Kansai Nerolac Paints Ltd Directors Report.

Dear Members,

The Directors of your Company are pleased to present the 99th Annual Report and the Audited Financial Statements (Standalone and Consolidated) for the year ended 31st March, 2019 ("year under review/ FY 2018-19").

The section on Management Discussion and Analysis includes a review of the financial performance of the Company Financial Highlights of the Companys standalone financial results, key financial ratios and by the Directors. It also includes the particulars of the subsidiaries of the Company including overseas subsidiaries and their performance during the year under review.

#MDStart#

MANAGEMENT DISCUSSION AND ANALYSIS

1. Management Discussion and Analysis

A. Introduction

Established in 1920, Kansai Nerolac Paints Ltd ("KNPL") is a subsidiary of Kansai Paint Co. Ltd., Japan ("KPJ").

KNPL has its primary operations in India, and it also operates in Nepal, Sri Lanka and Bangladesh through acquisitions and joint ventures.

KNPL caters to customers through products and solutions in Decorative and Industrial Coatings. In Industrial, while the traditional thrust has been on Automotive, KNPL now has a sizeable presence in Performance Coatings and has also expanded its portfolio to include new solutions through Floor Coatings, Transportation Coatings, Coil Coatings, rebar coatings and super-durable powders. The last few years has also seen a strong push in the Auto Refinish segment.

In Decorative, KNPL now has been able to cross a threshold level with its new brand Soldier which was introduced a few years ago and it has entered into segments like Adhesives and Construction Chemicals. The Company is also aggressively targeting the wood coatings segment. All this is helping KNPL move towards a better portfolio of products and offerings to the market.

The Company has been aggressively augmenting capacity to match its expanding portfolio of offerings. This year commercial production started at its new state-of-the-art Industrial Coatings plant at Sayakha, Gujarat and work is in process to set up two state-of-the-art new plants equipped with modern production technologies at Amritsar in Punjab and Visakhapatnam in Andhra Pradesh.

The Company has increased its impetus on research and has commenced operations at its world-class R&D facility at Vashi, Navi Mumbai. These new plants and R&D facilities will strengthen the capability of KNPL to innovate and serve its customers better.

With its focus of being an environmentally conscious brand, broad based product range, innovative product introductions besides focus on brand building and distribution has helped KNPL being recognized as a strong brand in the decorative paint market.

In the industrial coatings space, the consistent efforts towards customer satisfaction, technology, quality, service and value engineering, have ensured a leading position for the Company. KNPL has time and again been trusted by the bluest of blue players of the Automobile Industry as a reliable partner to service their paint requirements. Continuing to leverage IT for strategic benefits, the Company has forayed into Machine Learning technologies, becoming the first paint Company in India to do so using the SAP Leonardo platform. The Company has sought to integrate Robotic Process Automation (RPA) into its operations.

The Company has chosen Mr. Ranveer Singh to be the new face of the Brand. Ranveer was found to be a perfect fit as his versatility as an actor, coupled with his bold personality and effervescent energy, which resonates well with the Nerolac brand. The

Company has signed up with Mr. Tamim Iqbal, the leading cricketer of Bangladesh as its Brand Ambassador in Bangladesh.

The year was a water-shed year for KNPL. KNPL adopted inorganic growth as part of its growth strategy by making acquisitions in related product lines. As part of the strategy, the acquisitions of Marpol a pioneer in Powder

Coatings and a leading powder coating player in the

Indian powder coating market, RAK Paints in Bangladesh having a diverse product range in both Decorative and Industrial markets, as well as Perma Construction

Aids Pvt. Ltd. with a product range encompassing water-proofing, adhesives, epoxy and admixtures in the construction chemical space were completed.

B. Industry progress

The Indian Paint Industry currently valued at around Rs 50,000 Crores is poised to grow at a healthy rate and is expected to reach around Rs 70,000 Crores by 2021-22. There is a strong co-relation between the Indian Paint Industry and the GDP growth of the country historically. The Government is expected to continue with its reforms agenda, with policy decisions to come in sectors like infrastructure and power. These reforms would provide great impetus to the economy as well as to the paint industry.

Decorative paints segment is expected to continue the growth momentum. The fiscal incentives given by the government to the housing sector are steps which will aid the paint industry going forward.

The year 2018-19 has been positive yet challenging for the industry as a whole. One of the notable events of the year was the reduction of GST rates from 28% to 18% and is expected to be positive and is a breather for the paint industry.

The year was marked by high inflationary pressures on account of crude oil as well as high volatility in forex. Though there has been some respite in crude in the second half of the year, the reduction has not offset the inflationary pressures witnessed in the first half. Volatility in forex continued through out the year.

C. Financials

Financial Highlights

A summary of the Companys standalone financial results for the year ended 31st March, 2019 (FY 2018-19) vis-a-vis standalone financial results for the previous year FY 2017-18, is as under:

Rs in Crores
FY 2018-19 FY 2017-18
Gross Sales and Other Operating Income 5682.28 5197.77
Net Sales and Other Operating Income 5173.62 4737.01
Profit before Interest, Depreciation and Tax 742.00 789.77
Less: Depreciation and Amortisation 90.47 75.79
Profit Before Interest and Tax 651.53 713.98
Add: Other Income 61.88 72.42
Profit Before Tax 713.41 786.40
Less: Tax (Including deferred tax) 246.06 270.00
Profit After Tax 467.35 516.40
Other Comprehensive Income (Net of Tax) 0.92 (1.09)
Total Comprehensive Income for the year 468.27 515.31

Gross Sales and other operating income for the year aggregated to Rs 5,682.28 Crores as compared to Rs 5,197.77 crores for the previous year. GST was introduced in July 2017, hence Sales figures of previous year are not comparable with the Sales figures of current year. However, Net Sales (excluding excise duty) and other operating income reflects a growth of 12.5% over the previous year.

Depreciation for the year is at Rs 90.47 Crores as against Rs 75.79 Crores in the previous year which is higher compared to the previous year due to capitalization of Sayakha project. Other Income was lower at Rs 61.88 Crores as compared to Rs 72.42 Crores for the previous year. Reduction is due to surplus funds utilised for new projects.

The Company had taken various initiatives to reduce material cost and operational costs.

These initiatives helped the Company in the current year to keep the operational costs under control and compensate inflation.

Profit Before Depreciation, Interest and Tax (PBDIT) for the year is lower at Rs 742.00 Crores compared to Rs 789.77 Crores last year reflecting a degrowth of 6.1%. Profit Before Tax (PBT) for the year is Rs 713.41 Crores as compared to Rs 786.40 crores of the previous year which is a degrowth of 9.3% over previous year.

The Company spent Rs 13.45 Crores towards Corporate Social Responsibility compared to Rs 11.01 Crores in the previous year.

The Company has not accepted any deposits covered under Chapter V of the Companies Act, 2013, during the year.

There material are no orders significant passed by any Regulators, Courts or Tribunals against the Company which could impact the going concern status and Companys operations in future.

There has been no change in the nature of business during the year.

There have been no material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of this Report.

No amount is proposed to be transferred to any reserves.

Dividend

The Directors recommend a normal dividend of Rs 2.60 (260%) per Equity Share of the face value of Rs 1 each for the year under review, for consideration of the Members. This compares with a dividend of Rs 2.60 per share (260%) per Equity Share of the face value of Rs 1 each, declared previous year.

