Pranavaditya Spinning Mills Ltd Management Discussions.

Industry structure and developments

India is one of the worlds largest producers of textiles. Abundant availability of raw materials such as cotton, man-made fibers, wool, silk and jute as well as skilled workforce have made the country a sourcing hub. It is the worlds second largest exporter of textiles and clothing in the world. India accounts 63 per cent of the market share of textiles and garments.

The Indian Textile Industry:

Indias Textile Scenario:

Indian textile industry is one of the key sectors of the economy in terms of contribution to the economic activity, employment generation, external trade and foreign exchange earnings. In value terms, the industry constitutes about 14 per cent of the manufacturing sector, 5 percent of the GDP and 12 per cent of Indias total export earnings. It generated direct and indirect employment for 105 million people, 2nd largest after agriculture.

Globally, India is the 2nd largest producer of textiles and garments with the leading position occupied by China. It is likely to overtake China in terms of size by 2022-23. Unlike China, India has a predominantly cotton based textile industry. The MMF textiles and clothing exports accounted for 80 per cent and cotton textiles for 20 per cent in China, while in case of India cotton textile and garments contributed a much higher percentage.

Source: A Brief Report on Textile Industry in India, July 2015, Corporate Catalyst (India) Pvt. Ltd.

In FY 2015-16, in line with the overall decline in exports from India, exports from the sector are expected to decline to about US$ 40 billion as compared to US$ 41.4 billion in FY 2014-15. However, government has taken certain measures in FY 201516 to improve the competitiveness of Indian textile exports.

As per the recent data from OTEXA, total textile and apparel imports to USA have grown at a rate of 7.0% in volume terms in 2015 vs. 2014, whereas imports from India have grown by 7.2% for the same period. In the same period, imports of ‘Made Ups/ Misc to US increased at a higher rate of 8.3% with Indias contribution going up from 22.6% to 23.8%, with growth of 12.3%. China, which is the largest exporter to US for Textiles & Apparels, in the same period grew its exports of ‘Made Ups/ Misc by 2.6% only.

Cotton Scenario:

India is expected to be the largest cotton producer in the world at the end of the cotton marketing year 2015-16, which starts from August 1. It will be closely followed by China and United States in the 2nd and 3rd place respectively. Together, the three countries produce nearly 2/3rd of worlds total cotton production. In FY 2015-16, the worlds total cotton production is expected to fall by 15.9% to 100.22 million bales.

All major cotton producing countries were expected to show a Y-o-Y decline in production in FY 2015-16 due to inclement weather, especially in Pakistan, India and United States. In China, withdrawal of government support and major reduction in price realizations, led to a 22.7% decline in area under cultivation. This figure, i.e. decline in land area under cotton cultivation, for India was 7.1%. Hence, production in India has been estimated to decline by 9.2% to 26.8 million bales. However, all other top 5 producers except Brazil, would see a decline of more than 15% in FY 2015-16.

Opportunities and threats

India is one of the most efficient and competitive spinning industries of the world. India is the second largest textile manufacturing infrastructure in the world after China. Indian Textile Industry accounts for about 24% of the worlds spindle capacity and 8% of global rotor capacity, Production of spun yarn registered impressive growth during the last 12 years and cotton yarn accounted for over 2/3rd of production throughout the period. Consumption of yarn and its exports also increased during the period. China reducing its spinning activities, India will have a growing opportunity in the global markets in this segment in the coming years. Yarn exports, therefore, need to be encouraged.

Cotton is one of the principle crops of the country and is the major raw material for domestic textile industry. It provides sustenance to millions of farmers and also the workers involved in cotton industry, right from processing to trading of cotton. The Indian textile industry consumes a diverse range of fibres and yarn, but is predominantly cotton based. Indian Textile Industry has an overwhelming presence in the economic life of the country.

According to the Ministry of Textiles, the domestic textile and apparel industry in India is estimated to reach US$ 141 bn by 2021 from US$ 58 bn in 2011. Apparel exports from India are expected to increase to US$ 82 bn by 2021 from US$ 31 bn in 2011. Total cloth production in India is expected to grow to 112 bn square meters by FY 2017 from 62 bn square meters in FY 2011.

Risks and concerns

Raw Cotton, an agricultural product, is the key raw material used for the manufacture of cotton yarn. Almost 65% of area under cotton cultivation is rain-fed and hence is dependent on vagaries of monsoon. Adequate availability of raw cotton at right prices is crucial for the Company. Any disruption in the supply and/or changes in the cost structure would affect the profitability of the Company. Any adverse measures in terms of tariff and non-tariff barriers, even in a comparative sense with respect to competing countries, affected by the Companys target markets are likely to pose a serious threat to its business.

Outlook

Indian Textile Industry has a good opportunity as share of exports of textiles from China is going down. Indian Textile Industry can expect good growth in domestic consumption. The likely stability in the cotton prices and adequate availability of cotton will be beneficial for the industry. Moreover, with expected stability in the cotton prices, limited possibility of change in Chinas policy on import of cotton and cotton yarn in the near term with import of cotton yarn remaining duty free and continued dependence of China on imports to meet its requirement, the yarn export volumes are likely to sustain which will support the capacity utilization and thereby the profit margin of the spinning mills in coming years.

