South India Paper Mills Ltd Directors Report.

To

The Members

Your Directors hereby present the 60th Annual Report of the Company along with the audited accounts for the year ended 31st March, 2019.

The Company has adopted Indian Accounting Standards (Ind AS), from the financial year 2017-18 as mandated by the Ministry of Corporate Affairs (MCA), in place of Indian GAAP, followed earlier. Financial statements for the current year, including figures of the previous year are based on IndAS and this adoption has no major impact for the Statement of Profit and Loss.

W ORKING RESULTS 2018-19 2017-18 2016-17
Finished Production of Paper & Paperboards 60,331 MTs 32,687 MTs 52,752 MTs
Conversion Quantity at the Box Plant (PPD) 28,127 MTs 15,522 MTs 26,196 MTs
( In Lacs) ( In Lacs) ( In Lacs)
Gross Sales 24,188.66 13,448.91 20,673.18
Net Sales excl Excise Duty 24,188.66 13,448.30 19,512.41
FINANCIAL RESULTS:
Profit before interest, depreciation & tax 3,717.07 1,437.11 3,159.18
Less : Finance costs 445.37 477.70 388.43
Gross (Cash) Profit 3,271.70 959.41 2,770.75
Less : Depreciation 949.99 878.81 951.17
Profit before Tax 2,321.71 80.60 1,819.58
Less : Provision for Current tax 503.00 16.00 410.00
Less/(Add) : Deferred tax incl MAT credit entitlement (19.01) (30.68) 220.10
Profit after tax for the year 1,837.72 95.28 1,189.48
(Less) / Add : Tax Provision for earlier years (0.97) 5.99
Net Profit after Tax 1,836.75 95.28 1,195.47

OPERATIONS

Gross sales for the financial year 2018-19 rose to 241.89 crores as against 134.49 crores in the previous year. In the previous year (FY 2017-18), Sales and operating volumes were lower, owing to labour strike at the Paper Mills upto 26th July 2017 and at Printing & Packaging Division upto mid August 2017 and hence the figures of FY 2017-18 are not comparable with FY 2018-19.

Business was restored and in the FY 2018-19, volumes have improved, aided by increased demand and exports. Operation at the Paper Mill was higher at 91% of the Capacity during the year.

Printing & Packaging Division too operated with higher Conversion tonnage.

Profit before interest, depreciation, tax (PBDIT) in FY 2018-19 increased to 3,717 lacs from 1,437 lacs, owing to full year of operation. Finance costs were lower at 445 lacs from 4 7 8 lakhs as the Company has used the internal accruals available, in place of short term bank borrowings. After making a depreciation provision of 9 5 0 lacs (Previous year 879 lacs), profit before tax was 2,322 lacs (Previous year 81 lacs). After making a provision for tax of 503 lakhs (16 lacs) & considering deferred tax & MAT credit of 19 lacs (31 lacs in the previous year), net profit stood at 1,837 lacs. (PY 95 lacs).

FINANCES

During the year, cash flow & liquidity remained comfortable.

Sources of funds in lacs Deployment of funds in lacs
Cash flow from operating activities 3,667 Repayment of Term Loans 547
Interest receipts 48 Capital Expenditure & Advances 1,276
Term Loan drawn from Bank 200 Finance Cost 444
Decrease in working capital 203 Income tax Paid 522
Others 5 Dividend & Dividend Tax 180
Decrease in short term Bank Borrowings 1,154
Total 4,123 Total 4,123

 

31.03.19 31.03.18
Long Term Debt to Equity Ratio 0.22 0.27
Current Ratio 2.62 1.99

Instalments of Term Loans and Interest on Term Loans and Working capital borrowings were paid within due dates. DEPOSITS

The Company has neither accepted or renewed any deposits within the meaning of Section 73 of the Companies Act. 2013 and rules framed thereunder, during the financial year.

CREDIT RATING

ICRA has reaffirmed our long term rating of [ICRA]A- and a short term rating of [ICRA]A2+ to the Companys line of credit. Long term rating is reaffirmed with negative outlook (from stable outlook), considering the proposed borrowing for the Expansion Project.

CURRENT PROSPECTS

The market conditions for paper, though generally competitive, is favourable for quality products in the segment in which the Company operates. Market for corrugated boxes continue to be extremely competitive, as industry shifts towards a new technological paradigm and consequent higher capacities in corrugation.

An increase in paper making capacity through brown-field investment is under implementation.

Overall Turnover and operating profit during the first quarter of the current financial year is expected to be normal.

CAPITAL EXPENDITURE PLANS

New ETP facility for conserving water and meeting the pollution control norms even on the proposed capacity expansion of the paper mill was installed during the year under review.

The Companys plan for expansion of the production capacity of paper mill by installing PM6 (Paper Machine No.6) at an estimated cost of about 190 crores is under implementation. Production capacity is being increased from the present 200 MTPD (Metric Tonnes Per Day) to 460 MTPD. This will be financed through Bank Term Loan of 110 crores & internal accruals of 80 crores. Project is scheduled to be commissioned by June 2020. This investment in PM6 should further the good standing of Companys products.

CORPORATE GOVERNANCE

As per SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 separate Report on Corporate Governance, along with Auditors Certificate confirming the compliance is attached.

