DIRECTORS' REPORT AND MANAGEMENT DISCUSSION ANALYSIS REPORT Dear Members Your Directors are pleased to present their Thirty Fourth Report together with the audited financial statements of the Company for the year ended 31st March, 2015. Dividend Based on the company's performance, your directors are pleased to recommend for approval of the members, a final dividend of Rs.2.50 per equity share of Rs.10/- each for the financial year 2014-15 taking the total dividend for the said year to Rs.7.50 per share which includes the interim dividend of Rs.5.00 per share already paid by the company for the said year. The total dividend for the financial year 2014-15, including the interim dividend amounting to Rs.7.50 per share would absorb Rs.1566.47 lakhs including the dividend tax of Rs.262 lakhs. Transfer to reserves No transfer to reserves is proposed and accordingly the entire balance available in the Profit and Loss Account is retained in it. Management Discussion Analysis To avoid repetition in Directors Report and the Management Discussion Analysis Report, we furnish below the information under these reports as a composite summary of the performance of the various aspects of the business of the company. Company's performance Notwithstanding the bifurcation of the erstwhile State of Andhra Pradesh, which was hoped to result in a spurt in the infrastructure activities in both the resultant States, cement industry continued to face challenges during the year 2014-15 with pricing pressure, weak demand and high input costs. The expected revival in the construction activities in both Telangana and Andhra Pradesh, is yet to pick-up in a big way, though there were signs of marginal revival during the last two quarters of the said financial year. Future outlook The demand for cement, being a derived one, depends mainly on the industrial activities, real estate business, construction activities and investment in the infrastructure sector. Your directors are optimistic that the thrust and importance given in the Union Budget for the development of National Highways, Rural and Urban Roads, Affordable Housing, Port Connectivity, Development of 100 smart cities etc., should help in boosting the muted growth of the cement industry. Your company, with its aggressive marketing, is poised to grab the opportunity available in the above scenario. The railway siding project currently under implementation by your company will become operational during the second quarter of the current year, which would enable your company to optimize its freight cost and reach out to newer markets. As the members are aware, your company is in the process of acquiring BMM Cements Limited (BMM), which has its manufacturing facilities consisting of 1 million ton capacity cement plant and a 25 MW capacity captive power plant at Gudipadu village, Yadiki Mandal, Ananthapur district, Andhra Pradesh, at an enterprise value of Rs.540 crores as reduced by the aggregate of the net off current assets and debts as on 31st March 2015 with adjustments for transactions taking place from the said date to the date of actual acquisition. The process of acquisition is in the advance stage and barring unforeseen circumstances, the same is expected to be completed within a couple of months, which would enable your company to expand its markets in Southern States. Pending the completion of the said process, as an interim arrangement, your company is procuring cement from BMM and marketing the same under the brand name of "Sagar Cement" in those areas which are currently served by BMM, Your directors hope that this would popularize the brand of "Sagar Cement" in these areas and would enable your company in expanding its marketing network post acquisition. Under these circumstances, your directors are confident that the pace of growth of your company will accelerate significantly. It is fervently hoped that the division of erstwhile Andhra Pradesh into Telangana and Andhra Pradesh with the new Governments firmly in their saddle in their respective States would ensure more focus on the development of infrastructure. This would augur well for the cement industry. With the completion of the identification process for a new capital for Andhra Pradesh, it is hoped that further steps in the construction activities in the new capital would push the demand for cement. In these two States, infrastructure activities by the private players have also started picking-up. The Governments of the respective States on their part are expected to supplement these activities, as had been hoped prior to the bifurcation. However, till such time, your company may have to face the problems like rising input and distribution costs. Your company therefore attaches greater importance to keep its energy cost which forms part of significant portion of input costs to the minimum by ensuring an optimum combination in the consumption of imported and indigenous coal. Taking an overall view of the above, your Board, is cautiously optimistic about the future outlook for your company. Opportunities and threats: Constrains on inputs: The cement industry is a highly energy intensive sector. Energy, along with other raw materials mainly comprising coal and lime stone, forms the most critical component in the manufacture of cement. There are no problems with respect to the availability of limestone. There is also a marginal relief in the coal front due to optimization of consumption of indigenous and imported coal. However, logistics continues to be the main area of concern with the distribution cost remaining a significant component of the cost structure. As hoped elsewhere in this report, the completion of the ongoing project for providing a railway siding near the plant will go a long way in reducing the freight cost. Stagnant demand Housing sector which accounts for 60% - 70% of cement demand is yet to pick-up notwithstanding the promise held out by the division of the erstwhile Andhra Pradesh. It will be some time before the cement