DIRECTORS' REPORT Dear Members, Yours Directors have pleasure in presenting the 47th Annual Report together with the Audited Accounts of the Company for the year ended 31st March 2015. FINANCIAL REVIEW During the year under review, your company once again performed well despite continuing slowdown in the real estate sector adversely affecting building material industry including tiles. Keeping in with its tradition of growing above the industry average, this year also your company outperformed average industry growth rate by growing its net sales by 21.97% achieving a 5 years' CAGR of 23.32%. overall net revenues increased to Rs.154105 lacs in the year under review registering a growth of 22.34% over corresponding previous year. The Earnings before Interest, Depreciation and Tax (EBIDTA), Profit before Tax (PBT) and Profit after Tax (PAT) also increased significantly during FY15 year by 23.36%, 48.82% and 58.33% respectively. Your Directors are pleased to recommend a dividend of 100% on equity shares at Rs.2/- per share (face value of Rs.2/- each) for the year under review as against 75% at Rs.1.50 per share in the previous year. This represents a payout ratio of 21.07%. CORPORATE HIGHLIGHTS Capacity Expansions During the year under review, Your Company added access to 7.90 million square meters of tiles as follows: a) Expanded own ceramic tiles capacity at Kadi (Gujarat) Plant by 2.40 million square meters per annum. b) Amora Tiles Private Limited, a subsidiary company expanded ceramic tiles capacity by 2.44 million square meters per annum in November 2014. c) Acer Granito Private Ltd., an existing associate company expanded polished vitrified tiles capacity by 3.06 million square meters in October 2014. Post expansion as above, own tile manufacturing capacity increased from 19.15 million square meters to 21.55 million square meters per annum, subsidiary / associates' tile manufacturing capacities increased from 15.47 million square meters to 20.97 million square meters per annum at the end of year under review. In addition, your company has access to about 9.0 million square meters of tiles through other vendors. The agreegate access to capacity is about 51.52 million square meters at the end of final year under review. In addition to above, the Board of Directors of your company approved expansion of Kassar (Haryana) Plant capacity by 4.00 million square meters to produce glazed vitrified / ceramic floor tiles. Exports During the year under review, exports of your company increased to Rs.6434.35 lacs, a growth of 201% over the previous year. The exports covered 10 new countries during this year. with this your company is currently exporting to more than 40 countries. Capital Expenditure Your Company continued to invest significantly in expanding and upgrading its plant and machinery and infrastructure. During the year under review the gross block increased by Rs.4693.56 lacs (previous year Rs.4117.53 lacs)out of which Rs.2973.35 lacs were invested in expansion of Kadi plant as mentioned earlier and remaining on meeting routine capital expenditure requirements. Branding and Distribution Your company followed a comprehensive plan for its communication and reached out through the medium of TV commercials, print, trade shows, exhibitions, retail showrooms complemented with an upgraded visual merchandising. The Tv commercial was aired on most of the Tv channels and helped create a new persona of our products. During the year your company also participated in prestigious international and national exhibitions namely CERSAI at Bologna (Italy), MosBuild at Moscow (Russia) and ACETECH at Delhi, Mumbai and Bangalore. Your company also released new ads for product categories like Duragres, Vitro and Glosstra; considering the latest trends in market and to further strengthen our brand positioning as a young, trendy and vibrant brand. The media plan had an equal inclination towards trade and lifestyle magazines. Your company also organised the second edition of 'Architecture & Design Summit 2014' to applaud the creativity in architecture and design which took place in conjunction with Economic Times. Enhanced brand exposure through a refurbished website, Visualization Software and updated presence on social media platforms is also helping gain a lot of mileage. INDUSTRY SCENARIO AND OUTLOOK Like other building materials, the fortunes of tile industry are also linked with the performance of real estate sector in India. While the year under review was slow to modarate in terms of ground activity in Real Estate, there are positive indicators towards end of the year which could be potential game changers for the Real Estate Industry going forward. This in turn would spur growth of tile industry also. The Indian ceramic tile industry is the third largest globally after China and Brazil yet with the lowest per capita consumption. Tiles industry volumes have a positive correlation with India's GDP at 1.5 x for past few years. With GDP expected to grow faster, tiles industry is expected to continue to grow in double digits. Government policies such as Housing for all & Smart cities, the rapid urbanization, rising disposable income, commercial, infrastructure and replacement demand would continue to ensure robust growth of tile industry. Large ad spends, premiumisation and design innovations backed by change in perception towards tiles as lifestyle product will ensure higher than industry growth rates for branded players like your company. The profit margins of the industry continued to remain under pressure due to inability on the part of industry to fully pass on the cost burden to end consumer due to severe competition. UTILISATION OF PROCEEDS ON ISSUE OF SHARES out of Rs.5000.00 lacs raised through private placement of equity shares to Latinia