DIRECTORS' REPORT The Directors have pleasure in presenting the Annual Report and the Audited Financial Statements of your Company for the year ended 31st March, 2016. With economic conditions in the leading economies yet to see sustained strength and growth, the forecasts for growth have been prone to frequent downward revisions, making nearly all economies, most notably emerging market economies increasingly susceptible given the market linkages. India has been amongst the few exceptions, having recorded one of the highest growth rate globally in the years 2014-15 and 2015-16. By all indications, the Country's economic momentum is likely to prevail in the coming year too, albeit at a gradual pace. Although when compared with other economies, India's GDP growth at over 7% has been enviably high, compared to the year 2014-15, when the growth was 7.2%, the GDP growth in 2015-16 was about 7.6%, a marginal increase. This is in spite of the fact that there was continued decline in exports, investments and manufacturing. The potential growth of the Country can be raised further if it can successfully implement necessary reforms including unifying the tax regime, labour market regulations as well as opening up further to foreign direct investment and trade. These measures have been stuck up in the political cob-web. The prediction of above normal monsoon after two consecutive years of failure, gives a ray of hope of better economic performance, particularly in the agriculture sector, which has been lagging behind. The ongoing drought which is affecting over one third of the population in various parts of the Country is a matter of grave concern. Long term measures to address this perennial problem need to be taken on priority. As regards your Company's operations, all segments other than sugar continued to perform well. The sugar prices after falling to a six year low during the first quarter, started picking up during September, 2015 on lowering of production estimates for the sugar season 2015-16 and compulsory export of 4 million MT of sugar during the season mandated by the Central Government. The market sentiments further improved in the subsequent months due to expected drop in Brazilian cane production and also in the sugar season 2016-17 domestically due to severe drought conditions prevailing in Maharashtra and other sugar producing states. Financial Summary Though the adversity in the sugar operations continued for about 6 months in the financial year, the Company achieved a turnover of Rs.1226 cr. against Rs.1305 cr. in the previous year. There was a gross profit of Rs.57.4 cr. as compared to Rs.29.9 cr. in the previous year and net profit of Rs.33.2 cr. as compared to Rs.4.4 cr. in the previous year. The reduction in loss in the sugar segment helped in improving the profit position. Appropriation and Dividend Looking into the better profit position achieved by your Company, but keeping the cash flow requirements in mind, the Board of Directors is pleased to recommend a dividend of Rs.3 per equity share of Rs.10 (30%) for the year ended 31.3.2016. The dividend payout for the year under review, inclusive of corporate tax on dividend distribution, is Rs.6.28 cr. After provision for proposed dividend, the balance carried forward in the Profit & Loss Account will be Rs.39.02 cr., which includes Rs.12.06 cr. brought forward from the previous year. Auditors' Report There are no qualifications, reservation, or adverse remarks or disclaimer in the Auditors Report to the members on the Annual Financial Statements for the year ended 31.3.2016. Regarding the "Emphasis of Matter' in the Auditors Report on the consolidated financial statements with regard to the financial assets and income there from of the subsidiary company's financial statements for the year ended 31.3.2016, as clarified in Note No.47 of the consolidated financial statements, the subsidiary company has no intention of undertaking NBFC business and it will take steps to set right the position. Secretarial Audit Report M/s. Chandrasekaran Associates, Company Secretaries, carried out a Secretarial Audit for the year 2015-16 pursuant to Section 204 of the Companies Act, 2013 (the Act). A copy of their Report in Form MR-3 as per Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed as Annexure - 1. There is no qualification in the Report. THE STATE OF COMPANY'S AFFAIRS Sugar During the year the Daurala Sugar Works (DSW) produced 1.86 Lac MT of sugar by crushing 17.83 Lac MT of cane as against 1.62 Lac MT of sugar by crushing 16.79 Lac MT in the previous year. The recovery in the year was better at 10.44% as against 9.68% last year. This was achieved by extensive propagation of high sucrose cane variety in our cane area. The supply of power to grid remained satisfactory and sale prospects of Renewable Energy Certificates improved during the year. The Sugar business continued to incur heavy losses though improvement in sugar prices during second half of the year helped in curtailing losses. The financial year 2015-16 started on a cautious note due to record high production of around 28 Million MT and prices being under constant pressure. Sugar prices continued to languish at below Rs.2800 per qtl. (even touching Rs.2300 per qtl. in July'15 - a six year low) during the first half of the year because of high production as well as pressure from the Government/ Courts to clear cane dues. The prices improved through the second half to a level of Rs. 3400 per qtl. in March, 2016 due to lower