industry sees a significant revival in demand. Impact of entry of global players: The Indian cement industry with its huge potential continues to attract the entry of more global cement majors and encourages the strengthening of production bases by existing companies. This may lead to a substantial part of the cement capacity being controlled by a few players. Sagar Cements proposes to meet some of the challenges posed by this development by further improving its brand image, greater expenditure on advertising, strengthening its distribution networks as well as by customer-focused initiatives. Apart from these, Sagar Cements is looking for opportunities to expand its own manufacturing facilities geographically. Outlook On the macro level, the per capita consumption of cement being very low in India, there is a vast scope for growth in demand for cement on the long term. The main drivers for the growth in demand for cement being road and housing projects, the increased spending by the Government in these areas and the revival of the real estate sector would ensure no let up in the demand for cement, notwithstanding the substantial additions to capacity that the industry may witness in the coming years. Risk Management System: The Company attaches utmost importance to the assessment of internal risks and the management thereof in all its dealings. Company is constantly on the look out for identifying opportunities to enhance the enterprise value and keeping the need to minimize the risks associated with such efforts, every proposal of significant nature is screened and evaluated for the risks involved and then approved at different levels in the organization before implementation. With a view to overcoming the risk of dependence upon any particular marketing segment or region, the Company is trying to reach out a wider section of its ultimate consumers. As the cement industry is witnessing rapid additions to its capacity, in order to mitigate the risk associated with it, Sagar Cements whose revenue is mainly from its sales in Telangana and Andhra regions, is looking for growth opportunities in other States, where infrastructure spending is set to get a boost. The Company has adequate system to manage the financial risks of its operations. The system is implemented through imposition of checks and balances on extending credit to the customers, internal audit, statutory, cost and secretarial audit, which are periodically carried out through external audit firms, proper appraisal of major capital expenditure, adherence to the budget covering all areas of its operations and by insurance coverage for the company's facilities. To further strengthen this area, the board of directors have recently adopted a Risk Management System, which is under active implementation. Internal Control System and its adequacy: The Board of Directors are satisfied with the adequacy of the internal control system in force in all its major areas of operations of the Company. The company has an ERP and compliance management system in all major areas of its operations. The audit committee assists the board of directors in monitoring the integrity of the financial statements, reservations, if any, expressed by the company's auditors including, the financial, cost, internal and secretarial auditors and based on their inputs, the board is of the opinion that the company's internal controls are adequate and effective. Joint Venture Company In accordance with the approval given by the shareholders, your company has since exited from its JV with Vicat Group, by selling its entire investment of 6,52,36,399 equity shares of Rs.10/- each held by your company in Vicat Sagar Cement Private Limited, the JV company, realizing a sum of Rs.435 crores on the said sale. As the shareholders are aware, your company had invested a sum of Rs.86 crores in the said JV. The proceeds realized in the said stake sale will be utilized for expanding the operations of your company, inter-alia, through acquisition of promising units. Human resource development and Industrial Relations Your Company continues to enjoy cordial relationship with all its personnel at its Plant, Office and on the field. Your company is organizing training programmes wherever required for the employees concerned. Employees are also encouraged to participate in the seminars organized by the external agencies related to the areas of their operations. Your company continues to focus on attracting and retaining competent personnel and providing a holistic environment where they get opportunities to realize their full potential. Your company is committed to provide to all of its employees a healthy and safe work environment. Sexual Harassment Regarding the Sexual Harassment of Women at the work place (Prevention, Prohibition & Redressal) Act, 2013, the company has constituted the Internal Complaints Committee. No complaints were received or disposed off during the year under the above Act. Awards and Recognitions Your Board is pleased to inform that your company is the recipient of the prestigious "Best Management Award" for the year 2015 from the Government of Telangana. Your company has successfully achieved ISO Certification ISO 9001:2008 for Quality Management System Standard, ISO 14001:2004 for Environmental Management System Standard and OHAS 18001:2007 for Occupational Health and Safety Management System Standard. Your Board is also pleased to inform you that your company's Laboratory at its Plant in Mattampally has recently been awarded with the Accreditation by the National Accreditation Board for Testing and Calibration Laboratories (NABL), which is the sole accreditation body for testing and calibration laboratories under the aegis of Department of Science and Technology, Government of India. With this achievement, your company has joined the elite group of companies in the cement industry in the country. Your directors are also pleased to inform that your company has been awarded with golden award by the Indian