DIRECTORS' REPORT Dear Members, Your Directors present the Twenty-Eighth Annual Report on the business and operations of the Company together with the Financial Statements for the year ended 31st March, 2015. Financial performance: Your Company's Gross income has decreased by Rs. 179.33 lacs to Rs. 12,209.81 lacs as against the Gross income of Rs. 12,389.14 lacs in the corresponding previous year. The Company has posted a loss of Rs. 62.23 lacs before Interest and Depreciation as compared to a profit of Rs. 181.93 lacs in the corresponding previous year. The Company incurred Net Loss of ^ 439.81 Lacs during the year as against a loss of Rs. 212.41 Lacs in the corresponding previous year. The reason for the loss is mainly the increase in raw material cost and poor realisation of the finished Product Ethyl Acetate. The Company is looking out for avenues to obtain the raw material at cheaper rates and explore new products with a view to reduce the dependence on one product. 2. DIVIDEND Your Directors do not recommend any Dividend for the year. 3. FIXED DEPOSITS Your Company has not accepted any Public Deposits under Chapter V of Companies Act, 2013. 4. DIRECTORS Mr. S. Mohan retires by rotation at the ensuing Annual General Meeting and being eligible, offer himself for re-appointment. The Board of Directors recommends his re-appointment. Shri Rajendra V. Shah and Dr. S. B. Chandalia resigned as Directors during the year. The Board has placed on record its appreciation for the contributions made by Shri Rajendra V. Shah and Dr. S. B. Chandalia during their respective tenures on the Board. Shri Devendra J. Shrimanker and Shri Shyam C. Balsekar continue to be Non- Executive Independent Directors. They were appointed for a term of five consecutive years and shall not be liable to retire by rotation. Their appointment was considered by the shareholders for a term up to five consecutive years at the previous Annual General Meeting held on 13th August, 2014. Declaration of independence as per section 149(7) was received from the said directors. Further as per section 149(1) read along with rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 including any statutory modification (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) the Company is required to appoint a Woman Director on the board of the Company. Ms. Aziza Khatri has been appointed as Additional Director w.e.f 13th February 2015, to hold office up to the date of forthcoming Annual General Meeting. Being eligible, Ms. Khatri offered herself to be appointed as the Independent Director of your Company. The details of training and familiarization programmes and Annual Board Evaluation process for Directors have been provided under the Corporate Governance Report. The policy on Director's appointment and remuneration including criteria for determining qualifications, positive attributes, independence of Director, and also remuneration for Key Managerial Personnel and other employees forms part of Corporate Governance Report of this Annual Report. Ms. Aziza Khatri, Non- Executive Independent Director, in accordance with above said provisions, is required to be appointed for a term of five consecutive years and shall not be liable to retire by rotation. Her appointment be considered by the shareholders for a term upto five consecutive years. The Company has received consent from the director to be appointed as independent director for a consecutive term of five years. Declaration of independence as per section 149(7) is also received from Ms. Khatri. Notice under Section 160 of the Companies Act, 2013 have been received from Member proposing her candidatures as an Independent Director of the Company. Your directors recommend appointment of Ms. Aziza Khatri as Independent directors of the Company. 5. Particulars of Loans, Guarantees or Investments Under Section 186 The Company has not made any loan, given any guarantee or made any investment as per Section 186 of the Companies Act 2013. 6. Extract of Annual Return The extract of the Annual Return in the prescribed Form MGT 9 is annexed. 8. Material changes & commitments between end of financial year and this report. There have been no material changes & commitments between end of financial year and this report. 9. Number of Meetings During the year, four Board Meetings were convened and held, the details of which are given in the Corporate Governance Report. 10. Prevention of Insider Trading The Company has adopted a Code of Conduct for Prevention of Insider Trading with a view to regulate trading in securities by the Directors and designated persons of the Company, as per SEBI (Prohibition of Insider Trading) Regulations, 2015. 11. Significant & Material Orders Passed By Regulator Or Courts Or Tribunals Impacting Going Concern Status And Companies Operations In Future There have been no significant & material orders passed by regulator / courts / tribunals impacting going concern status and companies operations in future. 