global/ domestic production estimates and Central Government encouraging the export of sugar. As per Industry estimate, 1.5 - 2.0 Million MT of sugar is expected to be exported in the year. The improvement in sugar prices enabled the Industry to cut down on losses and cane dues. International prices of white sugar also improved to around US$ 450 per MT as against US$ 380 per MT in March, 2015, because of anticipated global deficit of over 5 Million MT. The State and the Central Governments have been supportive of the Industry during its lean phase and announced certain measures to provide relief to the Industry. — The UP Government maintained the sugar cane price (SAP) at Rs.280 per qtl. for Sugar Season 2015-16, and waived taxes/ charges to the extent of Rs.11.70 per qtl. Additionally, a cane incentive of upto Rs.23.30 per qtl. linked to selling price of sugar, molasses, bagasse and press-mud from October, 2015 to May, 2016 was announced. However, considering improvement in sugar situation, this may accrue partially only. — To encourage export participation under the Minimum Indicative Export Quota initiative, the Central Government announced an incentive of Rs. 4.5 per qtl. of cane, payable directly to farmers. The Central Government also encouraged supply of ethanol to Oil Marketing Companies (OMC) under Ethanol Blending Programme (EBP) and for this some incentives/ better prices were declared. The Government's decisions/ actions as well as lower domestic/ International production estimates have helped the Industry revive during the current year. Hopefully, going forward the Industry should turn-around, which will be reflected in the results for the current financial year. On the operational front the Company continues to lay emphasis on improving efficiencies and reducing costs. Sustained efforts for improved performance would remain a priority. Alcohol The profitability of the Alcohol Business improved significantly relative to the previous year due to lower cost of the molasses and improved production efficiencies. The off-take by OMCs for EBP increased considerably, giving a fillip to demand. The Company also participated in this Programme, and made significant sales of Ethanol to OMCs during the year. Chemicals The profitability of the Chemicals business declined relative to the previous year, as demand slowed due to adverse economic conditions in China, and elsewhere. In some of our products, the Chinese resorted to aggressive marketing strategies including significant price reduction. The Company was able to partially offset the impact of adverse conditions by successfully reducing cost of production. Contract Manufacturing of a new product was commenced during the year. Efforts for process optimization through R&D, continued as a priority. Investments were made to reduce the environment load. Rayon Continued recession in Europe coupled with the turmoil in the Chinese economy adversely impacted the high end Automobile Industry and consequently the demand for high performance tyres was at a low key. Although Shriram Rayons was affected in terms of total orders, it was able to protect its market share due to better reputation for quality and timely delivery among customers. The emphasis continued for widening customer base for value added products. The Unit continues its emphasis on reducing operating costs by optimizing capacity utilization, efficient operating techniques and energy cost reduction. This has helped in maintaining the operating margin in spite of lower volume and lower export realizations due to steep fall in value of Euro. Nylon Chafer sales continued to be affected by the lower off take from domestic tyre producers due to the onslaught of imported tyres on the Indian tyre market. With operationalization of energy related projects, the Unit was able to bring down coal consumption substantially and was able to meet 79% of its fuel requirement from renewable sources. This has helped the Unit to control the energy cost as well as protect the environment. The Unit further upgraded the effluent treatment plant and installed online monitoring system for effluent discharged. Material changes and commitments No material changes or commitments have occurred between the end of the financial year to which the financial statements relate and the date of this Report, affecting the financial position of the Company. Subsidiary/ Associate Companies The Company has a non-material wholly owned subsidiary, Daurala Foods & Beverages Pvt. Ltd. (DFBL), which is not carrying on any operations presently. DCM Hyundai Limited (DHL) is an associate company. The required information with regard to the performance and financial position of the subsidiary and associate companies are annexed in Form AOC - I as annexure to the Annual Financial Statements for the year ended 31.3.2016. There has been no change in relationship of subsidiary/ associate companies during the year except that the Company acquired the remaining 10 equity shares of Rs.10 each in DFBL resulting in its becoming a wholly owned subsidiary. BOARD MEETINGS AND DIRECTORS Meetings of the Board During the year 2015-16 six Board meetings were held. The dates of the meetings, attendance, etc., are given in the Corporate Governance Report annexed hereto. Declaration u/s 149(6) of the Act All the Independent Directors (IDs) have given declarations u/s 149(6) of the Act confirming that they meet the criteria of independence as laid down under the said Section. Familiarization Programme