Loyal Textile Mills Ltd Management Discussions

5. PERFORMANCE REVIEW, MANAGEMENT DISCUSSIONS, ANALYSIS REPORT AND OUTLOOK FOR THE CURRENT YEAR

The year under review has been similar to the previous year with respect to profits although our turnover has dropped due to steep fall in merchant exports and yarn exports.

The textile industry continues to suffer from sluggish market conditions arising out of excess capacity and high tariffs faced by Indian textile exports in the backdrop of more and more of our competing nations getting duty free or preferential entry.

Mills in Tamilnadu suffer additional disadvantages of higher transport costs , higher cost of power, frequent transmission failures and much higher minimum wages.

Windmill evacuation continues to be poor and the company continues to suffer huge losses on account of non evacuation of produced power.

Domestic markets remain weaker than international markets.

The total term loans stand at Rs. 253.20 Crores reduced from Rs.308.52 Crores at the end of last fiscal year . Our efforts to deleverage and reduce overall debt is on track.

While the overall turnover dropped from Rs.1417.09 Crores to Rs. 1178.25 Crores. The garment export turnover has shown an increase of Rs.23.47 Crores and now stands at Rs. 103.62 Crores.

We have enjoyed cordial relationship with all our stake holders.

We have won the following TEXPROCIL awards, continue to be the largest grey fabric exporter for the 09^th year in the row.

We have also won several 5S awards at different competitions.

Renewable energy

During the year the company produced 52.38 Lakhs units of Solar energy and the entire quantity was consumed 447.77 Lakhs units of Wind energy was evacuated from own wind mills.

Consumption of wind energy was 757.87 Lakhs units including purchased wind energy.

Loyal International sourcing

Loyal International Sourcing Private Limited is wholly owned subsidiary company of Loyal Textile Mills Limited has completed one full year of operation and has export sales and service Rs.2.47 crores of garments.

The service tax paid on the services rendered though the services were for exports are not being currently refunded and it has reduced our operating results.

Italian Joint Venture

Italian Joint Venture is performing satisfactorily , and has made a profit of 7.90 Lakh Euros pre tax and 5.36 Lakh Euros post tax .

Prospects for the FY 16-17

The prospects for 16-17 will be similar to the year under review.

Lower than anticipated cotton production and the need to import cotton has pushed up.

Cotton prices by over 50% in two months. This will be severely impacting the working of mills until November 2016, when the new cotton will arrive.

Large number of Assam workers who went for annual holidays stays back for the elections and we were forced to find replacement for them besides train the new workers.

The situation is slowing improving and expected to get regularized by August 2016. This has caused lower utilizations and has impacted the Q1-2016 and will impact Q2-2016 working

Investments

This year most of the investments have been to augment garment capacity, improve the special finishing capabilities and increasing process automation. The investments currently being made will result in increased garmenting from September 2016 when the construction of new facilities gets completed and trained workers arrive from the 5 training centers in Odhisha, Jharkhand, Bihar and MP besides Tamilnadu.

6. TRANSFER TO INVESTOR EDUCATION AND PROTECTION FUND

All amounts which are due to be transferred to the Investor Education and Protection Fund are regularly monitored and transferred. During the year, the Company has transferred a sum of Rs.4.13 Lakhs, being the amount due and payable and remaining unpaid for a period of 7 years, as provided under Section 205C of the Companies Act, 1956 read with the Investor Education and Protection Fund (awareness and protection of investors) Rules 2001.

During the Financial year 2008-09 the company did not declared any dividend, hence there is no amount to be transferred to Investor Education and protection fund

Members who have not encashed the Dividend warrants for the financialyear ended 2009-10 and/or any subsequent years are requested to write to the Company with necessary details before 20.09.2017.

7. EXPORTS

During the year under review, the company exported goods to the tune of Rs. 1024.36 Crores (Previous year Rs.1220.25 Crores).

8. MODERNISATION

A sum of Rs.48.75 Crores (previous year Rs.57.11 Crores) was spent on modernization/ replacement of plant and machinery during the year under review.

