Precot Director Discussions


Dear Shareholders,

Your Directors hereby present the 61 Annual Report of your Company along with the financial results for the year ended 31 March, 2023.

State of affairs of the company

a. Financial results (Rs In lakhs)
Particulars 31.03.2023 31.03.2022
Revenue from operations 95,382 99,328
PBIDT 2,777 18,877
Less: Finance cost 3614 2,898
Profit from Operations (836) 15,979
Other Income 724 649
PBDT (112) 16,628
Less: Depreciation and Amortisation 3340 3,253
PBT (Before Exceptional item) (3452) 13,375
Exceptional item - -
PBT (After Exceptional item) (3452) 13,375
Less: Tax expenses - 2,280
Deferred Tax (850) 553
Profit After Tax (2602) 10,542
Other Comprehensive Income (519) (291)
Total Comprehensive Income (3121) 10,251
Add: Opening balance in Retained
Earnings including OCI 25,936 15,685
Less: Transfer to General Reserve - -
Dividend paid during the year 720 -
Closing balance in Retained Earnings including OCI 22,095 25,936

b. Dividend and Transfer to reserves

Your directors, considering the fact that the company has incurred a loss during the year under review, have not recommended any dividend. No amount was proposed to be transferred to reserves.

Industry Overview

FY 2022-23 was a very challenging year for your Company, especially for the spinning division. Yarn demand which was robust for the most part of FY 21-22 turned sluggish from the beginning of the year under review. As highlighted last year, the abnormal increase in cotton was a major reason for this decline in demand along with inflationary pressures leading to a reduction in discretionary spending by consumers. Another significant reason was the high inventory in the hands of retailers and brands across the globe, including India. Aggressive ordering and improvement in logistics and lead times meant that inventories were double than normal levels leading to a stop on further sourcing by these brands and retailers.

Cotton prices declined on the face of the anticipated drop in demand with ICE futures falling from 116 cents in May to 73 cents in October, a drop of almost 40%. This was not reflected in Indian cotton prices due to the poor cotton crop in the country leading to Indian cotton prices being higher than international growths for the second half of the calendar year. The problem was exaggerated by the import duty on cotton which limited options for imports. Indian spinners were not competitive during this period with aggressive competition from Chinese and Vietnamese mills. Indian mills also faced inventory write-downs in the third quarter of the fiscal leading to an erosion of profits. Your company was forced to reduce capacity utilization in the spinning division to prevent further buildup of inventories during the third and fourth quarters. As a result of all the above factors, the spinning division recorded a loss at an operational level.

The performance of the technical textile division was a bright spot for the Company in an otherwise bleak year. Demand for our products continued to be robust through the year. The high logistics and freight costs which squeezed margins last year moderated significantly starting from the second quarter. The division achieved a topline of Rs. 242 Crores, an increase of 54%, on account of increased capacity utilization and higher productivity levels. Your company plans to increase capacity in this division during FY 23-24 apart from exploring other allied products to diversify the product mix.

Review of operations

Your Company registered a turnover of Rs.95,382 lakhs during FY 2022-23, a decrease of 4% compared to the previous year. Turnover decreased on account of lower capacity utilization in the spinning division. The company earned a profit of Rs. 2777 Lakhs at an EBITDA level. During the year under review, your Company struggled to maintain the improvements in product mix and proportion of value-added products due to a severe decline in demand from export customers. The Company was forced to increase production of commodity products for sales in markets such as Bhiwandi and Kolkatta which had reduced significantly in the previous year. The Companys cashflow was good in the above scenario.

The planned installation of "own captive" solar plants was completed in the Kanjikode and Hindupur units. The Company now has 10 MW of in-house solar capacity. Apart from this, the Company has tied up for 12.6 MW "group captive" solar power supply for its units in Pollachi and Hassan. .

