DirectorsNotwithstanding signs of recovery from the previous financial crisis, the textile andapparel industry went through a tough year struggling with the surging and fluctuatingprices of raw materials in year 2010 and early 2011. Since 2010, the prices of rawmaterials, especially cotton, have been surging to an uncontrollable level. Theuncertainty of the raw material issue is expected to continue in 2011.
The Indian textile industry contributes about 14 per cent to industrial production, 4per cent to the country's gross domestic product (GDP) and 17 per cent to the country'sexport earnings, according to the Annual Report 2009-10 of the Ministry of Textiles. Itprovides direct employment to over 35 million people and is the second largest provider ofemployment after agriculture. Cotton textiles have registered a growth of 10.8 per centduring April-January 2010-11, while textile products including wearing apparel haveregistered a growth of 4.3 per cent, as per the Index of Industrial Production (IIP) datareleased by the Central Statistical Organisation (CSO).
Government is promoting investment under the Technology Upgradation Fund Schemes (TUFS)for tapping the growth potential of this sector. Further, Government has taken initiativefor setting up of textiles parks with world class infrastructure facilities and allowing100 per cent foreign direct investment (FDI) under the automatic route. The Government haslaunched the Integrated Skill Development Scheme for the Textiles & Apparel Sector,including Jute & Handicrafts, with an objective of capacity building of Institutionsproviding skill development & training in Textiles Sector.
India's domestic market has grown significantly in the past registering a CompoundedAnnual Growth Rate (CAGR) of 13%. Despite the demand slump, the domestic market isexpected to grow by around 9-10% in the next 5 years. The Indian apparel market ismoving away from the traditional segmentation to a much deeper and wider segmentationbased on consumer needs. Also india's textile industry is seeing an increase incollaboration between national and international companies like Hugo Boss, Liz Claiborne,Diesel.
The spun yarn production is expected to be flat level for 2011-12 in view of increasedpipeline of finished goods. Although, the domestic demand of spun yarn have shown signalsof improvements showing increased activities at local level, however there are some areasof concerns also. Along-with overall blurred demand forecasts, the textile industry isalso facing increase in input prices in sync with the global trends. In addition toappreciating rupee, restricted export of cotton and cotton yarn followed by withdrawal ofduty draw back on cotton yarn are causing concerns for the sustained recovery in thetextile industry.
Spentex has utilized the opportunity offered in 2010-11 by building teams for anychallenge ahead i.e. fine tuning supply chain management and resource optimization tostrengthen our competitiveness by offering more value to customers in terms of high valueadded products. It is a matter of pleasure to note that such initiatives have paid uswell, enhanced our learning, strengthen our resolve and increase our capabilities toovercome such events in future. We have a firm faith in the bright future of textileindustry in India.
FINANCIAL ANALYSIS AND PERFORMANCE REVIEW:
The performance of the Company in fiscal year 2010-11 has significantly improved ascompared to the performance in fiscal 2009-10. This significant improvement is attributedto increase in total sales value and volumes, better fund flow management coupled witheffective raw material buying.
The financial performance of Spentex industries Limited is discussed in two parts:
Spentex Industries Limited (Standalone) which excludes the performance of subsidiariesand step-down subsidiaries of Spentex Industries Limited.
Spentex Industries Limited (Consolidated) which includes the performance ofsubsidiaries and step-down subsidiaries of Spentex Industries Limited. The ConsolidatedFinancial Statements bring out comprehensively the performance of Spentex Group ofcompanies and are more relevant for understanding the overall performance of SpentexGroup.
Company's relentless efforts made your Company to comeback strongly and registerprofits of Rs. 1.75 crores for the year 2010-11 against the loss of Rs. 45.08crores in the year 2009-10 on consolidated basis and Rs. 37.50 crores profit onstandalone basis in the year 2010-11 against the loss of Rs. 22.36 crores in thefiscal 2009-10.
SEGMENT-WISE PERFORMANCE
Yarn Manufacturing
During the year under review, your Company on standalone basis has manufactured58544.22 MT of yarn as compared to 56604 MT of yarn produced during the previous year.
PERFORMANCE OF SUBSIDIARIES
The Company had eight subsidiaries at the beginning of the year. The turnover andoverall performance of material subsidiary companies are as under:
Amit Spinning Industries Ltd., India: During the year under review its productionof yarn has increased by 4.45% and sales turnover increased by 49.16% as compared toprevious year. The Company has its manufacturing facilities at Kolhapur, Maharashtra witha capacity of 30,672 spindles.
Spentex Tashkent Toytepa LLC, Uzbekistan: During the year under review, its salesturnover increased by 20.84% as compared to previous year. The Company has twomanufacturing units situated at Tashkent and Toytepa with a capacity of 220,000 spindlesand 236 Air jet looms.