Key Financial Ratios

Key Ratios FY 2018-19 FY 2017-18 Change Explanation, if required
(%)
Debtors Turnover 40 37 (8.11) -
(No of Days)
Inventory 103 98 (5.10) -
Turnover
(No of Days)
Interest - - - Not applicable
Coverage Ratio
Current Ratio 2.80 2.97 (5.72) -
Debt Equity 0.00 0.01 - Repayment as per schedule
Ratio
Operating Profit 14.3% 17.2% (16.86) -
Margin (%)
Net Profit Margin 9.0% 11.3% (20.35) -
(%)
Return on Net 13.6% 16.5% (17.58) -
Worth

Subsidiaries and Consolidated Financial Statements

In terms of the provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI Listing Regulations"), the Board has approved a Policy for determining material subsidiaries. The same is also available on the website of the Company at www.nerolac.com.

Further, in terms of the said policy, the Company does not have a material subsidiary.

Indian Subsidiaries a. Marpol Private Limited

In April 2018, our Company acquired 100% equity shareholding in Marpol Private Limited, Goa ("Marpol"), one of the leading companies in powder coating business, for an aggregate consideration of Rs 34.12 Crores.

After acquisition, many actions were taken to improve turnover and profitability. For the year 2018-19, the turnover of Marpol was Rs 68.90 Crores. (FY 2017-18: Rs 59.40 Crores) and Profit After Tax (PAT) was Rs 1.69 Crores [FY 2017-18: (Rs 7.48) Crores].

b. Acquisition of Perma Construction Aids Private Limited

After the closure of the year under review, in the month of April 2019, the Company acquired 100% equity shareholding in Perma Construction Aids Private Limited ("Perma"), which manufactures and sells construction chemicals, for an aggregate consideration of Rs 29.10 Crores. Necessary disclosures regarding the acquisition were made to BSE Limited ("BSE") and National Stock Exchange of India Limited ("NSE").

Perma has a diverse product range encompassing water-proofing, adhesives, epoxy, admixtures etc. and this acquisition will increase the Companys product offerings in construction chemicals business, thereby enabling it to expand its product portfolio in construction chemicals.

c. Merger of Indian subsidiaries with the Company

The Board, at its meeting held on 2nd May, 2019, accorded its in-principle approval to the merger of Marpol and Perma, both wholly-owned subsidiaries of the Company, with the Company, subject to necessary statutory approvals from various regulatory authorities.

The aforesaid merger shall provide benefits of synergy, economies of scale, growth and expansion to the Company. More information in this regard will be provided to the Shareholders, from time to time, vide appropriate means of communication, including disclosures to BSE and NSE.

Overseas Subsidiaries: a. Operations in Nepal

For the year under review, the turnover of KNP Japan Private Limited, the subsidiary of our Company in Nepal, increased to Rs 84.51 Crores as compared to Rs 64.14 Crores for the previous year.

Profit Before Tax has increased to Rs 13.99 Crores as compared to Rs 9.05 Crores in the previous year.

Profit After Tax has increased to Rs 11.52 Crores as compared to Rs 6.51 Crores in the previous year.

b. Operations in Sri Lanka

The turnover of our subsidiary in Sri Lanka, Kansai Paints Lanka Private Limited for the year under review was Rs 12.11 Crores as compared to Rs 8.06 Crores during the previous year. The Company incurred a loss of Rs 10.88 Crores during the year under review as compared to loss of Rs 6.83 Crores during the previous year. As informed to the Shareholders in 2016-17 the

Company had set up a green-field plant in Sri Lanka to manufacture and sell paints. Generally green-field projects take some time to stabilise and generate profits. We expect operations to stabilise over a two year period.

c. Operations in Bangladesh

In July 2018, our Company acquired 55% equity shareholding in RAK Paints Limited, Bangladesh ("RAK"), for an aggregate consideration of Rs 42.17 Crores (BDT 50.41 Crores).

After acquisition, during the year under review, the turnover of RAK was Rs 93.04 Crores. EBITDA for the year was Rs 0.19 Crores and PAT (Rs 9.65) Crores.

After acquisition, our Company initiated a lot of cost reduction activities and turned around RAK from EBITDA loss to EBITDA positive.

Consolidated financial statements of the Company as on 31st March, 2019, are prepared in accordance with applicable Accounting Standards and form a part of this Annual Report. All the subsidiaries of the Company as on 31st March, 2019, i.e. all the subsidiaries except Perma which was acquired in April 2019, have been considered in the preparation of consolidated financial statements.

Further a separate statement in Form AOC-1, containing the salient features of the respective financial statements of subsidiaries of the Company, forms part of this Annual Report. Also, Annual Audited Financial Statements of all subsidiaries of the Company are available on the website of the Company i.e. www.nerolac.com.

D. Segment wise performance

The Company has only one segment of activity named "paints", in accordance with the definition of "Segment" covered under Indian Accounting Standard (Ind AS) 108 on Operating Segments. The performance of the Company is discussed in this Report.

E. Marketing

Decorative

KNPL continued its strong media presence that it had started a few years ago by launching many high decibel campaigns in various formats during the year. These ensured high visibility of the brand. During the year, KNPL signed up Mr. Ranveer Singh as the new brand ambassador. Brand building activity was augmented by strong initiatives on the ground together with a thrust on improved reach and distribution.

Little Bit of Nerolac with Brand Ambassador Ranveer Singh KNPL continued its association with IPL for the year 2018, and partnered with Delhi Daredevils and SunRisers Hyderabad. Many branding and consumer involvement activities were carried out as part of this campaign.

Nerolac extended its association with cricket by getting associated with the Asia Cup.

Amongst the new campaigns created were a new TV

Campaign for Excel Mica Marble, #BachpanwalaGhar campaign, and ‘There is a little bit of Nerolac in your life campaign. These campaigns were well received. This was accompanied by innovative campaign like murals in Kolkata during Durga Pooja, activities during Kumbh Mela and airport activity during Diwali at Kolkata airport.

Influencers are another key stakeholder in the Decorative market. KNPL organized "Nerolac Painter Parivar Mela" for painters and their families. This was one of its kind unique activity which helped create a strong emotional connect and bonding in the minds of the painter and the painters family. ‘Nerolac Pragati Express an innovative mobile training academy for the painter where a mobile van went across eight different cities in the state was launched during the year.

Building mind-space with consumers was taken to next level. Two new services for consumers were launched. One a Chatbot service, whereby consumers can chat with KNPL or by scanning a QR code and another, a virtual reality tool "Colour my space" to visualize the home in different colors to make an informed choice. In addition, new color tools like Colour Symphony of Kerala, Impressions Ideaz Designer Guide, Impression & Exterior Emulsion Shade Card were launched. The nerolac website www.nerolac.com was made available in 7 different languages. Colour Trails a theme-based photo walk whereby people from all walks of life could participate along with influencers and photographers to take pictures around the city was also launched. During the year the Company continued a strong connect with consumers through digital and social media platform. Kansai Nerolac teamed up with popular Indian music director Pritams musical platform JAM8 to roll out a rendition to Nerolacs iconic jingle as a song, across

India titled ‘Ghar Ki Raunak. It is the first time that the jingle has been recreated into a song and has been sung in 8 different languages. This created a lot of buzz and impact with lots of banners and takeovers. Multiple consumer touch points like Music apps (Hungama, Saavn etc.), audio banners and radio spots were used to reach out to consumers.