Outlook for the current year

There has been a significant reduction in Indian cotton prices in the current year with prices hovering between Rs. 60,000 to Rs. 63,000 for most of the season so far. Demand for yarn has shown some improvement starting from February and the company is on track to reach full capacity utilization in all its units. But pricing of yarn continues to be a challenge with profitability still elusive in commodity products due to the high percentage of the raw material component compared to the sales price. Cotton is still priced higher compared to man-made alternatives but the gap has narrowed significantly compared to last year. Cotton availability and quality is good this season which will lend stability to cotton prices going forward. With inventories in the textile supply chain at moderate levels and a forecast for a hot summer, there is cautious optimism for an increase in demand for knitted products in the near future. There are varied predictions with regard to the monsoon in India and its success or failure will have a bearing on the revival of the rural economy and the acreage of cotton for the next season. We will continue to focus on the technical textile division for growth. The company plans to consolidate the gains of the previous year and reap the benefits of the planned capacity expansion during the fourth quarter of FY 23-24 and beyond.

Personnel

The Company has been able to continue maintaining cordial relations with its labour force in all its units. The Company has

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1462 permanent employees on the roll as on 31 March, 2023.

Internal Control Systems & Risk Management

The Company has adequate internal control systems to monitor business processes, financial reporting and compliance with applicable Regulations. The systems are periodically reviewed, by the Audit Committee of the Board, for identification of deficiencies and necessary timely corrective actions were taken to improve the controls at all levels. The committee also reviews the statutory auditors report, key issues, significant processes and accounting policies.

Risk Management is an integral part of the business process. The Company has constituted a Risk Management Committee and adopted a policy on risk management for identifying, mitigating and managing risk. The Audit Committee of the Board reviews the risk management policy periodically. The details about composition of the risk management committee, policy and its terms of reference have been provided in the Corporate Governance Report attached to this report.

Number of meetings of the Board

Details of number of meetings of the Board and Committees thereof and the attendance particulars of the Directors in such meetings are provided under the Corporate Governance Report.

Declaration by Independent Directors

The Independent Directors have submitted their disclosures to the Board confirming that they fulfill the requirements enumerated under Section 149(6) of the Companies Act, 2013 (hereinafter "the Act"), and Regulation 25 of The Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,2015.

Directors and Key Managerial Personnel (KMP)

Appointments, Retirements and Resignations

Mr J Govind Raju, Chief Financial Officer has been designated as the Finance Controller of the Company effective from 22 November, 2022 and Mr. M K Ravindra Kumar was appointed as Chief Financial Officer of the company effective from 22 November 2022.

There is no cessation of office by any Director due to death or resignation. However, Mr Ashwin Chandran, Managing Director retired by rotation, and being eligible, offered himself for reappointment and was reappointed as Director at the AGM held on 22 August, 2022.

The following are the whole-time key managerial personnel of the Company as per Section 203 of the Act as on 31 March,2023, (i) Mr Ashwin Chandran, Chairman and Managing Director (ii) Mr M K Ravindra Kumar, Chief Financial Officer and (iii) Mrs S Kavitha, Company Secretary.

The second term of office of Dr Jairam Varadaraj (DIN: 000003361) and Mr Sumanth Ramamurthi, (DIN: 00002773) as Independent Directors, comes to an end on 31 May,2023, Board of Directors have placed their appreciation for the contribution made by them during their Directorship.

Performance Evaluation

The Board of Directors at their meeting held on 13 February, 2023, had carried out an annual evaluation of its own performance and the performance of the Committees of the Board and the individual Directors pursuant to the provisions of the Act and the corporate governance requirements as prescribed by Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations 2015 (hereinafter "Listing Regulations").

The performance of the Board was evaluated by the Board of Directors after seeking inputs from all the Directors on the basis of criteria such as Board composition and structure, effectiveness of the Board meetings and process and contributions made by the Directors.

The performance evaluation of each Director was done by the entire Board of Directors, excluding the Director being evaluated, taking into consideration inputs received from the other Directors, covering various aspects of the Boards functioning such as active participation and contribution during discussions, effective deployment of knowledge and expertise towards the growth and betterment of the Company, impact and influence on the growth of the Company and performance of specific duties, obligations and governance.

The performance of the committees was evaluated by the Board after seeking inputs from the committee members on the basis of criteria such as the composition of the committees and effectiveness of the committee meetings.

In a separate meeting of Independent Directors held on 24 March, 2023 performance of the non-independent Directors, performance of the Board as a whole and performance of the Chairman were evaluated, taking into account the views of the executive Directors and non-executive Directors.