Schoeller Litvinov K.S., Czech Republic: During the year ended 31st March, 2011 itssales turnover increased by 30.52% as compared to previous year. The Company hasmanufacturing unit situated at Czech Republic with a capacity of 59,000 spindles.
INTERNAL CONTROL SYSTEMS AND ADEQUACY
The Company has appropriate internal control systems for business processes, withregards to efficiency of operations, financial reporting and controls, compliance withapplicable laws and regulations, etc. Clearly defined roles and responsibilities down theline for all managerial positions have also been institutionalized. All operatingparameters are monitored and controlled. Regular internal audits and checks to ensure thatresponsibilities are executed effectively are carried out. The Audit Committee of theBoard of Directors reviews the adequacy and effectiveness of internal control systems andsuggests improvement for strengthening them, from time to time.
MANAGEMENT PERCEPTION ON OPPORTUNITIES, RISKS, CONCERN & OUTLOOK
Erratic demand, uncertain raw materials prices, foreign currency fluctuations vis a visIndian rupee would certainly affect growth and profitability of the sector in short andlong term. Another important issue is availability of quality cotton and the price ofpower. The availability of good quality power at reasonable prices is critical forsustainability of the industry. However, the cost of power has been continuouslyincreasing, adding to the input cost pressure in the industry. We hope that powersituation will improve in the coming year. The differentiated treatment for differentsectors of textile industry in government policy need correction. Raw Material securityand demand creation in the domestic sector is a must. The integrated approach is requiredfor the growth of the industry in the country. We are making all efforts to cope up withthe challenges through continuous cost reduction, process improvements and improvedcustomer services to address reducing margin and working capital pressures.
India has seen a significant growth in domestic demand with its apparel market shiftingfrom traditional segmentation to multi-layered one with varied consumer needs. Besides,its textile industry is collaborating more frequently with international companies.Meanwhile, Indian government is making an effort to boost its textile industry.
The Indian textile sector is growing at an estimated rate of 10% per annum and it isexpected to reach $ 110 billion by the year 2015 with an export of $ 45 billion. Tosustain its growth, Indian textile industry requires an investment of $ 24 billion by2015.
HUMAN RESOURCES/INDUSTRIAL RELATIONS
The Company and its management value the talent, commitment and dedication of itsemployees and acknowledge their contribution. Consequently, the employee turnover isnegligible. Everyone in the Company is working as a team and is integral part of a family,sharing their ideas through Town Hall meeting, using intranet across the units and areinstrumental in making Spentex, a globally admired company. Management of your Companybelieves that it is the integration of human resources and business strategy that hasculminated in its success. High performance orientation is the pivot of the HR philosophyof the Company and all the HR policies and strategies are centered on the same.
Industrial Relations scenario at all units continues to be healthy.
CONSOLIDATED FINANCIAL STATEMENTS IN RESPECT TO SUBSIDIARIES
The Company had eight subsidiaries at the beginning of the year. The Ministry ofCorporate Affairs, Government of India vide its Circular No. 2/2011 dated 08.02.2011 hasgranted General exemption, hence Approval of Central Government/ exemption under Section212 of the Companies Act, is no more required for seeking exemption to attach variousdocuments in respect of subsidiary companies, as set out in Sub-section (1) of Section 212of the Companies Act, 1956. It has further advised to disclose the financial informationof the subsidiary companies in the Annual Report, the same has been disclosed in theAnnual Report. Accordingly, the Balance Sheet and Profit & Loss Account and otherdocuments of subsidiary companies are not being attached with the Balance Sheet of theCompany. The Company will make available the Annual Accounts and related details uponrequest by any member of the Company. These documents will also be available forinspection at the registered office of the Company during business hours. TheConsolidated Financial Statements presented by the Company includes financial results ofits subsidiary companies.
CONSOLIDATED FINANCIAL STATEMENT
In accordance with the Accounting Standard AS-21 on Consolidated Financial Statementsread with Accounting Standard AS-23 on accounting for Investments in Associates, theaudited Consolidated Financial Statements are provided in the Annual Report.
INFORMATION TECHNOLOGY
Information Technology continues to be an integral part of Spentex's business strategy.The Company is working on SAP platform integrating all units located at different places,which integrates business processes, financial parameters, customer transactions andpeople effectively.
DIVIDEND
During the year the Company has no distributable profits hence your Directors do notrecommend any dividend.