12. AUDITORS M/s. Desai Saksena & Associates, Chartered Accountants, Mumbai have been appointed as Statutory Auditors of the Company at previous Annual General Meeting held on 13th August, 2014 for a term of four consecutive years from the financial year 2014-15 to the financial year 2017-2018.However according to section 139 of the Companies Act, 2013 read with Rule 3 of the Companies (Audit and Auditors) rules, 2014 requires the Company to ratify the auditors appointment every year at every Annual General Meeting. The Company seeks the same at the ensuing Annual General Meeting. The Company has received a written consent to such ratification, certificate that ratification if made shall be in accordance with the conditions as prescribed and that they satisfy the criteria as provided in section 141 of the Companies Act, 2013. 13. COST RECORDS M/s. B.J.D. Nanabhoy & Co. as Cost Auditors, Cost Accountants, carried out the cost audit for applicable business during the year. The Board of Directors has appointed M/s. B.J.D. Nanabhoy & Co., Cost Accountants for the financial year 201516. The Company has received a written consent from M/s. B.J.D. Nanabhoy & Co., Cost accountants to such appointment, certificate that appointment if made shall be in accordance with the conditions as prescribed and that they satisfy the criteria as provided in section 141 of the Companies Act, 2013. For the year 2014-15, the Cost Audit Report will be filed in due course, before the due date. 14. SECRETARIAL AUDITOR Pursuant to section 204 of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) rules, 2014 the Company appointed M/s KS and Associates (Membership No. 5732), Company Secretaries a firm of Company secretary in practice to undertake the Secretarial Audit of the Company. During the year, Secretarial Audit was carried out for the financial year 2014-15. The detailed report on the Secretarial Audit are appended as an Annexure to this Report. 15. INSURANCE Your Company's assets continue to be adequately insured against the risk of fire, riot and earthquake among other things. In addition to the above, adequate coverage has been taken to cover the public liability and product liability claims. 16. FOREIGN EXCHANGE MANAGEMENT The Company's exposure to foreign exchange risk comprises the risk of foreign currency versus the local currency. As the Company's Export Sales are more than its Imports of Raw Material, the foreign exchange risk is naturally hedged. However, the Company takes forward contract for export or import on selective basis. 17. Corporate Social Responsibility According to section 135 of the Companies Act, 2013 read with rules of Companies (Corporate Social Responsibility Policy) rules, 2014 the Company is not required to frame Corporate Social Responsibility Committee and Corporate Social responsibility Policy. 18. Risk Management Pursuant to Clause 49 of the listing Agreement, the Company has formed Risk Management Policy u/s 134(3)(n) of Companies Act, 2013 r/w clause 49 (vi) of listing agreement. The copy of Risk Management Policy is uploaded in the website of the Company www.pentokey.com The Company has also constituted a Risk Management Committee. The details of Committee and its terms of reference are set out in the Corporate Governance Report forming part of the Board's Report. 19. Vigil Mechanisim / Whistle Blowing Policy As per Clause 49 (II) (F) of the Listing Agreement, the Board has established a Vigil Mechanism for directors and employees to report concerns about unethical behaviour, actual or suspected fraud and violation of the company's code of conduct or ethics policy. This mechanism also provide for adequate safeguards against victimization of director(s) /employee(s) who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee in exceptional cases. The copy of Whistle Blower Policy is uploaded on the website of the Company www.pentokey.com 20. INDUSTRIAL RELATIONS The Company maintains harmonious and cordial relations with its workers and staff, which enabled it to achieve this performance level on all fronts. 21. DIRECTORS RESPONSIBILITY STATEMENT The Directors confirm that: • in the preparation of the annual financial statements for the year ended 31st March, 2015, the applicable accounting standards have been followed along with proper explanation relating to material departures; • 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 loss of the Company for that period; • 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; • the directors had prepared the annual accounts on a Going Concern Basis; and • 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 • 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. 