Many new products were launched during the year.

Impressions Ultra HD and Ultra Fresh under Brand

Impressions were launched. The Company has also enhanced its wood coating offerings through the launch of the premium Gloria range of products.

KNPL entered the space of application tools through the launch of Soldier Brushes as well as Soldier Rollers. The

Company has forayed into Adhesives under the brand name Nerofix. This has been launched in the markets of

U.P. The portfolio of Construction Chemicals has been significantly enhanced by the acquisition of Perma Construction.

Industrial

Acquisition of new businesses for strengthening our leadership has been a part of our core strategy. Key focus was on bagging the repeat business from esteemed clients and winning new businesses.

KNPL has continued its legacy of providing high quality, cost effective, and sustainable solutions to its automotive customers. Best supplier awards from key OEMs for consecutive years reflect our commitment in this direction. Leveraging on all our strengths in Automotive Coatings technology, we were able to reaffirm our leadership position with technologies such as High solid coatings (reducing VOC Volatile Organic Compounds) and value for money products having unique property of maintaining coating performance at lower thickness, like Monocoat metallics and DTM (Direct to Metal) anticorrosive coatings (reduction in number of coats on vehicle).

KNPL has come up with a state-of-the-art brand new R&D Centre at Vashi, Navi Mumbai. The new R&D center is one-of-its-kind, with world class facilities. This will help cater to the creation of next generation solutions and enhance responsiveness. The Company proactively presents technological advancements in paints and paint processes, current and upcoming colour trends to its customers. Keeping in view the emerging technologies standards of product and process of our automotive customers, a new state-of-the-art paint manufacturing unit in Sayakha (Gujarat) commenced commercial production. A pioneer in the practice of providing technical service on customer production lines, KNPL went the extra mile by giving its customers value additions and value engineering ideas. This has helped our customers in improving quality and reducing cost. Our pan India technical service team provides best in class, on the line technical service in the industry. The team also provided valuable trainings to customers.

In the High Performance Coatings, the Company made a foray into the Coil Coatings and Floor Coatings. The offering has been well received and is gaining traction with customers. We continue to work closely with organizations like NACE, SSPC and CII.

In General Industrial Coatings, the Company introduced many new products for various OEM customers which have helped provide growth impetus.

We continue to gain market share in powder coating business. The Company has launched products in the Rebar Powders segment which is expected to grow further in times to come.

KNPL has taken major strides in growing the Auto Refinish Paints segments and has been gaining market share.

The Company has been strengthening its offerings in the Premium PU business and is associating with a number of authorised Body Shops. The year also saw the launch of Nerokan mixing machine, a compact PU tinting system for the trade channel. KNPL has inaugurated its second training centre at Hosur for training body shop customers in South India.

F. Research and development

R&D constantly strives to bring cutting edge technology in paints and polymers to our customers.

The new R&D facility is equipped with many new Labs and is well equipped with Automatic Robotic Bell applicator to simulate the actual automotive painting line application conditions and to test the products beforehand so as to have faster launch of new product on continuous and automotive production lines. This is supported by a modern Instrumentation and Analytical

Lab which has the latest equipment for conducting high end analysis of different paints and polymers.

This year the architectural group focused on bringing in products with air purifying properties and expansion of our water proofing capability. Apart from maintaining lead content less than 90 ppm and eco-friendly products under Healthy Home paints platform, Impressions Ultra Fresh which captures indoor air pollutants and free formaldehyde, thus making the air cleaner, was launched. Additionally Impressions Ultra HD which is a superior variant with radiant sheen, low VOC and fast drying was launched.

To strengthen our water proofing range, we have launched Excel Top-guard consisting of base coat and

Top coat with enhanced water proofing, crack bridging and anti-carbonation properties. in With powder significant coating, the focus was on developing functional coatings. We have introduced Rebar coating for concrete, reinforcing rebar to enhance structural stability in powder coating and super durable powder as per AAMA 2604 & Qualicoat Class 2.

G. Supply chain

Year 2018-19 has been a year of uncertainty in crude oil prices, exchange rates, coupled with trade wars at global levels and stricter environmental norms globally. The Supply Chain team at KNPL has been abreast with the global challenge and has been able to strike a right balance in the VUCA (volatility, uncertainty, complexity and ambiguity) world with strong focus on sustainable solution and green initiatives.

Change in packing to more sustainable types, like from HDPE barrels to tankers for raw materials, elimination of low thickness plastic wrapping material for movement of direct and indirect materials and moving towards accepting digital invoice for incoming material reducing paper usage are some of the initiatives taken towards reducing our carbon footprint and helping us create a greener planet.

Making use of government schemes like DPD (Direct port delivery) for prompt container movement from ports, AEO facility, clearing import cargo at ICD (Inland Container Depot) in close proximity to our manufacturing locations, amongst others has immensely helped us optimize our operations.

Augmented focus has been on tracking price drivers of key raw materials resulting in buying raw materials at the right time so as to gain maximum cost advantage.

Also IT driven reports that help in tracking the same have been implemented.

Vendor meet was organized wherein KNPLs top management and Supply Chain team shared the organizations Vision 2020 and their expectations from the vendor partners and also appreciated their contribution in the organizations growth story.

H. Information Technology

Machine Learning, IOT, Business Process Automation technologies, ChatBot, Cloud and Security were the core themes around which various IT initiatives were aligned during the year. Leveraging its existing SAP footprint, the capabilities of Cloud, Machine Learning (ML), Analytics and ChatBot, were leveraged to build an intelligent sales App for the frontline team. This App uses various ML algorithms to gain deeper understanding into the data and also study various trends and data patterns. It will provide 360-degree recommendation to the frontline sales team and will help them serve the customers efficiently. These new capabilities will gradually be embedded in all business processes.

KNPL is also working on adapting emerging business process automation technologies to automate standard and repetitive business processes using robotic process automation. This will help to gain quantum improvement in response time, 24X7 support, accuracy and consistency. Using advanced analytics and digitisation, various processes in the areas of manufacturing, sales, supply chain and finance were re-engineered to enhance the effectiveness.

Looking at the ever changing IT environment and to remain protected against the security threats and risks, KNPL continued with various security bolstering initiatives like conducting cyber security audit and implementing auto monitoring security tools.

I. People

At KNPL, employees are a central element of the organization. Employees contribute towards organizations goals by their skills and competencies. With advancements in technology, the significance of people gets augmented multi-fold. Various interventions are taken to engage the energies and enthusiasm of KNPL employees in the most effective way. KNPL believes that success would not be possible without our talented, diverse and dedicated employees.

The workforce is highly aligned to the Companys goals through various communication systems formally and informally. Interactive sessions like open house with top management are also conducted at Plants. Employees are apprised of KNPL initiatives through internal monthly Impressions newsletter, Conferences and Meets.

In-house Knowledge management portal is used to share and gain knowledge on key business elements. This is frequently referred by all the employees time to time. It plays a crucial role in facilitating horizontal deployment of best practices in organization. KNPL also has various other platforms for sharing knowledge. This includes Group Discussions, Book reviews, and knowledge sharing sessions.