9. CREDIT FACILITIES / FINANCE

During the year, the company availed term loans to the tune of Rs.35.43 Crores and repaid loans to the extent of Rs.90.89 Crores to Banks/Financial institutions.

10. FIXED DEPOSITS

During the year the company has not accepted any deposits from the public and directors.

11. DONATION

During the year 2015-16 the Company has paid a donation of Rs.157.47 Lakhs.

12. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule, 8 of The Companies (Accounts) Rules, 2014, is annexed herewith as Annexure - A.

13. PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

The information required pursuant to Section 197(12) read with Rule 5(2) and Rule 5 (3) of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company and Directors is attached as Annexure – B to this report

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,2014 are provided in the Annexure –B to this report

14. REPORT ON CORPORATE GOVERNANCE

A detailed report on Corporate Governance is annexed to this report as Annexure - C. The Company has complied with the conditions of corporate governance as stipulated in Regulation 24, 25, 26 and 27 of Securities and Exchange Board of India (Listing obligation and Disclosure Requirement), Regulation , 2015. The Managing Director has given a certificate

Compliance with the Code of Conduct, which forms part of Annexure – C as required Regulation 27 of Securities and Exchange Board of India (Listing obligation and Disclosure Requirement), Regulation, 2015.

The Statutory Auditors of the Company have examined the requirements of Corporate Governance with reference to Regulation 15(2) of SEBI ( Listing Obligation and Disclosure Requirement), Regulation, 2015 and have certified the compliance, as per the requirement of Listing regulations.

The Certificate inthisregard Annexure-D to this Report.

The Managing Director and Chief Financial officer (CFO) certification as required under Regulation 17(8) of Securities and Exchange Board of India (Listing Obligation and Regulation Requirement) Regulation, 2015, is attached as Annexure –E to this report.

15. CONSOLIDATED FINANCIAL STATEMENT

The Consolidated Financial Statements of the Company prepared in accordance with relevant Accounting Standards (AS) viz. AS 21, and AS 27 prescribed under Companies (Accounting Standards) Rules, 2006.

16. SUBSIDIARIES AND JOINT VENTURES

Pursuant to Section 129(3) of the Companies Act, 2013 read with Rule 5 of the Companies (Accounts) Rules, 2014, the statement containing salient features of the financial statements of the Company’s Subsidiaries and Joint Ventures (in Form AOC-1) is attached to the financial statements.

Loyal International Sourcing Private Limited (100 % Wholly Owned Subsidiary Company) was started in the year 2014.

17. CORPORATE SOCIAL RESPONSIBILITY (CSR)

In terms of section 135 and Schedule VII of the Companies Act, 2013, the Board of Directors of your Company have constituted a CSR Committee. The Committee comprises of three Directors out of which two Directors are Independent Directors and other Director is a Whole Time Director. CSR Committee of the Board has developed a CSR Policy under Health Care activities and Educational Activities which is enclosed as part of this report Annexure-F. The CSR Policy is available at www.loyaltextiles.com under investor info/ policy documents/ CSR Policy link.

The company has contributed to a Charitable Trust a sum of Rs. 50 Lakhs for spending for CSR activities which is more than the amount required to be spent u/s .135 of the Companiesof Act, 2013. The details of amount spent and category, the same will be published in the next report.

18 . VIGIL MECHANISM / WHISTLE BLOWER POLICY

In pursuant to the provisions of section 177(9) & (10) of the Companies Act, 2013, a Vigil Mechanism for Directors and employees to report genuine concerns has been established. The Vigil Mechanism Policy has been uploaded on the website of the Company at http:// www.loyaltextiles.com under investor info/ policy documents/ Whistle Blower Policy link.

19. RELATED PARTY TRANSACTIONS

Related party transactions that were entered during the financial year were on an arm’s length basis and were in the ordinary course of business. There were no materially significant related party Promoters, Directors, Management or their relatives, which could have had a potential conflict with the interests of the Company. Transactions with related parties entered by the Company in the normal course of business are periodically placed before the Audit Committee for its omnibus approval Particulars of contracts or arrangements with related parties referred to in section 188(1) of the companies Act, 2013 in the prescribed form AOC-2 is attached as Annexure – G. Also Refer Note No.47 of Financial statement which sets out the transactions with related parties.