Limited in February, 2014, the Company has so far utilized Rs.2650.00 Lacs (including Issue Expenses of Rs.145.94 lacs) for the purposes for which the same were raised. The balance Rs.2350.00 lacs remain temporarily invested in Bonds / Debts scheme of Mutual Funds. PUBLIC DEPOSITS Your Company has not accepted any fixed deposits within the meaning of Section 73 of the Companies Act, 2013. SUBSIDIARY / ASSOCIATE / JOINT VENTURE COMPANIES M/s SR Continental Limited, a wholly-owned subsidiary company continued its business of manufacturing and selling of refractories, colors used in the ceramic industry and also business of outsourcing and selling of ceramic tiles. M/s Somany Global Limited, another wholly-owned subsidiary company continued its operations of selling imported and other high-end tiles and sanitary ware through its two show rooms named 'SoMANY GLOBAL'. M/s Amora Tiles Private Limited (ATPL), a subsidiary company in which the Company owns 51% equity shareholding has a manufacturing facility to produce 4.58 million square meters of wall tiles per annum. There are four associate companies having aggregate capacity to manufacture 16.39 million square meters of tiles. There is one associate company which is in the process of setting up a manufacturing facility to produce 4.29 million square meters of tiles per annum which is expected to commence production in current financial year 2015-16. In addition there is one associate company which has a manufacturing facility to produce 3 lacs pieces of sanitary ware per annum. The Annual Report does not contain the financial statements of Subsidiary Companies pursuant to circular no. 2/2011 dated 8th February, 2011 issued by the Ministry of Corporate Affairs. However, Financials of such Subsidiary Companies have been considered in the Consolidated Financial Statements of the Company for the period under review and provided in this Annual Report. The Board of Directors hereby undertakes that the audited accounts and related information of subsidiary companies, where applicable, will be made available upon request. The said documents will also be available for inspection during business hours at registered office of the Company as well as at the registered office of the subsidiary Companies. The statement required under Section 134 of the Companies Act, 2013 in respect of the subsidiary companies is provided at Annexure 1 to this report. There was no business activity in M/s Somany Keraben Private Limited, a 50:50 joint venture between your company and M/s Keraben Grupo S.A. (Formerly known as M/s Keraben S.A.). PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES All transactions entered with Related Parties during the financial year were on arm's length basis and were in the ordinary course of business. Further, there are no materially significant related party transactions during the year under review made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have potential conflict with the interest of the Company at large. 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 required. Related Party Transactions Policy as approved by the Board has been uploaded on the Company's website www.soman <http://www.soman> vceramics. com at the web link: Related-Party-Transaction-Policy.pdf PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 forms part of the notes to the financial statements provided in this Annual Report. RISK MANAGEMENT The Company has adopted the measures concerning the development and implementation of a Risk Management Policy in terms of Section 134(3)(n) of the Companies Act, 2013 after identifying the elements of risks which in the opinion of the Board may threaten the very existence of the Company itself. The Company has an elaborate Risk Management process of identification, assessment and prioritisation of risk followed by coordinated efforts to minimise, monitor and mitigate/control the probability and/or impact of unfortunate events or to maximise the realisation of opportunities. The Risk Management procedure is reviewed by the Audit Committee from time to time, to ensure that the executive management controls risks through means of a properly defined framework. Major risks identified are systematically addressed through mitigating actions on a continuing basis. Some of the identified risks relate to competitive intensity and cost volatility. INVESTOR EDUCATION & PROTECTION FUND (IEPF) The Company is required to transfer dividends which have remained unpaid/ unclaimed for a period of seven years to the IEPF established by the Central Government. Hence, the Company shall on 1st October, 2015 transfer the unpaid/ unclaimed dividend for the year ended 31st March, 2008 to IEPF. AUDITORS' REPORT All the items on which the Auditors' have commented in their report are self-explanatory and suitably explained in the Notes to the Accounts. The Auditors' Report to the Shareholders for the year under review does not contain any qualifications. DIRECTORS' RESPONSIBILITY STATEMENT To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statement in terms of Section 134(3)(c) of the Companies Act, 2013. (a) In the preparation of the annual accounts for the year ended March 31, 2015, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same; (b) The directors' have selected such accounting policies, 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 as at March 31, 2015 and of the profit of the Company for that date. (c) The directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. (d) The directors have prepared the annual accounts on a going concern basis. (e) The Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and (f) The Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. CONSOLIDATED FINANCIAL RESULTS As required by Clause 32 of the listing agreement with the