The Organizational Business Plan is aligned with the Key Result Areas for each position. The performance review mechanism which is digitalized has ensured transparency, real time information and involvement of all employees towards achievement of the goals. Daily performance dashboard is available to all the employees and it enables every employee to remain focused on the priorities which contribute to the organizations goals. This digital framework links company goals to an individual in a transparent manner.

Development of employees is of utmost importance. New capability building programs have been launched for frontline sales staff in order to equip them with new sales techniques and drive the top-line of the Company.

Assessment and Development centers are being conducted to objectively evaluate the managerial potential of select personnel. In addition to the same, launch of Talent Management and Succession Planning process has been critical to develop internal talent and to support higher business growth.

In order to drive corporate objectives with regard to HR processes & systems, departmental connect models were introduced where the endeavour was to connect with the employees and enhance engagement.

KNPL also continued the rewards and recognition program with an employee recognition platform called GEMS. GEMS is a framework for employees to acknowledge support and help by colleagues in their day to day interaction. It is a company-wide rewards program that fosters an environment of appreciation.

In-house training workshops on people management, excellence and KNPL competency framework were designed and conducted by HR.

KNPL conducts annual Employee engagement survey to get insights into the organization as well as to gauge the pulse of employees on organizational initiatives which foster, connect and boost employee engagement and morale.

KNPL continues with its good practices of Corporate Governance through the Whistle Blower Policy, encouraging growth of individuals irrespective of gender, religion, caste or community as well as policy on "Appropriate Social Conduct at Workplace". All these policies add up to a congenial work environment to drive performance that is free from threat or fear. KNPL also has a "Code of conduct to regulate, monitor and report trading by insiders" and a "Code of practices and procedures for fair disclosure of Unpublished Price Sensitive Information" to address the related requirements for the same.

The above mentioned HR initiatives at KNPL attempt to support and uphold organizations goals by fostering an engaging work environment in a dynamic business scenario.

The Company wishes to put on record its deep appreciation of the co-operation extended and efforts made by all employees. The employee strength of KNPL is 2997 as on 31st March, 2019.

Learning Conference was held in Mumbai for all Managers in the month of June. All the Functional Heads communicated the performance of the Company and their respective functions in the current financial year, future plan and direction the organization has undertaken. Management spoke about KNPLs performance which is being talked about and the air of increased optimism both internally and externally which is driving KNPL towards a better future. Keeping this in mind KNPL adopted "Rising Kansai, Rising Nerolac" as the theme of the conference.

J. Community development

KNPL works on the philosophy of positive contribution for the development of the society by acting as a good neighbour, considerate of others, playing the role of good corporate citizen with passion and compassion.

It also has a vision to strive to be a responsible corporate by proactively partnering in the environmental, social and economic development of the communities through the use of innovative technologies, products as well as activities beyond normal business.

The Company undertakes CSR initiatives with a focus on the betterment of the community giving major emphasis on activities for the benefit of the poor and needy segments of the society. The Company aims at overall national development in general and at community development in specific. Involvement of the Companys employees working at all locations in CSR initiatives helps in creating a sense of pride amongst them, in addition to creating a positive action image for the Company.

As a responsible organization, the Company consciously addresses the social needs, giving more preference to the local areas where it operates under various Program heads. These Programs can be broadly divided as under:

Rural Development / Community Development

The objective is to reach to the grass root citizens by providing basic facilities and amenities in the villages near to the plant locations/depot locations.

Bus pick up shed, borewells, solar street lights, water coolers, drinking water pipe lines are some of the initiatives taken under the said Program.

Preventive Health care & Sanitation

Objective is to provide facilities that improve general health care and sanitation. This include health camps, providing toilets in villages, common public places and schools, providing dust bins, various initiatives and awareness sessions under "Swachh Bharat Abhiyan".

Promoting Education In order to enhance the educational level and to promote education in rural area, the Company undertakes various activities in the schools near to the plants and depots. The important activities are construction of class rooms, Labs, providing computers, solar lights, drinking water facility, providing educational material such as projectors, benches and desks, inverter etc.

Ensuring Environmental Sustainability The Company is committed for its support to preserve natural resources and in ensuring clean environment. The Company has undertaken many projects that will help to maintain ecology. A few to mention are plantation, development and maintenance of parks, painting etc.

Livelihood & Skill Enhancement KNPL organizes capacity/skill enhancement initiatives through sessions that help the professionals to improve their skill level. The objective is to provide skilled personnel to the society and contributing for overall skill development at national level.

KNPLs sincere efforts for the upliftment of the society and its contribution towards Indias rural, educational, social and environmental growth and prosperity shall be continued in future as well.

K. Affirmative action

The Company has adopted a Code of Conduct forfor theaffirmative purpose of providing employment opportunities for the socially disadvantaged.

L. Environment, Health & Safety

At KNPL, Environment, Health & Safety (EHS) is not just a business initiative for complying with regulations and industry standards, but also a noble means for the Company to be a better environmental steward and to provide its employees with a safe and healthy workplace.

Last year, the Company focused on increasing safety awareness among employees and contract workers through Online Safety Test and Safety Competitions.

Also, Safety Training Kiosk System with customized safety training modules on machine safety and static charge prevention were installed at all the plants to reinforce safe behaviour in employees and contract workers. A dedicated effort was made to make the work environment safer and a new system, "Safety-Concern" was created and launched. With the help of this system, employees are able to log any unsafe condition/ unsafe act they observe at the workplace into the system and assign responsibilities to relevant authority/ department for proper and timely resolution of that particular concern. Our esteemed industrial customers appreciated our efforts towards EHS excellence during their visits and audits. Occupational health is one of the important factors of Safety. To cater to employee health, all KNPL manufacturing sites are equipped with dedicated Occupational Health Centre (OHC) and ambulance for emergency situations. KNPL facilitates periodic medical check-ups for its employees and also continued its focus on employee visits to OHC and their complaints analysis.

KNPL continued with its water conservation agenda and took several conservation measures to reduce its water footprint. Zero liquid discharge facilities at our plant locations have helped to ensure recycling of whole treated water into its process and curtail fresh water consumption. During the year, initiatives to reuse the condensate water and RO (reverse osmosis) reject water for different purposes were implemented. In coming years, focus would be on increasing the efficiency of cooling towers and reuse of blow down water.

Solid waste management is another key focus area.

Major focus is on reuse of sample resin and cleaning solvent in the process in order to reduce the generation of distillation sludge. Recovery and reuse of material sticking losses at various stages of manufacturing has been achieved through installation of de-dusting machines. Also, bio-composting machine has been installed in one of the manufacturing sites to recycle the bio-degradable wastes as manure for gardening.

As a part of energy security, KNPL invested in solar projects across all plant locations and in wind and biomass energy projects at its Hosur location. Last year, scope of renewable energy increased even further due to the substitution of diesel with bio-fuels in thermopac boilers. With this, major proportion of process heat and steam is now being produced through renewable energy.

M. Opportunities and threats

Opportunities

Economic Policies

Reduction in GST rates for paints is a step in the right direction for the industry as a whole. In addition a thrust on infrastructure and housing is beneficial for the industry.

Rural Thrust

The interim budget for 2019-20 has focused on increased spending towards agriculture and farmer welfare by 20%. This will increase income in the hands of the rural consumer and hence be an opportunity for growth.

Environment consciousness

The growing consciousness on environment is an opportunity. The Company has Healthy Home Paints as a central theme. Product and process innovations introduced have helped to curtail energy consumption on customer production lines. Super durable coating solutions have been helping its customers to enhance life of their products. In its operations, the Company is taking advantage of renewable energy.

