Kanoria Chemicals & Industries Ltd Directors Report.

TO THE SHARE HOLDERS

Your Directors have pleasure in presenting the Sixtieth Annual Report, along with the Audited Accounts of the Company for the financial year ended 31st March 2020.

Detailed information on the performance of your Company appears in the Annual Report. A discussion on the operations of the Company is given in the section titled ‘The Year in Review. Some of the statutory disclosures, however, appear in this Report. The Report, read along with the other sections, would provide a comprehensive overview of the Companys performance and plans.

FINANCIAL RESULTS

The financial performance of the Company for the year ended 31st March 2020 is summarised below:

(Rs. in million)
Particulars 2019-2020 2018-2019
Total Income 3,796.22 4,618.20
Profit before Depreciation & Amortisation, Finance Cost, Tax and Exceptional items 268.60 409.08
Depreciation and Amortisation 211.46 200.54
Finance Costs 121.40 64.18
Exceptional items - 28.00
Profit/(Loss) before Tax (64.26) 116.36
Tax expenses (56.10) 30.68
Profit/(Loss) for the year (8.16) 85.68
Other Comprehensive income for the year, net of tax (14.18) (1.99)
Total Comprehensive income for the year (22.34) 83.69

STATE OF COMPANYS AFFAIRS

During the year under review, the Companys plants at Ankleshwar and Vizag continued to run efficiently despite the Company remaining under pressure with sluggish market conditions coupled with high volatility in the prices of key raw materials. Improved production efficiency in Alco Chemicals segment and development of value added products have helped the Company withstand the pressures of the market.

The resin business continues to perform well, and our focus is on product development and further penetration in the market. Considering the significant improvement in capacity utilization, we are contemplating to expand our manufacture of Resins.

The Company has commissioned its Formaldehyde plant at Naidupet, Andhra Pradesh from October 2019.

Our plants operations were under suspension from 24th March 2020 to mid-May 2020 due to outbreak of novel Corona Virus ("COVID-19"). It has affected the business operations of the Company by way of interruption in production, supply chain, loss of product demand, cash flow and availability of manpower. Essential services, however, at plants such as safeguarding the premises, maintaining critical equipment were continued with permission from relevant government authorities during the lockdown period. Most of the units in these plants have now restarted manufacturing operations gradually after obtaining necessary permissions from concerned State Government Authorities. Considering the demand, outlook and availability of workforce, we are operating the plants at lower capacities. With the frequently changing scenario of COVID-19, however at this juncture, it is difficult to assess the overall impact of the pandemic on the business operations. We are reasonably confident of being able to navigate through this crisis. Much depends on the support from Government and banks.

In solar power segment, the operation was impacted during the year due to breakdown of Invertor and tracking system, leading to lower generation. The generation has since improved after rectification of tracking system.

No material changes and commitments have occurred after the close of the financial year 2019-20 till the date of this Report, which affect the financial position of the Company.

A brief description of the operations of the subsidiaries of the Company appears later in this report.

DIVIDEND

The Board of Directors has not recommended any dividend on the Equity Shares of the Company for the financial year ended 31st March 2020.

TRANSFER TO RESERVES

The Company has not transferred any amount to Reserves for the financial year ended 31st March 2020.

CREDIT RATINGS

Care Ratings Limited has revised the rating for the long-term bank facilities of the Company as CARE A (Single A) from the existing rating of CARE A+ (Single A Plus) and rating for the short-term bank facilities as CARE A1 (A One) from the existing rating of CARE A1+ (A One Plus).

The Company has withdrawn the rating earlier assigned to its Commercial Paper by CARE Ratings Limited.

CONSOLIDATED FINANCIAL STATEMENT

As per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations") and provisions of the Companies Act, 2013 ("Act"), the audited Consolidated Financial Statement for the year ended 31st March 2020 has been annexed with the Annual Report.

DEPOSITS

During the year under review, the Company has not accepted any deposits from the public and that as at the end of the year there were no outstanding deposits under Section 73 of the Act read with the Companies (Acceptance of Deposits) Rules, 2014.