However, the above assumption is contingent upon export demand sustaining, given the high export dependence of the domestic spinning industry. Any decline in the export demand will immediately result in shift of the export supply to the domestic market, which will impact the utilization levels and profit margins of the spinning mills.

Dividend

In order to conserve the resources, the Board of Directors of the Company has not recommended any dividend on equity shares of the Company for the financial year under review.

Segment

The Company is engaged only in one segment i.e. Textile Segment.

Directors and Key Managerial Personnel (KMP)

Pursuant to the provisions of Section 152 of Companies Act 2013, Mr. Anil Kumar Jain (DIN: 00086106) Director of the Company, retires by rotation at the ensuing Annual General Meeting and being eligible, has offered himself for re-appointment. The Board recommends his re-appointment. As required under provisions of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 ("SEBI (LODR) Regulations, 2015") and Companies Act, 2013, brief profile and other details of Mr. Anil Kumar Jain are provided in the Notice of Annual General Meeting.

The Company has received declarations from all the Independent Directors confirming that they meet the criteria of independence as prescribed under Section 149 (6) of the Companies Act, 2013 and Regulation 16 (1) (b) of SEBI (LODR) Regulations, 2015.

During the year under review, Mr. Abhishek Thareja resigned from the position of Company Secretary and Compliance Officer of the Company w.e.f 14th August, 2015. Further, Mrs. Amruta Avasare was appointed as the Company Secretary and Compliance Officer of the Company w.e.f 9th February, 2016. Mr. Ashok G. Halasangi was the Compliance Officer of the Company during the period of vacancy in the position of Company Secretary.

As on 31st March, 2016, pursuant to Section 203 of the Companies Act, 2013, Mr. Ashok G. Halasangi, Chief Executive Officer, Mr. R. Sundaram, Chief Financial Officer and Mrs. Amruta Avasare, Company Secretary are Key Managerial Personnel (KMP) of the Company.

Number of Board Meetings

During the year under review, 5 Board Meetings were held viz on 9th May, 2015, 30th June, 2015, 31st July, 2015, 20th October, 2015 and 6th February, 2016, the details of which are given in the Corporate Governance Report.

Directors Responsibility Statement

In terms of Section 134 (3) (c) of the Companies Act, 2013, your Directors, to the best of their knowledge and belief and according to the information and explanations obtained by them, state that:

a. in the preparation of the Annual Financial Statements for the year ended 31st March, 2016, the applicable Accounting Standards have been followed along with proper explanations relating to material departures, if any;

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

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

d. the Annual Financial Statements have been prepared on a going concern basis;

e. proper internal financial controls were in place and that the financial controls were adequate and were operating effectively.

f. systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.

Audit Committee

As on 31st March, 2016, the Audit Committee comprises of Mr. S. K. Agrawal (Chairman), Mr. P. N. Shah, Mr. R. Anand and Mr. Kamal Mitra. All the recommendations made by the Audit Committee were accepted by the Board.

Companys policy on appointment and remuneration of Directors

The Company has been following well laid down policy on appointment and remuneration of Directors, KMP and Senior Management personnel.

The appointment of Directors is made pursuant to the recommendation of Nomination and Remuneration Committee (NRC).

The remuneration of Non-Executive Directors comprises of sitting fees in accordance with the provisions of Companies Act, 2013 and reimbursement of expenses incurred in connection with attending the Board Meetings, Committee Meetings, General Meetings and in relation to the business of the

Company.

A brief extract of the Remuneration Policy on appointment and remuneration of Directors, KMP and Senior Management is provided in the Corporate Governance Report.

Performance Evaluation of Directors

Criteria of performance evaluation of the Board of Directors including Independent Directors are laid down by Nomination and Remuneration Committee of the Company. Pursuant to the provisions of the Companies Act, 2013 and SEBI (LODR) Regulations, 2015, the Board has carried out the annual performance evaluation of the entire Board, Committees and all the Directors based on the parameters specified in the Corporate Governance Report. The parameters of performance evaluation were circulated to the Directors in the form of questionnaire.

Vigil Mechanism / Whistle Blower Policy

Pursuant to the provisions of Section 177 (10) of the Companies Act, 2013 and Regulation 22 of SEBI (LODR) Regulations, 2015, the Company has established a vigil mechanism / Whistle Blower Policy. The details of vigil mechanism are provided in the Corporate Governance Report. The Vigil Mechanism / Whistle Blower Policy may be accessed on the Companys website at www.pranavaditya.com.

Obligation of Company under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

In order to prevent sexual harassment of women at workplace, the Company has adopted a policy for prevention of Sexual Harassment of Women at workplace and has set up an Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 to look into complaints relating to sexual harassment at workplace of any woman employee. During the year under review, the Company has not received any complaint under the said policy.

Statutory Auditors

At the Annual General Meeting of the Company held on 23rd August, 2014, M/s. B. K. Shroff & Co., Chartered Accountants, were appointed as Statutory Auditors of the Company for a period of 3 years to hold office from the conclusion of the 24th Annual General Meeting till the conclusion of the 27th Annual General Meeting of the Company, subject to ratification by the members at each Annual General Meeting.