Niche Markets

Niche markets represent an opportunity for the

Company to leverage its technical and distribution strengths. The Company has forayed into the market of niche products unrepresented and paint-related segments.

Threats

Geopolitical situation

Trade frictions are beginning to materialize, with the

USA and China locked in a retaliatory trade war. In addition, there is the threat of sanctions which has an impact on crude. India, being an integral part of the global trade network, will have to remain wary.

New Competitors

New Competitors are entering the Indian Paint

Market. KNPL endeavours to be proactive in countering any challenges that may arise due to increased competition in the market.

Climate change

Indications of a late monsoon, on the lines of the previous year, point towards a slower than normal rural economic growth. A normal monsoon can aid not only the agricultural sector but the rural economy.

N. Risks and concerns

Risk Management is important in an organization which is catering to both industrial and decorative customers.

Risk profiling is put in place for all the areas of operations and well integrated in the business cycle. The Risk Committee periodically meets to monitor the framework set and find ways of mitigating the risks and tracks the action points.

Strategic Risk

Strategic risk relates to the Companys future business plans and strategies. The Company has put in systems and processes with respect to customers, products and technology, competition, environment and peoples competency and is well equipped to handle any risk which may arise.

Operational Risk

New business models, new service offerings, growing volume of operations, have brought risks related to delivery and adherence of SLA (Service Level Agreements) terms and conditions. KNPL with its years of experience has placed in a risk management framework to enhance the review and control mechanisms to ensure contractual terms and conditions.

Legal & Compliance Risk

With increase in geographical spread, KNPL is subjected to multitudes of constantly changing local legislations. There is a risk of non-compliance or delay in compliance with statutory requirements.

KNPL uses a Compliance Tool which is dynamically updated to ensure awareness of compliance with domestic laws and regulations. KNPL has also implemented tools and processes to ensure internal stakeholders of the Company are aware of statutory requirements.

Financial Risks

The exchange rate between the Indian Rupee and the U.S. Dollar has fluctuated widely in the recent past and may continue to fluctuate significantly in the future. Imports content significantfor being

KNPL, volatility in exchange rates has an impact on the bottom line of the Company.

Commodity Risk

There are several raw materials which are directly driven by crude oil. These are monitored on regular basis using pricing trends and forecast from internationally reputed news agencies. Appropriate coverage is taken on rising trends and inventory is cut in declining trends. Wherever direct co-relation exists, cost sheet is monitored to calculate delta changes and accordingly purchase prices are decided. For metal related buying, price indices such as LME are used to check on trends. Additionally, import data is tracked to compare average import prices and buying prices.

Accordingly, appropriate actions are taken to minimize commodity risks.

People Risk

With the industry growing at a fast pace and demand for experienced and trained manpower outstripping supply, the ability to retain existing talent and attract new professional talent assumes crucial importance. The Company has a structured process for potential identification and talent management.

O. Outlook

The Company expects decorative business to continue its momentum. However, in the industrial business, the Company expects the growth momentum to be subdued in the immediate future though it is hopeful for a good momentum for the year as a whole. Prediction of near normal monsoon, growth in the agriculture sector and reduced interest rates in the economy should provide necessary impetus for growth.

P. Internal control system and their adequacy

With an aim to monitor and control day-to-day operations at KNPL, the Company has set up internal control systems for regular tracking and reporting. These systems also monitor compliance to various rules and regulations and adherence to policy requirements.

In order to strengthen the system of Internal Control and provide the Board of Directors of the Company with an added ability to oversee internal controls, Internal Financial Control ("IFC") system was put in place in accordance with the requirements of Section 134(5)(e) of the Companies Act 2013. Systems of Internal Control were implemented, considering the framework suggested in Guidance Note on

Audit of Internal Financial Controls over the Financial Reporting issued by The Institute of Chartered Accountants of India, to address its operational and financial risk.

The Companys Control Efficiency Index ("CEI") was improved substantially this year by horizontal deployment of industry best practices. The Company put in place control measures that are bench marked against global standards of efficient control mechanisms.

In order to perform online tracking of the Companys regulatory compliances, Compliance systems were implemented. These systems allow the Company to track its compliance requirements online, thereby enabling stricter adherence to regulations.

Q. Awards and recognitions

Awards by External Agencies

KNPL won the prize for "Best of Best Practices" held between all Kansai Paints subsidiaries across the world by KPJ.

Kansai Nerolac Paints was named as one of the 40 most valuable Indian brands of 2019 by Interbrand, one of the worlds leading brand consultancies.

Bawal plant team won Gold awards in 2 categories in the Kaizen conclave Delhi chapter, organized by "Quality Circle Forum of India". Over 45 companies participated in the event.

Jainpur team won the second runners-up position in 30th Qualtech Prize competition organized by QIMPRO.

Mr. H. M. Bharuka was awarded with the ICC D.M. Trivedi Lifetime achievement award for contribution to Indian Chemical Industry.

Economic Times recognized Kansai Nerolac as one of the Best brands in 2018-19.

Awards by Customers

KNPL was selected by Bharat Heavy Electricals Limited (BHEL), Boiler Auxiliaries Plant Ranipet as one of the nominees for Award in recognition of the excellent services rendered by KNPL. The received in Chennai at the annual certificate vendor meet of BHEL.

KNPL received the "Best Supplier" award at the Honda Motorcycle & Scooters India vendor conference held at Gurgaon.

Cautionary Statement

Statements in this Management Discussion and Analysis Section of this Report describing the Companys objectives, estimates and expectations may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.

2. Directors Responsibility Statement

As stipulated under the provisions contained in Section 134(3)(c) read with Section 134(5) of the Companies Act,

2013, (‘the Act), the Board of Directors, to the best of its knowledge and belief and according to the information and explanations obtained by it, hereby states that:

(i) in the preparation of the annual accounts, the applicable accounting standards have been followed and there are not material departures;

(ii) the directors 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 for that period;

(iii) the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the

Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) the directors have prepared the annual accounts of the Company on a going concern basis;

(v) 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

(vi) 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.

3. Collaboration

The Directors record their appreciation for the contribution made and support provided by Kansai Paint Co. Ltd., Japan (KPJ), our holding company. KPJ continues to provide support on process design, quality improvement, world class technology which has helped the Company in maintaining market leadership in the industrial business including automotive coatings, by servicing existing customers better and adding new lines. KPJ also provides technology for manufacture of architectural coatings.

The Company also has Technical Assistance Agreement with Oshima Kogyo Co. Ltd., Japan for manufacturing heat resistance coatings, Cashew Co. Ltd., Japan for manufacturing coatings products MICRON TXL SK-1 and Thinner for MICRON and with Protech Chemicals Limited, Canada for manufacturing powder coating products. The Directors record their appreciation for the co-operation from these collaborators.

4. New Projects

The Shareholders were informed last year about the progress made by the Company in setting up of paint manufacturing units at Sayakha Industrial Estate in Gujarat, Goindwal Sahib near Amritsar in Punjab and a R&D Centre at Vashi, Navi Mumbai. The Shareholders were also informed last year about the project initiated by the Company at Achutapuram, Vishakhapatnam district in Andhra Pradesh to set up a paint manufacturing unit.