ISSUE OF EQUITY SHARES ON CONVERSION OF SHARE WARRANTS
During the year under review, your Company has issued and allotted 75,89,000 equityshares on 13th August, 2010 and 31st March, 2011 to CLC Technologies Private Limited, apromoters group Company in respect to option exercised by warrant holder to convert samenumber of share warrants at a price of Rs.16.95 (including premium of Rs. 6.95).Accordingly, the paid-up capital of the Company has been increased from Rs. 737,330,350/-to Rs. 813,220,350/- consisting 81,322,035 equity shares of Rs. 10/- each.
TRANSFER OF INVESTOR EDUCATION & PROTECTION FUND
The Company informs herewith all its shareholders whose dividends are unclaimed for theyear 2003-04 (declared by erstwhile Indo Rama Textiles Limited, which has since beenamalgamated with the Company) that pursuant to Section 205A of the Companies Act, 1956,the Company is required to transfer unpaid and unclaimed dividend to Investor Education& Protection Fund on completion of 7 years of transferring into unpaid dividendaccount and shall ensure that they receive their rightful dues. Company is takingappropriate steps in this regard.
CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION AND ANALYSIS
As stipulated under Clause 49 of the Listing Agreement entered with the StockExchanges, a report on Corporate Governance is attached separately as a part of the AnnualReport and the Management Discussion and Analysis (MD & A) is also included in thisreport so that duplication and overlap between Directors' Report and a separate MD & Ais avoided and the entire information is provided in a composite and comprehensive manner.
DIRECTORS
Shri R K Thapliyal, Shri Prem Malik and Shri Shyamal Ghosh are retiring by rotation inthe forthcoming Annual General Meeting and being eligible offer themselves forre-appointment. During the year, the five year term of Shri Ajay Kumar Choudhary,Chairman, Shri Kapil Choudhary, Deputy Managing Director and Shri Sitaram Parthasarathy,Director Works ceased on 1st December, 2010. The Remuneration Committee and Board ofDirectors, subject to requisite approvals, re-appointed them for another term of 3 yearsw.e.f. 2nd December, 2010.
Brief resume of the Directors proposed to be re-appointed, nature of their expertise inspecific functional areas and names of companies in which they hold directorship andmembership/chairmanships of Board Committees, as stipulated under Clause 49 of the listingagreement with stock exchanges in India, is provided in the Report of Corporate Governanceforming part of Annual Report.
AUDITORS
M/s. J C Bhalla, Chartered Accountants who are the Statutory Auditors of the Companyhold office until the conclusion of the ensuing Annual General Meeting and are eligiblefor re-appointment. The Company has received a letter from them to the effect that theirreappointment, if made, would be in accordance with Section 224(1B) of the Companies Act,1956. The Board recommends their reappointment.
DIRECTORS' VIEW ON AUDITORS OBSERVATIONS
Directors' response to the various observations of the auditors even though explainedwherever necessary through appropriate notes to accounts, is reproduced hereunder incompliance with the relevant legal requirements.
Reference Para 4 of the Auditors Report
Schoeller Litvinov k.s. (SLKS), the Czech step-down subsidiary of the Company, hadregistered losses during the year and earlier financial years due to economic slowdown.This step down subsidiary had submitted a re-organization plan seeking deferment ofpayment to Secured creditors, and proportionate waiver of unsecured liabilities which hassince been approved by the court. The Company believes that the reorganization plan,considering improvement in the global textile market, will turn around this subsidiary, soas to make good its losses in a foreseeable period and will also place this subsidiary ina position to repay the liabilities in due course. Accounts and other receivables Rs. 327,965,283(Previous Year 468,986,120) is due from SLKS as at March 31, 2011. Accordingly, provisionagainst these Accounts and other receivables is not considered necessary at this stage.
In view of developments, Company believes in future with the financial viability ofthis subsidiary such amounts would be realized within a reasonable period of time.
COST AUDITORS
The Central Government had directed an audit of the cost accounts maintained by theCompany in respect of textile business. The Central Government has approved theappointment of Shri Rajesh Goyal, a Cost Accountant of M/s. K G Goyal & Associates,Cost Accountants to conduct the audit of the Cost Accounts of the Company for thefinancial year ending 31st March, 2011 for the product "Textile".
FIXED DEPOSITS
Your Company has not accepted any deposits during the year within the meaning ofSection 58A of the Companies Act, 1956 and rules made there under.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to the requirement of Section 217(2AA) of the Companies Act, 1956, yourDirectors hereby state and confirm that:
i) in preparing the Annual Accounts for the year ended 31st March 2011 all theapplicable Accounting Standards have been followed,
ii) accounting policies were adopted and applied consistently and made judgements andestimates that are reasonable and prudent so as to give a true and fair view of the stateof affairs of the Company as at 31st March 2011,
iii) proper and sufficient care for the maintenance of adequate accounting records inaccordance with the provisions of the Companies Act, 1956 for safeguarding the assets ofthe Company and for preventing / detecting fraud and irregularities has been taken and
iv) the Annual Accounts have been prepared on a "going concern" basis.