The Board of Directors of the Company has, on the recommendation of the Audit Committee, adopted a policy to regulate transactions between the Company and its Related Parties, in compliance with the applicable provisions of the Companies Act 2013, the Rules there under and the Listing Agreement. This Policy was considered and approved by the Board has been uploaded on the website of the Company at www.loyaltextiles.com under investor info/ policy documents Related Party Transaction Policy link.

20. RISK MANAGEMENT POLICY

The board members were informed about risk assessment and minimization procedures after which the board formally adopted steps for framing, implementing and monitoring the risk management plan for the company.

The main objective of this policy is to ensure sustainable business growth with stability and to promote a pro-active approach in reporting, evaluating and resolving risks associated with the business. In order to achieve the key objective, the policy establishes a structured and disciplined approach to risk management, in order to guide decisions on risk related issues.

In today’s challenging and competitive environment, strategies for mitigating inherent risks in accomplishing the growth plans of the company are imperative. The common risks inter alia are: regulations, competition, business risk, technology obsolescence, investments, and retention of talent and expansion of facilities.

Business risk, inter-alia, further includes financial risk, political risk, fidelity risk and legal risk.

As a matter of policy, these risks are assessed and steps as appropriate are taken to mitigate the same.

Major risks which the organization faces have been identified and systematically addressed through mitigating actions on a continuing basis. There is an adequate risk management infrastructure in place capable of addressing the risks. with the Company’s

The Board has developed and implemented a Risk

Management Policy for the company including identification of elements of risk, which in the opinion of the Board may threaten the existence of the Company. The said policy can be viewed on the Company’s website at the link: http://www. loyaltextiles.com/policy-documents.html

21. REMUNERATION POLICY OF THE COMPANY

The remuneration policy of the company comprising the appointment and remuneration of the Directors, Key Managerial Personnel and Senior Executives of the Company including criteria for determining qualifications, positive attributes, independence of a Director and other related matters has been provided in the Corporate Governance Report which is attached as Part III to Para- 2 of Annexure – C to this report.

22. FAMILIARISATION PROGRAMME FOR INDEPENDENT DIRECTORS

In compliance with Regulation 25 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board has adopted a policy on familiarisation programme for Independent Directors of the Company. The policy will enable the Independent Directors to understand their role, rights and responsibility in the Company.

The Policy on Familiarisation Programme as approved can be viewed on the Company’s website at the link: http://www. loyaltextiles.com/policy-documents.html

23. DIRECTORS, KEY MANAGERIAL PERSONNEL & COMMITTEES

At the 68^th Annual General Meeting of the company held on 11^th September, 2014 the company had appointed the existing independent directors Shri K.J.M Shetty (DIN 00033296), Shri.S.Venkataramani (DIN 00053043), Shri.R.Poornalingam (DIN. 00955742), Shri. Shridhar Subrahmanyam (DIN. 01780475) and , Shri.Mr.M.Madhavan Nambiar (DIN. 03487311) as independent directors are not liable to retire by rotation under the companies Act, 2013 for 3 consecutive years for a term up to the conclusion of the 71^stAnnual General Meeting.

The Key Managerial personnels of Company Secretary Mr.M.Arumugam was appointed in the Board Meeting held on 12^th August 2013 and Chief Financial Officer Mr.R.Mohan was appointed in the Board Meeting held on 01^st August 2014.

All independent directors have given declaration that they meet the criteria of independence as laid down under section 149(6) of the Companies Act, 2013 and Regulation 25 of Securities and Exchange Board of India (Listing Obligation and Regulation Requirement) Regulation, 2015.

At a Board Meeting held on 11^th February 2015 the board had appointed Smt. Valli M Ramaswami (DIN 00036508) as an Additional director (Woman director) and in the same Board Meeting she was appointed as a Whole Time Director of the company.