The Companys paint manufacturing unit at Sayakha Industrial Estate in Gujarat became operational during the financial year. Also, the R&D Centre at Vashi, Navi Mumbai has commenced its operations during the year under review.

At Goindwal Sahib near Amritsar in Punjab, all construction activities of the unit have been completed and is likely to commence operations during the current financial year. At Achutapuram, Visakhapatnam district in Andhra Pradesh, the project is in the planning stage.

5. Directors

During the year under review, Mr. Anuj Jain was appointed as a Whole-time Director for a period of 5 years with effect from 1st April, 2018 to 31st March, 2023, in terms of the approval of the Shareholders at the 98th Annual General Meeting held on 21st June, 2018.

There was no change in Directors of the Company other than the above. In terms of the provisions of the Act and the Articles of Association of the Company, Mr. Hidenori Furukawa and Mr. Anuj Jain would be liable to retire by rotation at the ensuing 99th Annual General Meeting and being eligible offer themselves for re-appointment.

None of the Directors are disqualified for appointment/ re-appointment under Section 164 of the Act. As required by law, this position is also reflected in the Auditors Report.

All the Independent Directors on the Board have given a declaration of their independence to the Company as required under Section 149(6) of the Act and Regulation 16(1)(b) of the SEBI Listing Regulations. In the opinion of the Board, they fulfil the conditions of independence as specified in the Act and the SEBI Listing Regulations and are independent of the management.

Details with respect to the composition of the Board, the meetings of the Board held during the year and the attendance of the Directors thereat have been provided separately in the Annual Report, as a part of the Report on Corporate Governance.

For the year ended 31st March, 2019, Mr. H. M. Bharuka,

Vice Chairman and Managing Director, received a remuneration of Rs 77.57 Lakhs during the year as a Non-Executive Director of Kansai Paint Co. Ltd., Japan.

6. Key Managerial Personnel

Consequent to the appointment of Mr. Anuj Jain as a Whole-time Director with effect from 1st April, 2018, the Company has the following Key Managerial Personnel in terms of Section 203 of the Act : Mr. H. M. Bharuka, Vice Chairman and Managing Director, Mr. Anuj Jain, Executive Director, Mr. P. D. Pai, Chief Financial Officer and Mr. G. T. Govindarajan, Company Secretary.

7. Board Evaluation

In terms of the applicable provisions of the Act, the SEBI Listing Regulations, Nomination and Remuneration Committee and the Board of Directors have approved a framework, which lays down a structured approach, guidelines and processes to be adopted for carrying out an evaluation of the performance of all the Directors, the Board as a whole and its Committees. The evaluation process has been separately explained in this Annual Report, as a part of the Report on Corporate Governance.

During the year under review, the Board carried out the evaluation of its own performance and that of its Committees and the individual Directors and the evaluation results, as collated and presented, were noted by the Board.

8. Audit Committee

The Company has an Audit Committee in place, duly constituted in terms of the provisions of Section 177 of the Act, as follows:

Names of the Members Designation
Mr. P. P. Shah (Chairman Chairman and
of the Audit Committee) Independent Director
Mr. N. N. Tata Independent Director
Mrs. Brinda Somaya Independent Director

The recommendations made by the Audit Committee to the Board, from time to time during the year under review, have been accepted by the Board.

Other details with respect to the Audit Committee such as its terms of reference, the meetings of the Audit Committee and attendance thereat of the members of the Committee, are separately provided in this Annual Report, as a part of the Corporate Governance Report.

Further, detailed information with respect to the other Committees of the Board is also provided in this Annual Report, as a part of the Corporate Governance Report.

9. Statutory Auditors

B S R & Co. LLP, Chartered Accountants (Firm Registration No. 101248W/W-100022), were appointed as the Statutory Auditors of the Company, for a period of 5 years from the 94th AGM till the ensuing 99th AGM. Their appointment, as Statutory Auditors of the Company, was ratified by the Shareholders at the 98th AGM held on 21st June, 2018, in terms of the then applicable provisions of Section 139(1) of the Act read with the Companies (Audit and Auditors) Rules, 2014.

The Auditors Report on the Financial Statements (Standalone and Consolidated) of the Company for the year under review, "with an unmodified opinion", as given by the Statutory Auditors, is disclosed in the Financial Statements forming part of this Annual Report. The

Auditors Report is clean and there are no qualifications in their Report. Also, no frauds in terms of the provisions of Section 143(12) of the Act have been reported by the Statutory Auditors in their report for the year under review.

The Notes to the Financial Statements (Standalone and Consolidated) are self-explanatory and do not call for any further comments.

Further, the term of B S R & Co. LLP, Chartered Accountants, as the Statutory Auditors of the Company, will expire at the ensuing 99th AGM to be held on 21st June, 2019. In terms of the applicable provisions of the Act, they will not be eligible for re-appointment as Statutory Auditor of the Company, since they have completed two terms of 5 consecutive years.

Accordingly, as per the recommendation of the Audit Committee, the Board has appointed S R B C & CO LLP, Chartered Accountants (Firm Registration No. 324982E / E300003), as the Statutory Auditors of the Company, to hold office for a period of 5 years from the ensuing 99th AGM till the 104th AGM, subject to the approval of the Shareholders at the ensuing 99th AGM. Business with respect to the same forms part of the Notice of the ensuing 99th AGM of the Company.

The Company has received certificate from S R B C & CO LLP, Chartered Accountants, confirming that they are not disqualified from being appointed as Statutory Auditors of the Company.

10. Particulars of Loans, Guarantees or Investments under Section 186 of the Companies Act, 2013

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Act, are separately disclosed in this Annual Report, as a part of the notes to the Financial Statements.

11. Related Party Transactions

All Related Party Transactions entered into during the year under review were approved by the Audit Committee and the Board of Directors, from time to time and the same are disclosed in the Financial Statements of the Company for the year under review. Further, pursuant to the provisions of the Act and the SEBI Listing Regulations, the Board of Directors has, on recommendation of its Audit Committee, adopted a Policy on Related Party Transactions and the said policy is available on the website of the Company i.e. www.nerolac.com.

In terms of the provisions of Section 188(1) of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014 and Regulation 23 of the SEBI Listing Regulations, all contracts/ arrangements/ transactions entered into by the Company with its related parties, during the year under review, were in the ordinary course of business of the Company and on an arms length basis. There were no material Related Party transactions during the year. Accordingly, Form No. AOC-2, prescribed under the provisions of Section 134(3) (h) of the Act and Rule 8 of the Companies (Accounts) Rules, 2014, for disclosure of details of Related Party Transactions, which are "not at arms length basis" and also which are "material and at arms length basis", is not provided as an annexure to this Report as it is not applicable.

12. Corporate Governance

The Company is in full compliance with the requirements and disclosures that have to be made in terms of the requirements of Corporate Governance specified in SEBI Listing Regulations.

Further, in terms of the provisions of Schedule V(C) of the SEBI Listing Regulations, a detailed Report on Corporate Governance, together with a Certificate from the Statutory Auditors of the Company confirming compliance with the requirements of Corporate Governance as specified in SEBI Listing Regulations, forms part of this Annual Report.

13. Remuneration Policy

The Board of Directors has adopted a Policy which deals with (i) criteria for determining qualifications, positive attributes and independence of a Director, and (ii) Remuneration Policy for Directors, Key Managerial Personnel and other employees ("Remuneration Policy").