22. CORPORATE GOVERNANCE Your Company believes in transparency and has always maintained a very high level of corporate governance. Your Company is in compliance with the governance requirements provided under the new law. In line with the requirements of new law, your Company has constituted new Board Committees. Your Company has in place all the statutory Committees required under the law. Details of Board Committees along with their terms of reference, composition and meetings of the Board and Board Committees held during the year, are provided in the Corporate Governance Report. During the year, your Company has adopted new policies in line with new governance requirements. These policies are available on the website of the Company. The extract of Annual Return in Form MGT 9 as required under Section 92(3) and Rule 12 of the Companies (Management and Administration) Rules, 2014 is appended as an Annexure to this Report. A separate report on Corporate Governance is provided together with a Certificate from the Statutory Auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Equity Listing Agreement with the Stock Exchange(s). A Certificate of the Whole-time Director and CFO of the Company in terms of sub-clause IX of Clause 49 of Equity Listing Agreement, inter alia, confirming the correctness of the financial statements and cash flow statements, adequacy of the internal control measures and reporting of matters to the Audit Committee, is also annexed. 23. Related Party Transactions In line with the requirements of the Companies Act, 2013 and Equity Listing Agreement, your Company has formulated a Policy on Related Party Transactions which is also available on Company's website. The Policy intends to ensure that proper reporting, approval and disclosure processes are in place for all transactions between the Company and Related Parties. This Policy specifically deals with the review and approval of Material Related Party Transactions keeping in mind the potential or actual conflicts of interest that may arise because of entering into these transactions. All Related Party Transactions are placed before the Audit Committee for review and approval. Prior omnibus approval is obtained for Related Party Transactions on a quarterly basis for transactions which are of repetitive nature and / or entered in the Ordinary Course of Business and are at Arm's Length. All Related Party Transactions are subjected to independent review by a reputed accounting firm to establish compliance with the requirements of Related Party Transactions under the Companies Act, 2013 and Equity Listing Agreement. All Related Party Transactions entered during the year were in Ordinary Course of the Business and on Arm's Length basis and forms part to the Notes to Accounts in Note No. 31. No Material Related Party Transactions, i.e. transactions exceeding ten percent of the annual consolidated turnover as per the last audited financial statements, were entered during the year by your Company. Accordingly, the disclosure of Related Party Transactions as required under Section 134(3) (h) of the Companies Act, 2013 in Form AOC 2 is not applicable. 24. 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). There has been no compliant received on Sexual Harassment, during the year under review. 25. Conservation of Energy & Technology Absorption And Foreign Exchange Earnings And Outgo Information pursuant to Section 134 the Companies Act, 2014 read with Companies (Accounts) rules, 2014 forms part of this report. 26. MANAGEMENT DISCUSSION AND ANALYSIS The year witnessed a marked slowdown in global growth. Emerging markets were characterised by a sharp fall in growth rates, especially in China. Europe and Japan continued to be under pressure all through the year, while US showed tepid signs of improvement. During the year under review, prices of raw material namely Acetic Acid & Alcohol were volatile. The price fluctuation in Acetic Acid was further aggravated due to foreign exchange fluctuations. The increase in the cost of raw material was not fully absorbed in the price of our finished product namely Ethyl Acetate due to slowdown in demand in the user industry in domestic & international market and also because of surplus production capacity of Ethyl Acetate within India. With consistent quality and wider customer base across the user industries, your company has been able to maintain production level inspite of the industry slowdown and other various challenges posed in the market. Opportunities and Threats The expanded capacities coupled with consistent production quality, sustained and aggressive marketing would help the Company to increase the exports in the next few years. Your Company is focused to increase the geographic reach of the products and expects to show substantially higher growth. The flexibility in the plant to either "make" or "buy" intermediates helps in optimization of resources. Hence, the focus will be to ensure that the present advantage and flexibility in usage of feedstock perpetuates in our long-term vision. With