23.1 AUDIT COMMITTEE

The company is having Audit Committee comprising of following Directors:

NAME	STATUS	CATEGORY
Shri. K.J.M.Shetty	Chairman	Independent Director
Shri.S.Venkataramani	Member	Independent Director
Shri.Shridhar	Member	Whole Time Director
Subrahmanyam

RECOMMENDATION OF AUDIT COMMITTEE

During the year under review, all the recommendations made by the Audit Committee were accepted by the Board.

23.2 NOMINATION AND REMUNERATION COMMITTEE

The company is having a Nomination and Remuneration Committee comprising of the following directors:

NAME	STATUS	CATEGORY
Shri. K.J.M.Shetty	Chairman	Independent Director
Shri.S.Venkataramani	Member	Independent Director
Shri.R.Poornalingam	Member	Independent Director

23.3 CSR COMMITTEE

The company is having a Corporate Social Responsibility Committee comprising of the following directors:

NAME	STATUS	CATEGORY
Shri. K.J.M.Shetty	Chairman	Independent Director
Shri.Madhavan Nambiar	Member	Independent Director
Shri.P.Manivannan	Member	Whole Time Director

23.4 STAKEHOLDERS’ RELATIONSHIP COMMITTEE

The company is having a Stakeholders’ Relationship Committee comprising of the following directors:

NAME	STATUS	CATEGORY
Shri. K.J.M.Shetty	Chairman	Independent Director
Shri.S.Venkataramani	Member	Independent Director
Shri.P.Manivannan	Member	Whole Time Director

23.5 RISK MANAGEMENT COMMITTEE

As per Regulation 21 of SEBI (Listing Obligation and Disclosure Requirement) Regulation, 2015, risk management committee is applicable to Top 100 listed entities , determined on the basis of market capitalization. Our Company does not come under TOP 100 listed entities. Hence the board dissolved the Risk Management Committee in the Board Meeting held on 10^th February 2016.

24. BOARD EVALUATION

As required under the provisions of Section 134(3)(p) of the Companies Act, 2013 and SEBI Listing Regulations, the Board has carried out a formal annual evaluation of its own performance, and that of its committees and individual directors based on the guideline formulated by the Nomination & Remuneration Committee.

Further the Independent Directors of the Company met once during the year on 28.05.2016 to review the performance of non-independent directors, performance of the Chairman and performance of the board as a whole.

Details of performance evaluation of Independent Directors as required under Schedule IV to the Companies Act, 2013 is provided in Report on Corporate Governance.

25. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has adequate system of internal control to safeguard and protect from loss, unauthorized use or disposition of its assets. All the transactions are properly authorized, recorded and reported to the Management. The Company is following all the applicable Accounting Standards for properly maintaining the books of accounts and reporting financial statements. The internal auditor of the company checks and verifies the internal control and monitors them in accordance with policy adopted by the company.

DETAILS ON INTERNAL FINANCIAL CONTROLS RELATED TO FINANCIAL STATEMENTS

The Company has put in place adequate internal financial controls with reference to the financial statements, some of which are outlined below.

The Company has adopted accounting policies which are in line with the Accounting Standards prescribed in the Companies (Accounting Standards) Rules, 2006 that continue to apply under Section 133 and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 and relevant provisions of the Companies Act, 1956, to the extent applicable. These are in accordance with generally accepted accounting principles in India. Changes in policies, if any, are approved by the Audit Committee in consultation with the Statutory Auditors.

The policies to ensure uniform accounting treatment are prescribed to the subsidiaries of the Company. The accounts of the subsidiary company is audited and certified by the Statutory Auditors for consolidation.

The Company operates in an ERP system, and has many of its accounting records stored in an electronic form and backed up periodically. The ERP system is configured to ensure that all transactions are integrated seamlessly with the underlying books of account. Your Company has automated processes to ensure accurate and timely updation of various master data in the underlying ERP system.

The Company in preparing its financial statements makes judgments and estimates based on sound policies and uses external agencies to verify/ validate them as and when appropriate. The basis of such judgments and estimates are also approved by the Statutory Auditors and Audit Committee.

The Management periodically reviews the financial performance of the Company against the approved plans across various parameters and takes necessary action, wherever necessary. The Books and records of the company are checked by the qualified external Internal auditors who render their report to the audit committee.