The features of the Remuneration Policy are as follows:

The Company, while constituting the Board shall draw members from diverse fields such as finance, law, management, architecture, technical, marketing, manufacturing, corporate governance, operations or other disciplines related to the Companys business. There shall be no discrimination on the basis of gender, while determining the Board composition.

A director shall be a person of integrity, who possesses relevant expertise and experience. He shall uphold ethical standards of integrity and probity and act objectively and constructively.

He shall exercise his responsibilities in a bona-fide manner in the interest of the Company; devote sufficient time and attention to his professional obligations for informed and balanced decision making; and assist the Company in implementing the best corporate governance practices.

An Independent director should meet the requirements of the Act and the SEBI Listing Regulations, concerning independence of directors.

The Company shall also obtain certification of independence from the Independent Director in accordance with the Act.

The objective of the policy is to have a compensation framework that will reward and retain talent.

The remuneration will be such as to ensure that the correlation of remuneration to performance is clear and meets appropriate performance benchmarks.

Remuneration to Key Managerial Personnel, Senior Management and other employees will involve a balance between fixed and variable pay reflecting short and long term performance objectives of the employees in line with the working of the Company and its goals.

For Directors, the Performance Pay will be achievement of Business Plan.

For Heads of Department, the Performance Pay will be linked to achievement of functional plan which is derived from the business plan. The functional plan includes both, short-term and long-term objectives.

The above will take into consideration industry performance, customer performance and overall economic environment.

For other management personnel, the Performance Pay will be linked to achievement of individual set objectives and part of this will also be linked to overall Company performance.

The Remuneration Policy is also available on the website of the Company at https://nerolac.com/financial/ policies.html#scroll.

14. Risk Management Policy

The Company has identified the risk areas in its operations along with its probability and severity, department wise.

An effective Risk Management Framework is put in place in the Company in order to analyze, control and mitigate risk. Risk profiling is also put in place for all the areas of operations in the Company and well integrated in the business cycle. The various risks to which the Company is exposed are disclosed as a part of Management Discussion and Analysis, hereinabove.

The Risk Management Framework of the Company comprises of Risk Management Committee and the Risk Officers. The Risk Management Committee was re-constituted by the Board of Directors, at its meeting held on 29th January, 2019, in terms of the amended provisions of Regulation 21 of SEBI Listing Regulations, as follows:

Names of the Members Designation
Mr. H. M. Bharuka Vice Chairman and
(Chairman of the Managing Director
Risk Management
Committee)
Mr. Anuj Jain Executive Director
Mr. Jason Gonsalves Chief Risk Officer

The functional Heads are the Risk Officers of their respective functions. The Board and the Audit Committee reviewto the effectiveness of the Risk Management framework and provide advice to the Risk Management Committee at regular intervals.

The functions of the Risk Management Committee include preparation of company-wide framework for risk management, fixing roles and responsibilities, communicating the risk management objective, giving direction for managing cyber security, drawing action plan and allocating resources, determining criteria for defining major and minor risks, deciding strategies for escalated major risk areas, updating company-wide Risk register and preparing MIS report for review of Audit Committee.

The Risk Management Framework aims to:

(a) address our Companys strategies, operations and compliances and provide a unified and comprehensive perspective.

(b) establish the risk appetite.

(c) be simplistic and intuitive to facilitate a speedy and appropriate identification of potential and actual risks and its communication.

(d) seek escalation of the identified risk events to the appropriate persons to enable a timely and satisfactory risk response.

(e) reduce surprises and losses, foresee opportunities and improve deployment of resources.

(f) develop a mechanism to manage risks.

Systems and processes are set through the Risk Management framework, to identify, gauge and mitigate any potential risk promptly and efficiently in order to manage and control them effectively. Clearly defined work profiles and assigned responsibilities are well at place, throughout the organization, at all levels and all functions, ensuring smooth flow of information across various levels within the organization.

15. Vigil Mechanism - Whistle Blower Policy

The Company has a Whistle Blower Policy to report genuine concerns and grievances. The policy provides adequate safeguards against victimisation of persons who use the Whistle Blower mechanism. Details with respect to implementation of the Whistle Blower Policy are separately disclosed in this Annual Report, as a part of the Report of Corporate Governance. The same is also available on the website of the Company at https://nerolac.com/financial/policies.html#scroll.

16. Corporate Social Responsibility

The Board of Directors has constituted a Corporate Social Responsibility ("CSR") Committee in terms of the provisions of Section 135 of the Act, as follows ;

Names of the Members Designation
Mr. H. M. Bharuka Vice Chairman and
(Chairman of the CSR Managing Director
Committee)
Mr. N. N. Tata Independent Director
Mr. Anuj Jain Executive Director

The functions of the CSR Committee are to:

(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the Company as specified in Schedule VII of the Act;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the CSR policy of the Company from time to time.

The Board has also framed a CSR Policy for the Company, on the recommendations of the CSR Committee and the same is available on the website of the Company at https://nerolac.com/financial/policies.html#scroll. The Annual Report on CSR activities as required under Companies (Corporate Social Responsibility) Rules, 2014, including a brief outline of the Companys CSR Policy, is annexed to this Report as Annexure 1.

17. Dividend Distribution Policy

The Dividend Distribution Policy of the Company has been formulated to ensure compliance with the provisions of Regulation 43A of SEBI Listing Regulations.

The Board of Directors will assess the Companys financial requirements, including present and future organic and inorganic growth opportunities and other relevant factors as mentioned in this policy before declaring dividend in any financial year.

The Board may consider not declaring dividend or may recommend a lower payout for a given financial year, after analyzing the prospective opportunities and threats or in the event of challenging circumstances such as regulatory and financial environment.

The Dividend (including interim and/or final) for any financial year shall be declared or paid by the Company for any financial year out of the profits of the Company for that year arrived at after providing for depreciation in accordance with the provisions of the Companies Act, 2013 or out of the profits of the Company for any previous financial year(s) arrived at after providing for depreciation in accordance with the provisions of the Companies Act, 2013 and remaining undistributed, or out of both. The Company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the Company. The Company shall follow the provisions of the Companies Act and all the relevant rules and regulations of the Companies Act and/or any regulatory enactment(s) as may be applicable while declaring and paying dividend for any financial year.

The rate of Dividend shall be fixed by the Board of Directors of the Company. Final dividend proposed by the Board of Directors, if any, would be subject to the approval of the shareholders at the Annual General Meeting.

The Board of Directors shall recommend dividend in compliance with this policy, the provisions of the Companies Act, 2013 and Rules made there under and other applicable legal provisions.

The Company will consider various internal and external factors, including but not limited to the following before making any recommendation for dividends:

(i) Internal factors:

a. Profitable growth of the Company and specifically, profits earned during the financial year as compared with previous years and internal budgets,

b. Cash flow position of the Company,

c. Accumulated reserves,

d. Stability of earnings,

e. Future cash requirements for organic growth/ expansion and/or for inorganic growth,

f. Contingent liabilities,

g. Deployment of funds in short term marketable investments and/or long term investments,

h. Capital expenditure(s), and

i. The ratio of debt to equity.