PARTICULARS OF EMPLOYEES
In terms of Section 217(2A) of the Companies Act, 1956, read with the Companies(Particulars of Employees) Rules, 1975, as amended, the names and other particulars ofemployees are set out in the Annexure to the Directors' Report. However, as per theprovisions of Section 219(1) (b)(iv) of the Companies Act, 1956 the Annual Reportexcluding the aforesaid information is being sent to all the members of the Company andothers entitled thereto. Any member interested in obtaining such particulars may write tothe Company Secretary at the Registered Office of the Company.
ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO
The information relating to conservation of energy, technology absorption and foreignexchange earnings and outgo as required to be disclosed under Section 217(1)(e) of theCompanies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Boardof Directors) Rules, 1988 are given in Annexure – I to the Directors' Report.
INDUSTRIAL RELATIONS
The industrial relations during the year under review remained harmonious and cordial.Your Directors wish to place on record their appreciation for the wholeheartedco-operation received from all the employees at various units/divisions of the Company.
CONCLUSION
Your Company enjoys a leadership position in domestic market with strong competitiveadvantage in export segment. The Company now stands at the cusp of the next phase ofgrowth. We will continue to make investments and progress to further consolidate ourleadership position.
ACKNOWLEDGEMENTS
Your Directors take this opportunity to thank the Financial Institutions, Banks,Central and State Governments authorities, Regulatory authorities, Stock Exchanges,stakeholders, customers and venders for their continued support and co-operation, and alsothank them for the trust reposed in the Management. Your Director also wishes to thank allthe employees of the Company for their commitment and contributions.
| For and on behalf of Board of Directors |
| Place: New Delhi | Ajay Kumar Choudhary |
| Dated: May 12, 2011 | Chairman |
Annexure – I to the Directors' Report
Particulars required under the Companies (Disclosure of Particulars in the Report ofBoard of Directors) Rules, 1988 and forming part of the Directors' Report for the yearended March 31, 2011.
A. CONSERVATION OF ENERGY
During the year under review further efforts were made to ensure optimum utilization offuel and electricity.
a. Energy conservation measures taken:
The Company is continuously taking efforts in energy conservation, energy saving tubesand electronic ballasts are continuously being installed in a phased manner for thispurpose. Old and less efficient motors were replaced with energy efficient motors.
Relevant data in respect of energy consumption is as below:
| Electricity | Current year | Previous year |
| Purchased | | |
| Total Units consumed (KHW) | 164,171,026 | 155,885,851 |
| Total Amount (Rs. in Lacs) | 7,590.18 | 6,721 |
| Rate per Unit (Rs.) | 4.62 | 4.31 |
| Own Generation through Generator Set | | |
| Units (KHW) | Nil | Nil |
| Units per liter of Diesel/Furnace Oil | Nil | Nil |
| Cost / Unit (Rs.) | Nil | Nil |
| Electricity Consumption (Units) | | |
| Per Kg. of Production of yarn | 2.80 | 2.75 |
B. TECHNOLOGY ABSORPTION
RESEARCH & DEVELOPMENT (R&D)
1. Specific areas in which R&D has been carried out by the Company:
Company continues identifying areas of improvements in the processes through properlydocumented systems to strengthen yarn quality, improvement in productivity as well asenergy conservation and effective maintenance.
2. Benefits derived as result of the above R & D:
Improvement in effective utilization of resources and fulfillment of customers'requirements.
3. Future plan of action:
Identifying measures to further improve productivity and increase contribution per unitof production.
4. Expenditure on R & D:
| a) Capital | Rs. 50.13 Lacs |
| b) Revenue | Rs. 28.98 Lacs |
| c) Total | Rs. 79.11 Lacs |
| d) Total R & D Expenditure as percentage of total turnover | 0.08% |
TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION
a) Efforts: Upgrading machines with technologically advanced accessories and spares.
b) Benefits: Higher output and improved quality of products.
c) Technology imported during the last 5 years: None
C. FOREIGN EXCHANGE EARNINGS AND OUTGO
a) Efforts: In spite of Stiff Global Competition and reduced margins the Company iscontinuing to put its best efforts in earning foreign exchange contributing to thenational exchequer.
b) Earnings and Outgo: Particulars with regard to foreign exchange earnings andoutgo appear in Schedule XXI of annual accounts.
| For and on behalf of Board of Directors |
| Place: New Delhi | Ajay Kumar Choudhary |
| Dated: May 12, 2011 | Chairman |