The Company has a code of conduct applicable to all its employees along with a Whistle Blower Policy which requires employees to update accounting information accurately and in a timely manner. Any non-compliance noticed is to be reported and actioned upon in line with the Whistle Blower Policy.

Your Company gets its Standalone accounts reviewed every quarter by its Statutory Auditors.

26. DIRECTORS’ RESPONSIBILITY STATEMENT

To the best of our knowledge and belief and according to the information and explanations obtained by us, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013:

a) in the preparation of the annual accounts for the year ended March 31, 2016, the applicable accounting standards have been followed along with proper explanation relating to material departures;

b) the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the March 31, 2016 end of the profit of the company for the year ended on that date ;

c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) the Directors have prepared the annual accounts on a going concern basis;

e) the Directors have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and are operating effectively; and

f) the Directors had devised proper system to ensure that systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

27. LISTING

The Company’s equity shares continue to be listed on the Bombay Stock Exchange, Mumbai. The listing fee for the financial year 2015 2016 has been paid to BSE and the Annual Custodian fee has been paid to the NSDL and CDSL for the financial year 2015-16

28. AUDITORS

28.1 STATUTORY AUDITORS’

M/s. Suri & Co (Firm Regn No:004283S.), Chartered Accountants, have been appointed as statutory auditors of the company at the 68^th Annual General Meeting held on 11.09.2014 for a period of three years subject to ratification by members at every consequent Annual General Meeting. Therefore, ratification of appointment of Statutory Auditors is being sought from the members of the Company at the ensuing AGM.

The Auditors’ Report to the shareholders does not contain any qualification

28.2 SECRETARIAL AUDITORS’

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of ManagerialPersonnel)Rules,2014,theCompanyhasappointed Mr. Krishna Sharan Mishra (FCS No.6447) representing KSM Associates, Company Secretaries, Chennai, to undertake the secretarial audit of the company. The Secretarial Audit Report is annexed herewith as Annexure - H.

The Auditors’ Report to the shareholders does not contain any qualification

28.3 INTERNAL AUDITORS’

M/S SLSM & CO , Chartered Accountants performs the duties of internal auditors of the company and their report is reviewed by the audit committee from time to time.

28.4 COST AUDITOR

Mr.V.Balasubramanian, Cost Accountant was appointed as Cost Auditor for auditing the cost accounts of your Company for the year ended 31^st March, 2016 by the Board of Directors.

The Cost Audit Report for the year 2014-15 has been filed under XBRL mode within the due date of filing.

29. EXTRACT OF ANNUAL RETURN

An extract of the Annual return in form- MGT- 9 as on March 31, 2016 is attached as Annexure – I to this report.

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

Particulars of loans given, investments made, guarantees given and securities provided along with the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient are provided in the standalone financial statement

(Refer note. No. 11)

31. GENERAL

A. Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review:

1. Issue of equity shares with differential rights as to dividend, voting or otherwise.

2. Issue of shares (including sweat equity shares) to employees of the Company under any scheme.

3. Neither the Managing Director nor the Whole- time Directors of the Company receive any remuneration or commission from its subsidiary.

4. No significant or material orders by the Regulators or Courts or Tribunals which impact the going concern status and Company’s operations in future.

B. A copy of the Financial Statements including Consolidated Financial Statements, Directors Report, Auditors Report etc., is available at the Registered office of the Company for the inspection of the members of the company during the office hours up to the date of Annual General Meeting.

C. The Company has not furnished the statement of Changes in Equity as the required format has not yet been prescribed.

Your Directors further state, as per information furnished by POSH Committee, that during the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

32. ACKNOWLEDGEMENT

Your Directors wish to acknowledge the co-operation and assistance extended by Central Bank of India, Exim Bank, State Bank of India, Karur Vysya Bank Ltd and Indian Bank. Your Directors appreciate the continued co-operation extended by staff and workers of the company and look forward to the same cordial relationship in the coming years.

For and on behalf of the Board of Directors
P. MANIVANNAN	MANIKAM RAMASWAMI
Whole Time Director	Managing Director
Place: Chennai
Date: 26th May 2016