules, ratification of the members for the remuneration to the Cost Auditor for both the years will be considered at the ensuing AGM. Adequacy of Internal Controls Your company has in place adequate internal financial control systems combined with delegation of powers and periodical review of the process. The control system is also supported by internal audits and management reviews with documented policies and procedures. The system was also reviewed by an external agency, and no major weaknesses were reported. Corporate Governance Your Company has complied with the requirements of Corporate Governance stipulated under Clause 49 of the Listing Agreement entered into with the Stock Exchanges. A Report on Corporate Governance is given as Annexure A along with a Certificate from the Auditors regarding compliance with the requirements of Corporate Governance is attached to this report. Secretarial Audit Report As required under Section 204 of the Act, the Secretarial Audit Report issued by Mrs. B Chandra, Company Secretary in practice is given in Annexure B. As regards the observation of the Secretarial Auditor it is clarified that the Company has been following up with the concerned authorities for grant of consents under the pollution control laws including for the augmented capacities and the same are expected to be received soon. Other disclosures a. Information on conservation of energy, technology absorption, foreign exchange earnings and outgo prescribed under Section 134 of the Companies Act, 2013 ('the Act') read with Rule 8 of the Companies (Accounts) Rules, 2014, to the extent applicable are given in Annexure C. b. The extract of the Annual Return in Form MGT-9 is given in Annexure D. c. The disclosures prescribed under Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure E to this Report. It is hereby affirmed that the remuneration to the employees are as per the Remuneration Policy of the Company. d. The Company has not accepted any deposits from the public during the year under report. e. The information under Section 186 of the Act relating to investments, loans, etc. as at the year end has been furnished in notes to the Financial Statement. f. The CSR Policy related disclosures are given in Annexure F. Acknowledgement Your Directors express their sincere gratitude to the Government of India, the Government of Tamilnadu, the Promoters and the consortium of Banks for the assistance, co-operation and support extended to the Company. The Directors thank the shareholders for their continued support. The Directors also place on record their appreciation of the consistent good work put in by all cadres of employees. Disclaimer The Management Discussion and Analysis contained herein is based on the information available to the Company and assumptions based on experience in regard to domestic and global economy, on which the Company's performance is dependent. It may be materially influenced by changes in economy, government policies, environment and the like, on which the Company may not have any control, which could impact the views perceived or expressed herein. For and on behalf of the Board Ashwin C Muthiah DIN:00255679 Chairman Place : Chennai Date : 5th August 2015 |