The Audit Committee and the Board of Directors of the Company have recommended to the members of the Company, ratification of appointment of M/s. B. K. Shroff & Co., Chartered Accountants, as Statutory Auditors of the Company to hold office from the conclusion of the ensuing Annual General Meeting till the conclusion of the 27th Annual General Meeting of the Company. The Company has received a letter from B. K. Shroff & Co. confirming that they are eligible for ratification of their appointment.

Auditors Report

The Auditors Report on Standalone financial statements forms part of the Annual Report. The Auditors Report does not contain any qualification, reservation, adverse remark, disclaimer or emphasis of matter. Notes to the Financial Statements are selfexplanatory and do not call for any further comments.

The Statutory Auditors of the Company have not reported any fraud as specified under the second proviso of Section 143 (12) of the Companies Act, 2013 (including any statutory modification(s) or re-enactment for the time being in force).

Internal Audit

M/s. Suresh Kumar Mittal & Co., Chartered Accountants are appointed as Internal Auditors of the Company and their report is reviewed by the Audit Committee from time to time.

Related Party Transactions

All Related Party Transactions entered during the financial year under review were on an arms length basis and in the ordinary course of business. Note No. 27 to the Financial Statements contains details of Related Party Transactions. No Related Party Transaction was in conflict with the interest of the Company. No materially significant Related Party Transaction was made by the Company with the Key Managerial Personnel. As prescribed by Section 134 (3) (h) of the Companies Act, 2013 and Rule 8 (2) of the Companies (Accounts) Rules, 2014, particulars of contracts / arrangements with Related Parties are given in Form AOC-2, annexed as "Annexure 1" to this Report.

The policy on Related Party Transactions has been uploaded on the Companys website and can be accessed at http://www.pranavaditya.com/admin/uploads/pdf/PSML%20Pol icy%20on%20Related%20Party%20Transactions.pdf

Extract of Annual Return

Pursuant to Section 92(3) of the Companies Act, 2013, Extract of the Annual Return of the Company in Form MGT-9 is annexed as "Annexure 2" to this Report.

Secretarial Audit Report

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board had appointed S. Anantha Rama Subramanian, Proprietor of S. Anantha & Co., Practising Company Secretaries to conduct Secretarial Audit for the financial year 2015-16. The Secretarial Audit Report issued by him is annexed herewith as ‘Annexure 3. The Secretarial Audit Report does not contain any qualification, reservation, disclaimer or adverse remark.

Corporate Governance

In terms of SEBI (LODR) Regulations, 2015, a Corporate Governance Report along with Statutory Auditors Certificate confirming its compliance is provided separately and forms integral part of this Report.

Particulars of Loans given, Investments made, Guarantees given and Securities provided

During the year under review, pursuant to Section 186 of the Companies Act, 2013, no Loans were given nor any Guarantees or securities were provided. Details of investments made by the Company are provided in Note No. 10 to the Financial Statements.

Human Resources

Your Company has always provided a congenial atmosphere for work to its employees. Your Company is an equal opportunity employer and offers opportunities to all without regard to their caste, religion, colour, marital status and sex. During the year under review, industrial relations remain cordial.

Particulars of Employees and other related disclosures

During the year 2015-16, there are no employees who draw remuneration in excess of the limits prescribed under Rule 5 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

The Disclosure pursuant to Section 197 (12) of the Companies Act, 2013 read with Rule 5 (1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in "Annexure 4" to this Report.

Conservation of Energy, Technology Absorption & Foreign Exchange Earnings & Outgo

Information on Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo required under Section 134 (3) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is given in "Annexure 5" forming part of this Report.

Internal control systems and their adequacy

The Company maintains adequate internal control system and procedures commensurate with its size and nature of operations. The internal control systems are designed to provide a reasonable assurance over reliability in financial reporting, ensure appropriate authorisation of transactions, safeguarding the assets of the Company and prevent misuse / losses and legal compliances.

The Internal Audit reports are periodically reviewed by the Management and the Audit Committee and necessary improvements are undertaken, if required.

Risk Management

The Company has in place Risk Management System which takes care of risk identification, assessment and mitigation. There are no risks which, in the opinion of the Board, threaten the existence of the Company.

Deposits

During the year under review, no deposits were accepted by the Company under Chapter V of the Companies Act, 2013.

Significant or Material orders passed by Regulators / Courts

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

General

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. Cost Audit

2. Corporate Social Responsibility

3. Issue of equity shares with differential rights as to dividend, voting or otherwise or issue of Sweat Equity Shares.

4. The Company does not have any subsidiaries or joint ventures or associate companies as defined under Companies Act, 2013.

There are no material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year 2015-16 and the date of this report.

Acknowledgments

Our growth has been made possible because of our culture of professionalism, integrity and continuous evolvement.

Your Directors take this opportunity to thank Central and State Governments, our customers, suppliers, investors and bankers for their consistent support and co-operation to the Company. We place on record our appreciation for the contribution made by employees at all levels.