INTERNAL FINANCIAL CONTROL

The Company has in place adequate internal financial controls with respect to financial statements. The policies and procedures adopted by the Company ensure prevention and detection of frauds and errors, accuracy and completeness of the records and timely preparation of reliable financial statements. No reportable material weakness in the design or operation was observed during the year.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

In the 59th AGM of the Company held on 4th September 2019, the shareholders have re-appointed Shri A. Vellayan (DIN: 00148891), Shri Amitav Kothari, (DIN: 01097705) and Shri H.K. Khaitan (DIN: 00220049) as Independent Directors not liable to retire by rotation, for a period of 5 (five) consecutive years with effect from 4th September 2019 and also re-appointed Shri G. Parthasarathy (DIN: 00068510) and Shri Ravinder Nath (DIN: 00062186) as Independent Directors not liable to retire by rotation, for a period of 3 (three) consecutive years with effect from 4th September 2019.

As declared by them, none of the Directors of the Company is disqualified for being appointed as a Director, as specified in sub-section (1) and (2) of Section 164 of the Act or is debarred or disqualified from being appointed or continuing as Director of companies by the SEBI/Ministry of Corporate Affairs or any such statutory authority.

The Company has received declaration from Shri A. Vellayan, Shri Amitav Kothari, Shri H.K. Khaitan, Shri Sidharth Kumar Birla, Shri G. Parthasarathy and Shri Ravinder Nath confirming they meet the criteria of independence as prescribed under sub-section (6) of Section 149 of the Act and the Listing Regulations.

In the opinion of the Board, the said Directors fulfil the conditions for appointment/continuation as Independent Directors as specified in the Act and the Listing Regulations and they are also independent of the Management.

Shri S.V. Kanoria (DIN: 02097441) retires by rotation at the ensuing AGM under the applicable provisions of the Act and being eligible, offers himself for appointment as a Director of the Company.

Additional information, pursuant to the Listing Regulations and Secretarial Standard on General Meetings (SS2) of ICSI in respect of Director seeking appointment is given in the AGM Notice of the Company.

STATEMENT OF INTEGRITY, EXPERTISE AND EXPERIENCE OF INDEPENDENT DIRECTORS

All the Independent Directors of the Company have been registered and are members of Independent Directors Databank maintained by Indian Institute of Corporate Affairs at Manesar (IICA). As per the provisions of the relevant rules, all the Independent Directors of the Company are exempted from the online proficiency self-assessment test conducted by the IICA. In the opinion of the Board, the Independent Directors of the Company have vast experience, expertise and integrity and their continued association would be of immense benefit to the Company.

PERFORMANCE EVALUATION

The Company has framed the criteria for performance evaluation of Independent Directors, the Board, the Board Committees and other individual Directors. Criteria for performance evaluation of the Chairman & Managing Director, Executive Director and Non-Independent Director have also been framed.

The criteria, among others includes factors such as preparation, participation, engagement, personality and conduct, value addition, strategic planning and vision, team spirit and consensus building, leadership quality, understanding and focus on key business issues, independent thinking and judgment, quality of analysis, experience and business wisdom, management qualities, awareness, motivation, integrity, ethics and receptivity. The criteria for evaluating the Boards functioning/effectiveness inter alia includes its structure, strategic review, business performance review, internal controls, process and procedures.

On the basis of the criteria framed, a process was followed by the Board for evaluating the performance of individual Directors, its own performance and its Committees. The Nomination and Remuneration Committee also evaluated the performance of every individual Director. The Independent Directors in their separate Meeting also carried out the performance evaluation of the Chairman & Managing Director, Executive Director and other non-independent Director as well as the Board of the Company. The Directors expressed overall satisfaction on the performance and functioning of the Board, its Committees and the Directors. No action was required to be taken on the previous years observations and also no action is required to be taken on this years observations.

FAMILIARISATION PROGRAMMES

The Board Members are provided with necessary documents, reports and internal policies to enable them to familiarise with the Companys procedures and practices. Periodic presentations are made at the Board and Board Committees, on business and performance updates of the Company. Relevant statutory changes encompassing important laws are regularly made available to the Directors. Efforts are also made to familiarise the Directors about the Company, their roles, rights, responsibility in the Company, nature of the industry in which the Company operates, business model/ procedures/ processes of the Company, etc. through various programmes including plant visits. The details of the familiarisation programmes for Independent Directors are put on the website of the Company and can be accessed at the link: http://www.kanoriachem.com/images/FamiPro.pdf.

NUMBER OF MEETINGS OF BOARD OF DIRECTORS

During the Financial Year 2019-20, the Company held 4 (four) Meetings of the Board of Directors. The details of the Meetings and attendance of each of the Directors thereat are provided in the Report on Corporate Governance forming part of the Annual Report. The maximum gap between any two consecutive Board Meetings did not exceed 120 days.