The Board also carried out an evaluation on the performance of the Independent Directors and also verified the fulfilment of the criteria for independence as specified under listing Regulations and their independence from the management. This evaluation of Independent Directors was done by the entire Board, excluding the Independent Directors being evaluated.

Policy on Directors appointment and remuneration and other details

The Companys policy on Directors appointment and remuneration and other matters provided in Section 178(3) of the Act has been disclosed in the Corporate Governance Report.

Auditors report and Secretarial Auditors report

The auditors report and secretarial auditors report do not contain any qualifications, reservation or adverse remarks.

During the year under review, neither the Statutory auditors nor the Secretarial Auditor have reported to the Audit Committee, any instances of fraud committed against the Company by its officers or employees.

The report of the Secretarial Auditor is furnished as Annexure A and forms part of this report.

Receipt of any commission by Whole Time Directors from the Company or receipt of commission/remuneration from subsidiary Company

Whole Time Directors have not received any commission from company or any commission/ remuneration from subsidiaries during the year under review.

Annual Return

The extract of the annual return pursuant to Section 92 read with rule 12 of the Companies (Management and Administration) Rules, 2014 is available on the website of the Company www.precot.com under investors.

Secretarial Standards

The Company complies with all the applicable mandatory secretarial standards issued by the Institute of Company Secretaries of India.

Particulars of Employees

The particulars as required under rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in Annexure B.

Consolidation of Accounts

The Company has control over "Suprem Associates", a partnership firm by holding majority of the shares in the firm. The accounts of the said firm are consolidated as per the requirement of Indian Accounting Standards (IndAS).

Maintenance of Cost Records

The Company is maintaining the cost records as specified under Section 148(1) of the Companies Act, 2013.

Audit Committee

The Company has constituted an Audit Committee as per Section 177 of the Act and Listing Regulations.

The details pertaining to vigil mechanism, composition and meetings of the Audit Committee are included in the Corporate Governance Report.

Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo

The details as required under Section 134(3)(m) of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014, is detailed in Annexure C.

Corporate Governance

A report on corporate governance is furnished as Annexure D and forms part of this report. This includes other disclosures as required under the provisions of the Act. The Company has complied with the conditions relating to corporate governance as stipulated in Regulation 34 of the Listing Regulations.

Corporate Social Responsibility (CSR)

The CSR Committee comprises of 1. Mr Ashwin Chandran, 2. Mr Prashanth Chandran and 3. Mr Sumanth Ramamurthi. This committee takes care of CSR policy execution to ensure that the CSR objectives of the Company are met. The CSR policy deals with allocation of funds, activities, identification of programmes, approval, implementation, monitoring and reporting.

For the financial year 2022-23, the Company spent Rs. 99.09 lakshs on CSR activities as per the provisions of the Companies Act. Annual report on Corporate Social Responsibility is provided in Annexure E.

The CSR policy is available on the Companys website http://www.precot.com/investors.

Particulars of Loan, Guarantees or Investments

Details as per the provisions of Section 186 of the Act, is given under notes to financial statements.

Related Party Transactions

None of the transactions with related parties falls under the scope of Section 188(1) of the Act. Information on transactions with related parties pursuant to Section 134(3)(h) of the Act read with rule 8(2) of the Companies (Accounts) Rules, 2014 are given in Annexure F in Form AOC-2 and the same forms part of this report.

The Board has approved a policy for related party transactions which is available on the Companys website http://www.precot.com/investors

Directors responsibility statement

The Directors confirm that:

a) The applicable accounting standards have been followed and proper explanations provided relating to material departures, if any,

b) The Company has adopted prudent and consistent accounting policies so as to give a true and fair view of the state of affairs of the Company,

c) Proper and sufficient care has been taken for maintenance of adequate accounting records under the provisions of the Companies Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities,

d) The annual accounts of the Company have been prepared on a going concern basis,

e) The internal financial controls are adequate and are operating effectively, and

f) A proper system for ensuring compliance of all the applicable laws are put in place and are operating effectively.

Statutory Auditors

M/s VKS Aiyer & Co., Chartered Accountants (Firm Registration No. 000066S), pursuant to the provisions of Section 139 of the Act, were appointed as the statutory auditors of the Company for a term of 5 years from the conclusion of the 56 AGM till the conclusion of the 61 AGM to be held in the year 2023.