Green Building Counsel for its corporate office located in Hyderabad. Subsidiaries, Joint Ventures or Associate Companies Your company does not have any subsidiary or associate companies. As earlier mentioned in this report, Vicat Sagar Cement Private Limited, a joint venture of your company ceased to be so during the year under report. Directors Responsibility Statement Pursuant to Section 134 (5) of the Companies Act, 2013, the board of directors, to the best of their knowledge and ability, confirm that: i. in the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures; ii. they have selected such accounting policies and applied them consistently and 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 and of the profit of the company for that period; iii. they have 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; iv. they have prepared the annual accounts on a going concern basis; v. they have laid down internal financial controls to be followed by the company and such internal financial controls are adequate and operating effectively; vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. Directors and Key Managerial Personnel Shri G.Suneel Babu, a Nominee director of IDBI, ceased to be director with effect from 5th August, 2014 consequent upon the withdrawal of the said nomination by IDBI. The Board places on record its appreciation of the valuable contribution and guidance provided by Shri G.Suneel Babu during his tenure as Nominee director on the Board of the company. Pursuant to the provisions of Section 149 of the Companies Act, 2013 (Act) which came in to force on 1st April, 2014, Shri O.Swaminatha Reddy and Shri K.Thanu Pillai were appointed as Independent Directors at the 33rd Annual General Meeting of the company held on 24th September, 2014. The terms and conditions of the appointment of these directors are as per Schedule IV of the Act. They had submitted declaration that each of them met the criteria of the independence as provided in Section 149 (6) of the Act and there has been no change in the circumstances which may affect their status as independent director during the year. Shri V.H.Ramakrishnan was appointed as an Independent Director by the Board on 30th March, 2015 for a period of five years, which is subject to the approval of the shareholders at the ensuing Annual General Meeting. Shri V.H.Ramakrishnan has submitted a declaration that he meets the criteria for independence as prescribed under Section 149 (6) of the Act. His terms and conditions of appointment are as per Schedule IV of the Act. Mrs.S.Rachana was appointed as an additional director on 18th March, 2015 under Section 161 (1) read with Section 149 (1) (b) of the Companies Act, 2013 and Rule (3) of the Companies (Appointment and Qualification of Directors) Rules, 2014 and Clause 49 (II) (A) (1) of the Listing Agreement with the Stock Exchanges. Under the said Section 161 (1), she will be holding her office up to the ensuing Annual General Meeting. The company has received a notice under Section 160 of the Act along with the requisite deposit proposing the appointment of Mrs.S.Rachana as director liable to retire by rotation. The resolutions seeking the approval of the members for the appointment of Shri V.H.Ramakrishnan as an independent director as well as appointment and re-appointment of Mrs.S.Rachana and Shri S.Sreekanth Reddy respectively as directors liable to retire by rotation have been incorporated in the notice of the forthcoming annual general meeting of the company along with their profile. Pursuant to the provisions of the Section 203 of the Act, the appointments of Shri S.Veera Reddy, Managing Director, Shri R.Soundararajan, Company Secretary and Shri K.Prasad, Chief Financial Office as Key Managerial Personnel of the company have been formalized. Excepting Mrs.S.Rachana, who is a director in Panchavati Polyfibres Limited and RV Consulting Services Pvt.Ltd., whose transactions with the company have been reported under the related parties disclosure under notes to the accounts, none of the other non-executive directors has had any pecuniary relationship or transactions with the company, other than the receipt of sitting fee for the meetings attended by them. Number of meetings of the board Seven meetings of the board were held during the year. Details of such meetings have been given in the corporate governance report, which forms part of the Annual Report. Policy on directors' appointment and remuneration and other details Under Section 178 (3) of the Companies Act, 2013, the Nomination and Remuneration Committee of the board has adopted a policy for nomination, remuneration and other related matters for directors and senior management personnel. A gist of the policy is available in the Corporate Governance Report. Board evaluation The Board of directors have carried out an evaluation of its own performance and of its committee as well as its individual directors on the basis of criteria such as composition of the board / committee structure, effectiveness, its process, information and functioning etc. Auditors M/s.P.Srinivasan & Co., Chartered Accountants, the present Auditors have expressed their non-availability due to their other pre-occupations, to continue as auditors of the company after conclusion of the ensuing Annual General Meeting. The Board and Audit Committee considered this and after placing on record the long valuable association of the said auditors with the company, have recommended the appointment of M/s. M/s.Deloittee Haskins & Sells, Chartered Accountants (F.R.No.0098072S), as Statutory Auditors of the company from the conclusion of the ensuing Annual General Meeting till the conclusion of the 39th Annual General Meeting, subject to the approval of the shareholders for which a Special Notice under Section 140 (4) of the Companies Act, 2013 has been received by the company. M/s. Deloittee Haskins & Sells, Chartered Accountants (F.R.No.0098072S) have given consent for their proposed appointment and confirmed