AUDIT COMMITTEE

The Audit Committee of the Company comprises of Shri Amitav Kothari, Shri H.K. Khaitan and Shri Sidharth Kumar Birla. Independent Directors and Shri R. V. Kanoria, Chairman & Managing Director of the Company. Shri Amitav Kothari is the Chairman of the Committee. The terms of reference of the Committee have been provided in the Corporate Governance Report.

STAKEHOLDERS RELATIONSHIP COMMITTEE

The Stakeholders Relationship Committee of the Company comprises of Shri H.K. Khaitan and Shri Amitav Kothari, Independent Directors and Shri S. V. Kanoria, Wholetime Director of the Company. Shri H. K. Khaitan is the Chairman of the Committee. The terms of reference of the Committee have been provided in the Corporate Governance Report.

NOMINATION AND REMUNERATION COMMITTEE

The Nomination and Remuneration Committee of the Company comprises of Shri H.K. Khaitan, Shri Ravinder Nath and Shri G. Parthasarathy, Independent Directors, and Shri R.V. Kanoria, Chairman & Managing Director of the Company. Shri H. K. Khaitan is the Chairman of the Committee. The terms of reference of the Committee have been provided in the Corporate Governance Report.

The Board of Directors of the Company, based on the recommendation of the Nomination and Remuneration Committee, has formulated the Nomination and Remuneration Policy, which contains the matters with regard to criteria for appointment of Directors and determining Directors independence and policy on remuneration for Directors, Senior Managerial Personnel and other employees, and the same may be accessed at the Companys website at the link: http://www.kanoriachem.com/images /NomRemPol.pdf.

CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

The Corporate Social Responsibility Committee of the Company comprises of Smt. Madhuvanti Kanoria, a Director, Shri R.V. Kanoria, Managing Director and Shri H.K. Khaitan, an Independent Director. Smt. Madhuvanti Kanoria is the Chairperson of the Committee. The terms of reference of the Committee have been provided in the Corporate Governance Report.

CORPORATE SOCIAL RESPONSIBILITY

The Company acts as a good Corporate Citizen and as its philosophy always strive to conduct its business in inclusive, sustainable, socially responsible, ethical manner and to continuously work towards improving quality of life of the communities. The Company has in place a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company. The Corporate Social Responsibility Policy of the Company enables it to continue to make responsible contribution towards welfare of the society.

Primarily, the Companys focus will be on the following areas:

• Promoting education, including special education and employment enhancing vocational skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

• Empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens.

• Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation.

The Company may also undertake other need-based initiatives in compliance with Schedule VII to the Act.

During the year, the Company has spent Rs. 0.95 million on the CSR activities.

The Annual Report on the CSR activities, pursuant to Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is provided as Annexure to this Report.

The CSR Policy may be accessed on the Companys website at the link: http:// www.kanoriachem.com/images/CSRPol.pdf.

MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis is a part of the Annual Report.

SUBSIDIARIES

Pipri Limited, the wholly owned subsidiary of the Company was amalgamated with the Company, vide Order dated 2nd September, 2019 passed by the Honble National Company Law Tribunal (NCLT), sanctioning the Scheme of Amalgamation of Pipri Limited with the Company with effect from 1st April, 2018 under Sections 230 and 232 of the Companies Act, 2013.

APAG Holding AG, Switzerland ("APAG") and Kanoria Africa Textiles Plc, Ethiopia ("KAT") are subsidiaries of the Company. APAG Elektronik AG, APAG Elektronik s.r.o, CoSyst Control Systems GmbH, APAG Elektronik LLC and APAG Elektronik Corp. the wholly owned subsidiaries of APAG are the step-down subsidiaries of the Company.

The performance of the Switzerland based subsidiary of the Company, APAG Holding AG, doing business as APAGCoSyst Electronic Control Systems had started reflecting the upswing in the global automotive sector in the last quarter of the financial year 2019-20. It was then, however, once again negatively impacted by the COVID-19 crisis which stifled demand in the last couple of months.

Due to uncertainty in the automotive industry as a result of shift in propulsion technology to electricity, APAGCoSyst is diversifying the final automotive OEMs and models served (ensuring that both fossil fuel and electric vehicles are covered in its portfolio) to balance risk. With its high-quality profile and development prowess, APAGCoSyst has taken steps to be certified as a technology and component supplier for the medical industry within the next fiscal year. This will further diversify its portfolio and open a new, trending industry for long-term growth.