Pursuant to the provisions of Section 139, Section 142 and other applicable provisions, if any, of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 (including any statutory modification(s) thereof, for the time being in force) the Board of Directors, on the recommendation of the Audit Committee, have re-appointed, M/s VKS Aiyer & Co.,Chartered Accountants (ICAI Firm Registration No.000066S) as Statutory Auditors of the Company for a second term of five years to hold office from the conclusion of 61 Annual General Meeting till the conclusion of 66 Annual General Meeting subject to the approval of shareholders at the ensuing Annual General Meeting . Accordingly, a resolution seeking members approval for their reappointment as Statutory Auditor is included as Item No.3 of the AGM notice.

They have confirmed that they are not disqualified and are eligible to continue in the office for the year 2023-24.

Cost Auditor

Pursuant to Section 148 of the Act, read with the Companies (Cost Records and Audit) Rules 2014, the Board of Directors, on the recommendation of the Audit Committee, appointed Mr R Krishnan, Cost Accountant (Associate regn. no. 7799), as the cost auditor of the Company for the financial year 2023-24.

Accordingly, a resolution seeking members ratification for the remuneration payable to Mr R Krishnan, Cost Auditor is included as Item No.4 of the AGM notice.

Secretarial Auditor

Pursuant to Section 204 of the Act, the Board of Directors has appointed Mr K Duraisami, Practicing Company Secretary, Coimbatore as the secretarial auditor of the Company for the financial year 2023-24.

Insider Trading Regulations

Based on the requirements under SEBI (Prohibition of Insider Trading) Regulations, 2015, the Insider Trading Code to regulate, monitor and report trading by insiders and the Code of Practices and Procedures for fair disclosure of Unpublished Price Sensitive Information are in force.

Change in nature of business

There was no change in the nature of the business of the Company during the year under review.

Deposits from public

The Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet.

Material Changes

No material changes or commitments affecting the financial position of the Company occurred between the end of the financial year (i.e.31 March, 2023) and the date of this report.

Vigil Mechanism/ Whistle Blower Policy

The Company has formulated and published a Whistle Blower Policy to provide Vigil Mechanism for employees including Directors of the Company to report genuine concerns and to ensure strict compliance with ethical and legal standards across the Company. The provisions of this policy are in line with the provisions of the Section 177(9) of the Act and Listing Regulations, are available on the website of the Company at http://www.precot.com/investors. The details of Whistle Blower Policy forms part of the Corporate Governance Report annexed with this report.

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

The Company has constituted an internal complaints committee to address the complaints regarding sexual harassment. All employees are covered under this policy. The Company has not received any complaints during the year under review. The details relating to Complaints forms part of the Corporate Governance report.

Details of Application made or any proceeding pending under The Insolvency and Bankruptcy Code, 2016 during the year

No applications have been made and no proceedings are pending against the Company under the Insolvency and Bankruptcy Code, 2016 during the year under review.

Details of difference between amount of the valuation done at the time of one time settlement and the valuation done while taking loan from the banks or financial institutions along with the reasons thereof

The disclosure under this clause is not applicable as the Company has not undertaken any one-time settlement with the banks or financial institutions during the year under review.

Unclaimed Shares

In accordance with the requirement of Regulation 34(3) and Schedule V Part F of Listing Regulations, the details in respect of equity shares lying in the suspense account is as follows. .

Particulars Number of share holders Number of Equity Shares
Aggregate number of shareholders and the outstanding shares in the suspense account as on 01-Apr- 2022 206 40750
Number of shareholders approached the Company for transfer of shares from suspense account during the year 1 500
Number of shareholders to whom shares were transferred from suspense account during the year 1 500
Aggregate number of shareholders and outstanding shares in the suspense account as on 31-Mar- 2023 205 40250

The voting rights on the shares outstanding in the suspense account as on 31 March, 2023 shall remain frozen till the rightful owner of such shares claims the shares.

Acknowledgment

Your Directors thank the Shareholders, Customers, Suppliers and Bankers for their continued support during the year. Your Directors also place on record their appreciation of the contributions made by Employees at all levels towards the growth of the Company.

Coimbatore
By order of the Board
26-May-2023
Ashwin Chandran
Chairman and Managing Director