their appointment, if made, will be in compliance with the applicable provisions of the Companies Act, 2013. Accordingly, a proposal is being placed before the shareholders as part of the Notice of the ensuing Annual General Meeting, seeking its approval for the said appointment. Auditors' Report and Secretarial Auditors' Report Auditors' Report The auditors' report does not contain any qualifications, reservations or adverse remarks. Secretarial Auditors' Report In accordance with Section 204 (1) of the Companies Act, 2013, the report furnished by the Secretarial Auditors, who carried out the secretarial audit of the company under the said Section is given in the Annexure-1, which forms part of this report. Regarding the observations made by the Secretarial Auditors on the delay in appointing independent director, as they are self-explanatory, your Board has no comments thereon. Particulars of loans, guarantees and investments The particulars of loans, guarantees and investments have been disclosed in the financial statements. Transactions with related parties None of the transactions with related parties falls under the scope of Section 188 (1) of the Act. Information on transactions with related parties pursuant to Section 134 (3) (h) of the Act read with rule 8 (2) of the Companies (Accounts) Rules, 2014 are given in Annexure-2 in Form AOC-2 and the same forms part of this report. All related party transactions that are entered into during the financial year were on arms length basis and in the ordinary course of business. There were no material significant related party transactions made by the company with promoters, key management personnel or other designated persons that may have potential conflict with the interests of the company at large. All related party transactions were placed before the Audit Committee and Board which approved the same. Corporate Social Responsibility The brief outline of the Corporate Social Responsibility (CSR) Policy of the company and the initiatives undertaken by it on CSR activities during the year are set out in Annexure-3 of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. The policy is available on the website of the company, <http://www.sagarcements.in/> csr.html. Extract of Annual Return As provided under Section 92 (3) of the Act, an extract of annual return is given in Annexure-4 in the prescribed Form MGT-9, which forms part of this report. Particulars of Employees The information required under Section 197 of the Act read with Rule 5 (1) and 5 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules are given in the Annexure-5, which forms part of this report. i. Average percentage increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration: The average annual increase was around 10% for personnel other than managerial personnel. Increase in the managerial remuneration for the year was Nil. k. The key parameters for any variable component of remuneration availed by the directors: Commission is the only variable component which depends on profit earned during the relevant year. l. The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: None. m. Affirmation that the remuneration is as per the remuneration policy of the Company: The Company affirms remuneration is as per the remuneration policy of the Company. Disclosure requirements As per Clause 49 of the listing agreements entered into with the stock exchanges, corporate governance report with auditors' certificate thereon and Management Discussion and Analysis form part of the Directors Report. Policy on dealing with related party transactions is available on the website of the company (www.sagarcements.in ). The company has formulated and published a Whistle Blower Policy to provide Vigil Mechanism for employees of the company to report genuine concerns. The provisions of this policy are in line with the provisions of the Section 177 (9) of the Act and the Listing Agreement with Stock Exchanges and the same is available on the company's web site. Deposits from public The company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet. Conservation of Energy, Technology absorption and Foreign Exchange Earnings and Outgo: The particulars required under Section 134 (3) (m) of the Companies Act, 2013 have been provided in the Annexure-6, which forms part of the Report. Insurance All the properties of the Company have been adequately insured. Pollution Control Your company is committed to keep the pollution at its plant within the acceptable norms and as part of this commitment, it has an ESP system at the plant. Sub Committees of the Board The Board has Audit Committee, Nomination and Remuneration Committee, Investment Committee, Corporate Social Responsibility Committee and Stakeholders' Relationship Committee, the composition and other details of all of which have been given in the Report on the Corporate Governance forming part of the Annual Report. Compliance Certificate A certificate from the Auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is attached to this Report along with a report on Corporate Governance. Cautionary Statement Statements in these reports describing company's projections statements, expectations and hopes are forward looking. Though, these expectations etc., are based on reasonable assumption, the actual results might differ. Acknowledgement Your Directors wish to place on record their appreciation of the valuable co-operation extended to the Company by its bankers and various authorities of the State and Central Government. They thank the Distributors, Dealers, Consignment Agents, suppliers and other business associates of your Company for their continued support. Your Board also takes this opportunity to place on record its appreciation of the contributions made by the employees at all levels and last but not least, of the continued confidence reposed by you in the Management. For and on behalf of the Board of Directors O. Swaminatha Reddy Chairman Place : Hyderabad date : 29th July 2015 |