(ii) External factors:

a. Economic environment,

b. Cost and availability of alternative sources of financing,

c. Inflation rate, d. Industry outlook and stage of business cycle for underlying businesses,

e. Prevailing Taxation Policy or any amendments expected thereof, with respect to Dividend distribution,

f. Changes in the Government policies, industry specific rulings & regulatory provisions, and

g. Any other relevant factors that the Board may deem fit to consider before declaring Dividend.

Apart from the above, the Board also considers past dividend history and track record of previous Dividends distributed by the Company. The Board may additionally recommend special dividend in special circumstances.

Subject to the applicable regulations, the Companys retained earnings shall be applied for:

Funding inorganic and organic growth needs including working capital, capital expenditure, repayment of debt, etc.

Buyback of shares subject to applicable limits, Capitalisation of shares,

Issue of Bonus shares,

Payment of Dividend in future years,

Investment in new business(es) and / or additional investment in existing business(es),

General corporate purposes, including contingencies,

Any other permissible usage as per law.

The Company currently has only one class of shares, viz. Equity shares, for which this policy is applicable.

The policy will be subject to review if and when the Company issues different classes of shares.

The Dividend Distribution Policy of the Company is also available on the website of the Company at https://nerolac.com/financial/policies.html#scroll.

18. Prevention of Sexual Harassment at workplace

In line with the provisions of the Prevention of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 ("POSH Act"), the Company has adopted a "Policy on Appropriate Social Conduct at Workplace". The policy is applicable for all employees of the organization, which includes corporate office, branches, depots and manufacturing locations etc. The policy is applicable to non-employees as well i.e. business associates, vendors, trainees etc.

A Complaints Committee has also been set up to redress complaints received on sexual harassment as well as other forms of verbal, physical, written or visual harassment.

During the financial year under review, the Company did not receive any complaints of sexual harassment and no cases were filed under the POSH Act.

19. General Shareholder Information

General Shareholder Information is given as Item No. 9 of the Report on Corporate Governance forming part of this Annual Report.

20. Particulars regarding Employees Remuneration

Disclosure comprising particulars with respect to the remuneration of directors and employees, as required to be disclosed in terms of the provisions of Section 197(12) of the Act and Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is annexed to this Report as Annexure 2.

21. Conservation of Energy, Technology

Absorption & Foreign Exchange

The statement giving the particulars relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required in terms of Section 134(3)(m) of the Act read with Rule 8(3) of the Companies (Accounts) Rules, 2014, is annexed to this Report as Annexure 3.

22. Share Capital

The paid up Equity Share Capital as at 31st March, 2019 stood at Rs 53.89 Crores. During the year under review, the Company did not issue any Equity Shares. Further, the Company has not issued any convertible securities or shares with differential voting rights nor has granted any stock options or sweat equity or warrants.

23. Extract of the Annual Return

An Extract of the Annual Return in Form No. MGT-9, as required in terms of the provisions of Section 92(3) of the Act and the Companies (Management and Administration) Rules, 2014, is annexed to this Report as Annexure 4 and in terms of the provisions of Section 134(3)(a) of the Act, the same is also available on the website of the Company i.e. www.nerolac.com.

24. Details of Unclaimed Suspense Account

Details pertaining to Unclaimed Suspense Account of the Company are separately disclosed in this Annual Report, as a part of the General Shareholder Information.

25. Transfer to Investor Education and Protection Fund ("IEPF")

Transfer of Unclaimed Dividend to IEPF

During the year under review, dividend amounting to Rs 11.89 Lakhs that had not been claimed by the shareholders for the year ended 31st March, 2011, was transferred to the credit of IEPF as required under Sections 124 and 125 of the Act.

Unclaimed dividend as on 31st March, 2019

As on 31st March, 2019, dividend amounting to Rs 197.57 lakhs has not been claimed by shareholders of the Company. Shareholders are required to lodge their claims with the Registrar and Share Transfer Agents of the Company i.e. TSR Darashaw Ltd., for unclaimed dividend.

Pursuant to the provisions of Investor Education and Protection Fund (Uploading of Information regarding unpaid and unclaimed amounts lying with Companies) Rules, 2012, the Company has uploaded the details of unpaid and unclaimed amounts lying with the Company on 21st June, 2018 (date of the last Annual General Meeting) on the website of the Company, www.nerolac.com. The same are also available on the website of the Ministry of Corporate Affairs, www.mca.gov.in.

Transfer of Equity Shares

As required under Section 124 of the Act, 1,73,830 Equity Shares, in respect of which dividend has not been claimed by the members for seven consecutive years or more, have been transferred by the Company to the IEPF Authority during the financial year 2018-19. Details of such shares transferred have been uploaded on the website of the Company, www.nerolac.com. The same are also available on the website of the Ministry of Corporate Affairs, www.mca.gov.in.

26. Secretarial Audit

Pursuant to the provisions of Section 204 of the Act, the Company had appointed JHR & Associates, Company Secretaries, as the Secretarial Auditor for the year under review, to conduct the Secretarial Audit of the Company. The Secretarial Audit Report for the year under review issued by JHR & Associates is annexed to this Report as Annexure 5. There is no qualification or adverse remark in their Report.

Further, in terms of the provisions of the Circular No. CIR/CFD/CMD1/27/2019 dated February 8, 2019 issued by SEBI, the Company has obtained the Annual Secretarial Compliance Report, thereby confirming compliance of the applicable SEBI Regulations and circulars / guidelines issued thereunder, on behalf of the Company.

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

27. Cost Audit

In terms of the provisions of Section 148 of the Act, the Company had appointed D. C. Dave and Co., Cost Accountants (Registration No. 000611), as the Cost Auditor to conduct an audit of its Cost Accounting Records for the financial year 2017-18, pertaining to products of the Company as required by the law.

The Cost Audit Report submitted by the Cost Auditor for the previous year, was clean and there was no qualification in their Report. The same was duly filed with Ministry of Corporate Affairs on 27th September, 2018.

The Company had re-appointed D. C. Dave & Co., Cost Accountants, as the Cost Auditor for the year ended 31st March, 2019, and the Cost Audit Report when submitted by them, will be duly filed with Ministry of Corporate Affairs.

Further, the Company has re-appointed D. C. Dave & Co., Cost Accountants, as the Cost Auditor for the Financial Year 2019-20, to conduct an audit of its Cost Accounting Records pertaining to said products, at a remuneration of Rs 2,50,000 plus Goods and Service tax and out of pocket expenses. The Company is seeking the approval of the Shareholders by means of ratification, for the remuneration to be paid to D. C.

Dave & Co. vide Resolution No. 6 of the Notice of the ensuing Annual General Meeting.

C. DaveCertificate & Co., Cost Accountants, has been received to the effect that their appointment as Cost Auditor, if made, would be in accordance with the limits specified under Section 141 of the Act and Rules framed thereunder.

28. Business Responsibility Report

A Business Responsibility Report describing the initiatives taken by the Company from an environmental, social and governance perspective, as required in terms of the provisions of Regulation 34(2)(f) of SEBI Listing Regulations, separately forms part of this Annual Report.

29. Acknowledgements

Your Directors wish to express their grateful appreciation for the co-operation and support received from customers, parent company, collaborators, vendors, investors, shareholders, financial institutions, banks, regulatory authorities and the society at large. Deep appreciation is also recorded for the dedicated efforts and contribution of the employees at all levels for their focus, commitment and hard work in driving the consistent growth of the Company.

For and on behalf of the Board
P. P. Shah
Chairman
Mumbai, May 2, 2019

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