stock exchanges, the consolidated financial statements have been prepared in accordance with applicable Accounting Standards. The audited consolidated financial statements together with Auditors' Report form part of the Annual Report. The consolidated net profit of your company was Rs.4639 lacs in the year under review compared to Rs.2887 lacs in the corresponding previous year. DIRECTORS AND KEY MANAGERIAL PERSONNEL In accordance with the provisions of the Sections 149, 152, 161 and all other applicable provisions of the Companies Act, 2013 and the rules made thereunder, Mrs. Anjana Somany was appointed as an Additional Director on Board of the Company with effect from 24th March, 2015. Mrs. Anjana Somany is related to Mr. Shreekant Somany, Chairman and Managing Director of the Company and Mr. Abhishek Somany, Joint Managing Director of the Company. Her appointment as Director on the Board of Directors of the Company will be subject to approval of shareholders in the ensuing Annual General Meeting of the Company, liable to retire by rotation. A notice in writing was received from a Member along with requisite deposit under Section 160 of the Companies Act, 2013 proposing candidature of Mrs. Anjana Somany for the office of regular Director. Mr. Narayan Anand retires by rotation at the ensuing Annual General Meeting and being eligible has offered himself for reappointment. Mr. R. L. Gaggar, who retired by rotation, at 46th Annual General Meeting of the Company held on 4th September, 2014, did not seek for re-appointment. The Board placed on record its appreciation for the valued contribution made by him, in the various deliberation and discussions and guidance during his association with the Company. The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence as prescribed both under the Act and Clause 49 of the Listing Agreement with the Stock Exchanges Clause 49 of the Listing Agreement mandates that the Board shall monitor and review the Board evaluation framework. Clause (p) of sub-clause 3 of Section 134 of the Companies Act, 2013, states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and the Directors individually. Schedule IV to the Companies Act, 2013, states that the performance evaluation of Independent Directors shall be done by the entire Board excluding the Directors being evaluated. Performance evaluation was made by the Board on the various parameters and criteria's governing performance of the Board and that of its committees and Directors and the same was taken on record. EVALUATION CRITERIA The Committee shall review the performance of every Director on the basis of the criteria laid down by the Committee as detailed below for evaluation of performance and submit its report to the Board. Criteria for Evaluation of Independent Director and the Board: The Independent Directors and the Board shall be evaluated on the basis of the following criteria's i.e. whether they: (a) Act objectively and constructively while exercising their duties; (b) Exercise their responsibilities in a bona fide manner in the interest of the Company; (c) Devote sufficient time and attention to their professional obligations for informed and balanced decision making; (d) Do not abuse their position to the detriment of the Company or its shareholders or for the purpose of gaining direct or indirect personal advantage or advantage for any associated person; (e) Refrain from any action that would lead to loss of his independence; (f) Inform the Board immediately when they lose their independence; (g) Assist the Company in implementing the best corporate governance practices; (h) Strive to attend all meetings of the Board of Directors and the Committees; (i) Participate constructively and actively in the committees of the Board in which they are chairpersons or members; (j) Strive to attend the general meetings of the Company; (k) Keep themselves well informed about the Company and the external environment in which it operates; (l) Do not to unfairly obstruct the functioning of an otherwise proper Board or Committee of the Board; (m) Moderate and arbitrate in the interest of the Company as a whole, in situations of conflict between management and shareholder's interest; (n) Abide by Company's Memorandum and Articles of Association, Company's Policies and procedures including code of conduct, insider trading guidelines etc. The performance of Executive Directors shall also be evaluated on the basis of Targets / Criteria met by them, as given by the Board from time to time. NOMINATION AND REMUNERATION POLICY The Company's Policy on Directors appointment and remuneration as required by Section 134(3)(e) of the Companies Act, 2013 and Clause 49 of the Listing Agreement is stated in the Corporate Governance Report, forming part of this Report. MEETINGS OF THE BOARD Six meetings of the Board of Directors were held during the year the details of which are given in the report on Corporate Governance of this Annual Report. AUDIT COMMITTEE The Audit Committee comprises Independent Directors namely Mr. R.K. Daga (Chairman), Dr. Y.K. Alagh, Mr. Salil Singhal and Mr. G.L. Sultania. All the recommendations made by the Audit Committee were accepted by the Board. AUDITORS M/s. Lodha & Company, Chartered Accountants, Statutory Auditors of the Company, having Firm Registration No. 301051E, were appointed as Statutory Auditors for a period of 3 (three) consecutive years at the 46th Annual General Meeting (AGM) held on 4th September, 2014, to hold office till the conclusion of the 49th AGM of the Company, subject to ratification of their appointment at every AGM, in terms of the first proviso to Section 139 of the Companies Act, 2013 read with Rule 3(7) of Companies (Audit and Auditors) Rules, 2014. In this regard, the Company has received a letter from the Auditors