Kanoria Africa Textiles plc in Ethiopia ("KAT") has shown improved performance during the year. Its garment division, which has started recently, is showing promising results. However, garmenting being a new business, it would take time in reaching the desired skill level by the operators. It is expected to reach the desired efficiency level by the end of the current year.

With textile parks in Ethiopia becoming operational, KAT has new markets to supply denim fabric. Many multinational fashion and apparel brands have also opened their offices for sourcing in Ethiopia.

A report on the financial position of the subsidiaries of the Company, as per the Companies Act, 2013, is provided in the Annual Report and hence, the same is not repeated here for the sake of brevity.

The Policy for determining Material Subsidiaries as approved by the Board may be accessed on the Companys website at the link: http://www.kanoriachem.com/images/MatSub.pdf.

PARTICULARS OF INVESTMENTS MADE, LOANS, GUARANTEES GIVEN AND SECURITIES PROVIDED

Details of investments made, loans given, guarantees given and securities provided as covered under the provisions of Section 186 of the Act are given in the Note Nos. 6 and 39 of the Standalone Financial Statements.

CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES

All contracts/arrangements/transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on arms length basis. None of the transactions with any of the related parties were in conflict with the Companys interest. The Company had not entered into any transaction with related parties during the year which could be considered material, in terms of materiality threshold for the related party transactions.

During the financial year, there was no contract entered into with any person or entity belonging to the Promoter/Promoter Group which holds 10% or more shareholding in the Company.

The Policy on Related Party Transactions as approved by the Board may be accessed on the Companys website at the link: http://www.kanoriachem.com/images/RelPar.pdf.

CHANGE IN THE NATURE OF BUSINESS

There has been no change in the nature of business of the Company.

VIGIL MECHANISM

The Company promotes ethical behaviour in all its business activities and has put in place a mechanism of reporting illegal or unethical behaviour. In compliance with provisions of Section 177(9) of the Act and the Listing Regulations, the Company has in place a Whistle Blower Policy for its Directors, employees and any other stakeholder to report concerns about unethical behaviour, actual or suspected fraud or violation of applicable laws and regulations and the Companys Codes of Conduct or policies and leak or suspected leak of unpublished price sensitive information of the Company. The concerns may be reported to the Audit Committee through the Nodal Officer and, in exceptional cases, may also be reported to the Chairman of the Audit Committee. The confidentiality of those reporting violations is maintained and they are not subjected to any discriminatory practice. During the year under review, no employee was denied access to the Audit Committee.

The Whistle Blower Policy of the Company may be accessed on the Companys website at the link: http://www.kanoriachem.com/images/WBFtpdf.

CORPORATE GOVERNANCE

The Company adheres to good governance practices. Corporate Governance at KCI extends to all stakeholders and is embodied in every business decision. The Company places prime importance on reliable financial information, integrity, transparency, empowerment and compliance with the law in letter and spirit. While Management Discussion and Analysis Report that is an annexure to the Directors Report, appears in the Section titled the Year in Review in the Annual Report, the Corporate Governance Report and the Certificate from the Auditors of the Company confirming compliance of the conditions of Corporate Governance are annexed hereto and form a part of the Directors Report.

There is a conscious effort to ensure that the values enshrined in the Codes of Conduct for the Directors and Senior Management Personnel and the Employees respectively, are followed in true spirit across all levels of the Company.

EXTRACT OF ANNUAL RETURN

The extract of Annual Return of the Company as on the financial year ended 31st March 2020 is given in Form no. MGT- 9 as an Annexure to this Report.

AUDITORS AND AUDITORS REPORT

As per the provisions of Section 139 of the Act, M/s. J K V S & CO, Chartered Accountants (Firm Registration No. 318086E) were appointed, at the 57th Annual General Meeting of the Company held on 4th September, 2017, as the Statutory Auditors of the Company for a term of 5 years commencing from the conclusion of the 57th AGM till the conclusion of the 62nd AGM. In this regard, the Company has received a Certificate from the Auditors to the effect that their continuation as Statutory Auditors, would be in accordance with the provisions of Section 141 of the Act.

The Auditors Report for the financial year ended 31st March 2020 does not contain any qualification, reservation or adverse remark.

FRAUD REPORTING

During the year under review, the Auditors have not reported any matter under Section 143 (12) of the Act, therefore no detail is required to be disclosed under Section 134 (3) (ca) of the Act.