a view to reduce our dependence on one product namely Ethyl Acetate, we are exploring possibilities of producing other chemical derivatives using Acetaldehyde as feedstock as well as entering into new product. Since the availability and price of Ethanol, which is by-product of Sugar, largely depends upon the performance of Sugar Industry, any fluctuation in the agro-climatic conditions would affect the availability and price of Ethanol. The increased demand by Oil Marketing Companies (OMCs) will further tighten the supply and pricing of Ethanol. Segment wise and Product wise performance The Company operates only in one Business segment i.e. Chemicals. During the year under review, the production of intermediate product namely Acetic Acid was not competitive due to the market prices. Your Company therefore purchased the Acetic Acid from market instead of producing the same from Ethanol or Acetaldehyde. As a result of this, production of Acetaldehyde, which is an intermediate product for Acetic Acid, was also low. Acetaldehyde was produced only to the extent of demand from customers. Your Company could source Ethanol from various distilleries at market prices due to improved production of Sugar and Ethanol within the State of Maharashtra. Your Company maintained its production capacity to 24000 TPA. Ethyl Acetate production was marginally lower at 18,640 MT for 2014-15 as against 22,008 MT in FY 2013-14 due to adverse market scenario as well as Ethyl Acetate plant could not run for one & half month (Oct 14 & half of Nov 14) due to non availability of SDS at reasonable price. The Company has sustained the production equivalent to last year even in sluggish markets, economic slowdown and political uncertainties. Risks and Concerns In view of the Government of India's mandatory policy for Ethanol Blending Programme, price of Ethanol which is an important feedstock for the chemicals manufactured by the Company, has increased sharply. Rising input prices amidst inflationary market condition coupled with the weakening of Rupee against US Dollar has pushed up the feedstock prices. Internal Control System Your Company has adequate internal control system including suitable procedures commensurate with its size and the nature of the business. The internal control system provides for all documented policies, guidelines, authorization and approval procedures. Internal Audit is being carried out throughout the year in areas such as Income, Expenditure, Financial Accounting and Statutory Compliances. The primary objective of such audit is to test the adequacy and effectiveness of all internal controls laid down by the Management and to suggest improvements. Human Resources The employees of the Company including officers and workers contributed greatly to the improved performance of the Company. Your company expects same commitment and contribution from the employees during the years to come to enable it to achieve the targeted growth. Disclosures with respect to the remuneration of Directors and employees as required under Section 197 of Companies Act, 2013 and Rule 5 (1) Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 has been appended as Annexure to this Report. Details of employee remuneration as required under provisions of Section 197 of the Companies Act, 2013 and Rule 5(2) & 5(3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are available at the Registered Office of the Company during from 10 a.m. to 1 p.m. on working days except Saturdays, Sundays and other public holidays upto the date of Annual General Meeting (AGM). Cautionary Statement Certain statement in the management discussion and analysis may be forward looking within the meaning of applicable securities laws and regulations and actual results may differ materially from those expressed or implied. Factors that would make differences to Company's operations include competition, price realization, changes in government policies and regulations, tax regimes, economic development and other incidental factors. 24. APPRECIATION Your Directors wish to place on record their sincere appreciation to the devoted employees at all levels for their hard work, dedication and commitment. The enthusiasm and unstinting efforts of the employees have enabled the Company to remain at the forefront of the industry. Your Directors would like to express their sincere appreciation for assistance and co-operation received from the vendors and stakeholders, Banks, Central and State Government authorities, Customers and other business associates, who have extended their valuable sustained support and encouragement during the year under review. It will be the Company's endeavour to build and nurture the strong links with its stakeholders. For and on behalf of the Board of Directors For Pentokey Organy (India) Limited S. Mohan Whole-time Director Devendra J. Shrimanker Director Place : Mumbai Date : 19th May, 2015 |