conforming that they are eligible for appointment as Auditors of the Company under Section 139 of the Companies Act, 2013 and meet the criteria for appointment specified in Section 141 of the said Act. Based on the recommendations by the Audit Committee, the Board of Directors of the Company recommend the ratification of appointment of M/s. Lodha & Company, Chartered Accountants, Statutory Auditors of the Company, having Firm Registration No. 301051E as Statutory Auditors of the Company by the Shareholders at the ensuing AGM. CORPORATE GOVERNANCE Your Company has been following the principles and practices of good Corporate Governance. A separate report on Corporate Governance with a certificate from the Statutory Auditors confirming compliance with the Corporate Governance requirements forms part of the Annual Report. SECRETARIAL AUDITOR AND THEIR REPORT The Board had appointed M/s Drolia & Company, Practicing Company Secretaries having Certificate of Practice No. 1362, to conduct Secretarial Audit under the provisions of Section 204 of the Companies Act, 2013 the financial year 2014-15. The Secretarial Audit Report for the financial year ended March 31, 2015 is annexed herewith marked as Annexure 2 to this Report. EXTRACT OF ANNUAL RETURN In accordance with Section 134(3)(a) of the Companies Act, 2013, an extract of the annual return in the prescribed format is appended as Annexure 3 to this report CORPORATE SOCIAL RESPONSIBILITY (CSR) The Corporate Social Responsibility Committee (CSR Committee) has formulated and recommended to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, which has been approved by the Board. The CSR Policy may be accessed on the Company's website at the link: <https://www.somanyceramics.com/wp-content/uploads/2015/07/SCL->Corporate-Social-Responsibility-Policy.pdf A Section 8 Company under the Companies Act, 2013 was incorporated with the name M/s H.L. Somany Foundation to carry out the Corporate Social Responsibility activities of the Company. The Foundation came into being on 2nd March, 2015. The Company would also undertake other need based initiatives in compliance with Schedule VII to the Act. The 2% of the average net profit of the company made during the three immediately preceding financial years comes out to be Rs.96.84 Lacs. A report on CSR activities is provided at Annexure 4 to this report. INTERNAL CONTROL SYSTEMS The Company has in place adequate internal financial controls with reference to financial statements. During the year, no reportable material weakness in the design or operation were observed. At Somany, employees are considered as our biggest assets and we significantly invest in training and development of all our resources. We nurture our talent pool with enhancing their skills and leadership capabilities. We articulate a career path for our employees and follow a policy of growing leaders within the Company. We provide a very conducive work environment with opportunities for all to grow. These initiatives help us to attract and retain good quality talent. WHISTLE BLOWER POLICY / VIGIL MECHANISM The Company has Whistle Blower Policy in terms of the Listing Agreement which works as Vigil Mechanism. Protected disclosures can be made by a whistle blower through an e-mail, or a letter to a task force referred in the Policy. The Policy on vigil mechanism and whistle blower policy may be accessed on the Company's website. MANAGEMENT DISCUSSION AND ANALYSIS REPORT Management Discussion and Analysis Report forms integral part of this Annual Report. CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO The information on conservation of energy, R&D, technology absorption, foreign exchange earnings and outgo as required under Section 134 of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014 is annexed as Annexure 5 forming part of this report. In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules are provided in the Annexure Forming part of the Annual report. Disclosures pertaining to the remuneration and the other details as required under Section 197(12) of the Companies Act, 2013 read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in the Annexure 6 forming part of the Annual Report. DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013. The Company has a Policy on Prohibition, Prevention and Redressal of Sexual Harassment of Women at Workplace and matters connected therewith or incidental thereto covering all the aspects as contained under "The Sexual Harassment of Women at Workplace (Prohibition, Prevention and Redressal) Act, 2013". Up till date, the Company has not received any complaint under the Policy. There has been no change in the Share Capital of the Company for the year under review II. Business Responsibility Report as per Clause 55 of the Listing Agreement with the Stock Exchange, describing the initiatives taken by Company from an environmental, social and governance perspective is not applicable to the Company, as per SEBI Circular CIR/CFD/DIL/8/2012, dated 13th August, 2012. III. There were no significant material orders passed by the Regulators / Courts during the financial year 2014-15 which would impact the going concern status of the Company and its future operations. IV. There were no significant material changes and commitments in terms of Section 134(3)(l) of the Companies Act, 2013, affecting the financial position of the Company. ACKNOWLEDGEMENT Your Directors acknowledge with sincere gratitude, the cooperation and help extended by all the stakeholders of your Company including its esteemed shareholders, government departments and agencies, financial institutions and banks, customers, vendors and employees. For and on behalf of the Board SHREEKANT SOMANY Chairman and Managing Director Place: New Delhi Dated: The 18th day of May, 2015 |