for Independent Directors Shri C. Vikas Rao and Smt. Kavitha Dutt Chitturi, whose appointments as Independent Directors, were approved by the shareholders in the last AGM, had visited Shriram Rayons Unit, Kota on 25.9.2015 as part of familiarization programme. They spent considerable time in visiting the Rayon plant and had discussions with officers at various levels. Shri C. Vikas Rao and Smt.Kavitha Dutt Chitturi followed up the familiarization programme by a visit to the Company's Daurala Complex on 16th and 30th March, 2016, respectively. They visited the Sugar, Alcohol and Chemical plants and acquainted themselves with the operations of these plants. Other Independent Directors have been on the Board of the Company for a long time and are well versed with the Company's business model and the nature of industries in which it is operating. The Directors are also kept updated with information on the Company, the industry and developments in different segments at the Board meetings while reviewing the operations, quarterly/ annual financial results and considering the budgets. A familiarization programme for IDs laid down by the Board has been posted on the Company's website - www.dcmsr.com Policy on Board Diversity The Board of Directors in its meeting held on 30.5.2016 has approved a Policy on Board Diversity, devised by the Nomination & Remuneration Committee [NRC] as required under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. A copy of the same has been posted on the Company's website - www.dcmsr.com Directors Appointment and Remuneration Appointment of directors on the Board of the Company is based on the recommendations of the NRC. NRC identifies and recommends to the Board, persons for appointment on the Board, after considering the necessary and desirable competencies. NRC takes into account positive attributes like integrity, maturity, judgement, leadership position, time and willingness, financial acumen, management experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, etc. In case of Independent Directors (IDs) they should fulfill the criteria of independence as per the Act and Regulation 25 of the SEBI (LODR) Regulations, 2015 in addition to the general criteria stated above. It is ensured that a person to be appointed as director has not suffered any disqualification under the Act or any other law to hold such an office. The directors of the Company are paid remuneration as per the Remuneration Policy of the Company, the gist of which is given under the heading "Remuneration Policy' herein below. The details of remuneration paid to the directors during the year 2015-16 are given in Form MGT-9 annexed hereto and also in the Corporate Governance Report forming part of this Report. Changes in Directors or KMP There has been no change in the composition of the Board of Directors or Key Managerial Personnel during the year 2015-16. The Board of Directors in its meeting held on 30.5.2016 re-designated Shri Alok B. Shriram, Dy. Managing Director as "Vice Chairman & Dy. Managing Director' and Shri Madhav B. Shriram, Whole Time Director as "Dy. Managing Director', on recommendation of NRC, in exercise of the authority conferred on the Board by the shareholders by respective resolutions approving the terms of appointment of these managerial personnel. The Board also increased the remuneration including commission payable to Shri Madhav B. Shriram from not exceeding 2.25% of the Net Profit as per Section 198 of the Companies Act, 2013 to not exceeding 3% of the Net Profit, as may be decided by the Board, from the financial year 2016-17. Shri Alok B. Shriram, retires by rotation at the ensuing AGM and being eligible offers himself for reappointment as a Director liable to retire by rotation as per Section 152 of the Companies Act, 2013. Shri Alok B. Shriram is presently Vice Chairman & Dy. Managing Director. A proposal for his re-appointment as a director liable to retire by rotation is being placed before the shareholders for approval at the ensuing AGM. Annual Evaluation of Board and Directors As required under the Act and the SEBI (LODR) Regulations, 2015 an evaluation of the performance of the IDs, Board as a whole and Committees during the year 2015-16 was carried out by the Board of Directors based on the criteria laid down by the NRC. A copy of the "criteria' is annexed as Annexure 2 hereto. On an overall assessment, the performance of the IDs individually and collectively, were found satisfactory. It was noted that the IDs adhered to the code of independence as per Schedule IV of the Act and to the restrictions with regard to pecuniary relationship with the Company. The Board of Directors evaluated the performance of the Board as a whole, including the Committees, and noted that the performance was constructive and met the test of objectivity in achieving the goals of the Company. The IDs in a separate meeting reviewed and evaluated the performance of non-Independent Directors, the Board as a whole, the Board Committees and the performance of the Chairman of the Company taking into account the views of Executive Directors based on the criteria laid down by IDs last year. Directors' Responsibility Statement As required under Section 134(3)(c) of the Act your Directors state that: a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; b) the directors had selected such accounting policies and applied them consistently and made judgements 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 or loss of the Company