COST AUDITORS

Pursuant to Section 148 of the Act, the Board, on the recommendation of the Audit Committee, has approved the appointment of M/s N. D. Birla & Co., Cost Accountants (Firm Registration No. 000028), Ahmedabad, as the Cost Auditors for conducting the audit of the cost records of the Company for the financial year ending on 31st March 2021, at a remuneration of Rs. 1,45,000/- (Rupees One Lakh Forty Five Thousand only) plus applicable taxes and reimbursement of travelling and other incidental expenses to be incurred in the course of cost audit.

SECRETARIAL AUDITOR

Pursuant to Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board had appointed M/s Vinod Kothari & Co., Practising Company Secretaries (UIN: P1996WB042300), to conduct Secretarial Audit of the Company for the financial year 2019-20. The Secretarial Audit Report for the financial year 2019-20 is provided as an Annexure to this Report. The Report does not contain any qualification, reservation or adverse remark.

RISK MANAGEMENT

The Companys management systems, organizational structures, processes, codes of conduct together form the basis of risk management system that governs and manages associated risks. The Risk Management Committee of the Company assesses the significant risks that might impact the achievement of the Companys objectives and develops risk management strategies to mitigate/minimise identified risks and designs appropriate risk management procedures. The Board does not foresee any risk which may threaten the existence of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS/OUTGO

As required under Section 134 of the Act and the rules framed thereunder, the statement containing necessary information in respect of conservation of energy, technology absorption, foreign exchange earnings and outgo is provided in the Annexure to this Report.

EMPLOYEES INFORMATION AND RELATED DISCLOSURES

As required under Section 197(12) of the Act read with the Rules 5(1), 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, disclosures of remuneration and other details/particulars of the Directors and employees of the Company are provided in the Annexure to this Report.

SAFETY AND ENVIRONMENT

The Company is committed to sustainable development and a safe workplace. Its approach to environment management is guided by the principle of provision of safe working environment through continuous up-gradation of technologies, prevention of pollution and conservation of resources and recycling waste.

As a result of its sustained compliance to Health, Safety, Environment and Quality standards, the Companys Alco Chemical Divisions at Ankleshwar and Vishakhapatnam are ISO 9001 (quality management systems), ISO 14001 (environment management systems and practices) and OHSAS 18001 (organizational health and safety systems) certified. Both the Divisions are also RC 14001:2015 certified for implementation of responsible care management systems, recognizing and responding to community concerns related to products and its operations. We have also got permission from Indian Chemical Council (ICC) to use Responsible Care Logo (RC Logo) for our Ankleshwar unit.

The Company has a documented Health & Safety Policy that is displayed and communicated to all employees at plant locations. With the view to achieve a Zero Accidents status, the Company has developed health and safety procedures as well as safety targets and objectives. In view of outbreak of COVID-19, all the employees are given training on the safe practices such as social distancing, usage of masks, personal hygiene, and sanitization.

The Company also lays thrust on renewable energy sources and solar energy.

HUMAN RESOURCES DEVELOPMENT AND INDUSTRIAL RELATIONS

The Companys human resource development is founded on a strong set of values. The policies seek to instil spirit of trust, transparency and dignity among all employees. The Company continues to provide ongoing internal and external training to its employees at different levels.

Industrial relations with the employees and workers across all locations of the Company continued to be cordial during the year.

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 statements in terms of Section 134(5) of the Companies Act, 2013:

a) that in the preparation of the annual financial statements for the year ended 31st March 2020, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

b) that such accounting policies have been selected and applied consistently and judgement and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March 2020 and of the loss of the Company for the year ended on that date;

c) that proper and sufficient care has been taken 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) that the annual financial statements have been prepared on a going concern basis;

e) that proper internal financial controls to be followed by the Company have been laid down and that the financial controls are adequate and are operating effectively; and

f) that proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

The Company has constituted a Complaints Redressal Committee to consider and resolve sexual harassment complaints reported by women. During the year under review, no complaint was fled pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, and that there was no complaint pending at the end of the year.

COMPLIANCE WITH SECRETARIAL STANDARDS

The Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India.

DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS /COURTS/TRIBUNALS

During the year under review, no significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Companys operations in future.

ACKNOWLEDGEMENTS

Your Directors acknowledge with gratitude the commitment and dedication of the employees for their untiring personal efforts as well as their collective contributions at all levels that have led to the growth and success of the Company. The Directors would like to thank other stakeholders including lenders and business associates who have continued to provide support and encouragement.

Registered Office For and on behalf of the Board,
‘KCI Plaza
23C, Ashutosh Chowdhury Avenue R.V. Kanoria
Kolkata 700 019 Chairman & Managing Director
Date: 17th June, 2020 DIN:00003792