for that period; c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; d) the directors had prepared the annual 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 are adequate and were operating effectively; and f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Internal Financial Controls A comprehensive internal financial control system is followed by the Company at all its establishments. This is further strengthened by an internal audit process under the overall supervision of the Audit Committee of the Board. The services for the internal audit are outsourced. Qualified and experienced professionals are engaged to ensure effective and independent evaluation of, inter alia, the internal financial controls. The Audit Committee lays down the schedule for internal audit. Internal audit reports are placed before the Committee with management comments. Suggestions are implemented and reported to the Audit Committee. Apart from the above, an effective budgeting and monitoring system is also in place. Budgets are reviewed by Audit Committee and approved by the Board. The operating results are compared and monitored with the approved budgets periodically. An Executive Committee comprising of senior management team meets every month, reviews all aspects of operations and chalks out remedial measures and strategies, wherever required. An effective communication/ reporting system operates between the Units, Divisions and Corporate Office to keep various establishments abreast of regulatory changes and ensure compliances. The expert agency engaged by the Company to assess the adequacy of the existing internal financial controls and suggest measures for further strengthening the same has come out with a report and made a presentation to the Board of Directors. The expert agency observed in their report as under: "We are of the view that adequate key control procedures exist in substance, in line with the definition of Internal Financial Control as explained in The Act." Loans, Guarantees and Investments The Company has not given any loan covered u/s 186 of the Act during the year. The Company has acquired the remaining 10 equity shares of Rs.10 each in the Company's subsidiary, DFBL, during the year making it a wholly owned subsidiary. The Company has not given any guarantee during the year 2015-16. The deed of guarantee executed by the Company in favour of IDBI Bank Ltd. with regard to crop loan from the Bank to the farmers who supply cane to the Company's Unit Daurala Sugar Works on recommendation of the Company, remained dormant as no crop loan was provided by the Bank to the farmers during the year under the Scheme. Related Party Transactions The transactions entered with a related party during the year under review was on Arm's Length basis and in the ordinary course of business. All related party transactions were approved by the Audit Committee and the Board. The relevant information regarding related party transactions has been set out in Note No.38 of the Standalone Financial Statements for the y.e. 31.3.2016. In view of this, disclosure in Form AOC-2 is not required. The Board has framed a Policy on related party transactions and placed the same on the Company's website <https://www.dcmsr.com> CSR Activities Pursuant to Section 135 of the Act read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, a report in the prescribed proforma is annexed -Annexure 3. The Company has spent the mandated amount of Rs. 48.89 lacs on CSR activities during the year. Risk Management The Board of Directors in its meeting held on 30.01.2006 undertook a comprehensive review of the risk assessment and minimization procedures/ policies followed by the Company at its various operations. While taking note of the same, the Board laid down that a half yearly status report of the risk assessment and steps taken to minimize the risks be placed before the Board. Such a report in respect of all the operations of the company is regularly placed before the Board and suggestions, if any, are implemented. In view of the diversified business, there are no significant element of risk, which in the opinion of the Board may threaten the existence of the Company. The Board of Directors while reviewing the existing risk assessment procedures, laid down a Risk Management Policy as required under Regulation 17 of SEBI (LODR) Regulations, 2015. Significant Material Orders Passed by Regulators or Courts or Tribunals No significant orders have been passed by any Regulators, Courts or Tribunals during the year impacting the going concern status and Company's operations in future. Extract of the Annual Return Extract of the Annual Return for the year 2015-16 in Form MGT-9 is annexed - Annexure 4. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo The required information as per Rule 8 (3) A, B & C of Companies (Accounts) Rules, 2014 is annexed - Annexure 5. REMUNERATION POLICY The Board of Directors in its meeting held on 14.8.2014 had laid down a Remuneration Policy as recommended by the NRC relating to remuneration of the Directors, Key Managerial Personnel (KMP), Sr. Management Personnel (SMP) and other employees of the Company. The Remuneration Policy is in accordance with Section 178 of the Act and the Rules made there under. The Remuneration Policy is posted on the Company's website <https://www.dcmsr.com> The salient features of the Policy are given below: i. Guiding principle The guiding principle of the Policy is that the remuneration and other terms of employment should effectively help in attracting and retaining committed and competent personnel.The remuneration packages are designed keeping in view industry practices and cost of living. ii. Directors Non-executive directors are paid remuneration in the form of sitting fees for attending Board/ Committee meetings as fixed by the Board from time to time subject to statutory provisions. Presently sitting fee is Rs.50,000 per Board meeting and Rs.25,000 per Committee meeting. Remuneration of Executive Directors (Whole-time Directors) including Managing Director is fixed by the Board of Directors on the recommendation of the NRC, subject to the approval of the shareholders. The NRC, while recommending the remuneration, takes into account pay and employment conditions in the industry, merit and seniority of the person and paying capacity of the Company. The remuneration which comprises of salary, perquisites, performance based reward/ profit based commission and retirement benefits as per Company Rules is subject to the limits laid down under the Act. iii. KMP and SMP Appointment and cessation of service of KMP are subject to the approval of the NRC and Board of Directors. Remuneration of KMP and SMP are approved by CMD on the recommendation of the concerned Executive Director, keeping in view the Remuneration Policy. iv. Other employees The remuneration of other employees is fixed from time to time by the Management as per the guiding principle laid down in the Remuneration Policy and considering industry standards and cost of living. In addition to salary, they are also provided perquisites and retirement benefits as per Schemes of the Company and statutory requirements, where applicable. Managerial Remuneration The information required as per Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 pertaining to remuneration of Directors, KMP and comparisons are annexed -Annexure 6. It is affirmed that the remuneration is as per the Remuneration Policy of the Company. Particulars of employees who have drawn remuneration of Rs.60 lacs or more during the year 2015-16 are annexed - Annexure 7 Audit Committee The Audit Committee presently comprises of three IDs and one executive director. Shri P.R. Khanna is the Chairman and Shri S.B. Mathur, Shri S.C. Kumar, all IDs and Shri K.N. Rao, Director & CEO (Rayons) are Members. There was no instance of the Board not accepting the recommendation of the Audit Committee. Vigil Mechanism Pursuant to Section 177 of the Act and Regulation 22 of SEBI (LODR) Regulations, 2015, the Board of Directors, on the recommendation of the Audit Committee, adopted a Vigil Mechanism (Whistle Blower Policy) in its meeting held on 14.8.2014. The Policy has been widely circulated among the employees and also put on the website of the Company. The Policy provides a channel to the employees to report to the management concerns about unethical behavior, actual or suspected fraud or violation of the code of conduct or policies. The mechanism provides for adequate safeguards against victimization of employees who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee in exceptional cases. Share Capital During the year, the Company has not issued any share capital with differential voting rights, sweat equity or ESOP nor provided any money to the employees or trusts for purchase of its own shares. Unclaimed Shares Suspense Account The position with regard to the unclaimed equity shares, transferred to the Demat Suspense Account as required under SEBI (LODR) Regulations, is as under: Statutory Auditors The statutory auditors of the Company are M/s A. F. Ferguson & Co. (Registration No.112066W), Chartered Accountants, 9, Scindia House, K.G. Marg, New Delhi - 110001. There was no change in the statutory auditors during the year. They being eligible, are being recommended to the shareholders for re-appointment for holding office as statutory auditors from the close of the ensuing AGM till the conclusion of the next AGM. As required under the provisions of Section 139 of the Companies Act, 2013, the Company has obtained written confirmation from M/s. A.F. Ferguson & Co. that their appointment, if made, would be in conformity with the limits specified in the said Section. Cost Auditors M/s Ramnath Iyer & Co., Cost Accountants , 808, Pearls Business Park, Netaji Subhash Place, Pitampura, Delhi - 110034, who were appointed as Cost Auditors of the Company for the year 2014-15, submitted the Cost Audit report, due for filing on or before 27.9.2015, to the Central Government on 16.9.2015. They have been reappointed as Cost Auditors for the year 2016-17. A resolution for ratification of their remuneration for the year 2016-17, as required under the Companies Act, 2013, forms part of the Notice convening the AGM. Corporate Governance Reports on Corporate Governance and Management Discussion & Analysis are annexed - Annexure 8. Anti-Sexual Harassment Policy Pursuant to the "Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013", the Company constituted Internal Complaints Committees at all its workplaces. There has not been any instance of complaint reported in this regard to any of the Committees. Acknowledgement The Directors acknowledge the continued co-operation and support received from the banks and various government agencies, and all our business associates. The Directors also place on record their appreciation of the contribution made by employees at all levels. For and on behalf of the Board CHAIRMAN PLACE : New Delhi, DATE : May 30, 2016 |