Directors Responsibility Statem ent :

As required by Section 134(5) of the Companies Act 2013, we state that :

While preparing the Annual Accounts, the Company has followed the applicable Accounting Standards;

The Directors have selected such accounting policies and applied them consistently and has made judgements and estimates that are reasonable and prudent, so as to give true and fair view of the state of affairs of the Company as at 31-3-2019 & of the profit of the Company for the financial year 2018-19.

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

The Directors have prepared the annual accounts on a going concern basis.

The Directors have laid down internal financial controls to be followed by the Company and the controls are adequate and operating effectively.

The Directors have devised proper systems to ensure compliance with the provisions of all the applicable laws and these systems are adequate and operating effectively.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

During the year, the Company did not give any Loan / Guarantee or has provided any security or make investment covered under Section 186 of the Companies Act, 2013.

PARTICULARS OF CONTRACTS OR ARRANGEM ENTS W ITH RELATED PARTY

None of the transactions with any of the related parties was in conflict with the interests of the Company. Details of transactions with related parties are furnished as an annexure in Form AOC-2.

CHANGES IN NATURE OF BUSINESS OF THE COMPANY

There was no change in the nature of business of the Company during the year. MATERIAL CHANGES & COM M ITM ENTS

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

There was no material changes and commitments in the business operations of the Company since the close of the financial year on 31ST March 2019 to the date of this report.

SEXUAL HARASSMENT OF W OM EN AT W ORKPLA CE (PREVENTION, PR O H IBITION & REDRESSAL) ACT, 2013 In terms of provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 the Company has formulated a Policy to prevent Sexual Harassment of Women at workplace. 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.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR

TRIBUNALS IM PACTING THE GOING CONCERN STATUS AND COMPANYS OPERATIONS

As per Rule 8(5)(vii) of the Companies (Accounts), Rules 2014, there were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and companys operations.

INTERNAL FINANCIAL CONTROL W ITH REFERENCE TO FINANCIAL STATEMENTS

The Board has adopted policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Companys policies, the safeguarding o f its assets, the prevention and detection o f frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial disclosures.

During the year, such controls were tested and no reportable material weakness in the design or operation were observed.

ISO 9001 CERTIFICATION

Companys Quality Management Systems (QMS) have been audited by Bureau Veritas Certification India Pvt Ltd and ISO 9001: 2015 Certification was awarded to the Printing & Packaging Division of the Company. This Certification issued is valid up to 17-5-2021.

FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATION

The Company received FSC certificate under standards of FSC-STD-40 003 V2-1, FSC-STD-40 004 V2-1 and FSC-STD-40 007 V 2-0 for its product group. This is an assurance of environmental protection by providing sufficient documentary controls and traceability throughout the Chain of Custody.This certification means Company is capable of manufacturing FSC Recycled and FSC Mixed products.

RESEARCH & DEVELOPM ENT

Several special application grades have been developed & successfully introduced during the year to cater to stringent customer specific requirements.

ENERGY CONSERVATION MEASURES

The particulars required under Section 134 (3) (m) of the Companies Act, 2013 with regard to energy conservation measures are furnished in the Annexure.

ENVIRONMENTAL PROTECTION

Your company has always endeavoured to remain in harmony with its eco-sphere and tried to equitably balance the interest of all stakeholders in it, often going beyond the statutory impositions placed by regulatory authorities. In such efforts are included the installation of a 0.5 acre hold tank and a 2 km delivery pipeline for irrigating otherwise dry lands. New ETP facility for conserving water and meeting the pollution control norms even on the proposed capacity expansion of the paper mill was installed during the year under review. The treated effluent water is utilized for irrigation purposes in the nearby fields of third party farmers with excellent crop yields. The operating performance of the new ETP are excellent and the plant easily meets the stipulated water standards. The new ETP also enables the complete recirculation of process water without adverse effects on product quality.

The Company has installed & been operating the Electro Static Precipitator (ESP) Systems for its Boilers for controlling dust emission and dust extractor system for controlling dust at its fuel handling system. Centrifuge and other machineries have been installed for effluent treatment.Fuel shed with roofing, controls dust emissions and conserves the resources.

In order to ensure environmentally safe disposal of solid wastes, the Company has started disposing Ash and plastic waste to recyclers authorized by KSPCB. Ash is used in brick manufacturing and plastic is being used in cement kilns.

The Company has engaged the expert services of University of Agricultural Sciences, Gandhi Krishi Vigyana Kendra, Bangalore for a study of ‘Utilisation of Paper Mill Effluent for Agricultural Purpose. After 4 years study, a final report has been issued concluding that the effluent generated by the paper mill contains small amount of nutrients, higher amount of salts and are within limits of Central Pollution Control Board norms. The finding further says that mill effluent along with additional dose of nitrogen has significant effect in increasing the crop yields.

DIVIDENDS

Your Directors recommend a Dividend of 15% i.e. 1.50 per equity share of 10 each (last year 10% i.e. Re 1.00 per share). The total distribution including dividend tax amounts to 271.25 lacs ( 180.83 lacs).

PARTICULARS OF EM PLOYEES

Particulars of employees as prescribed under the Companies Act, 2013 are annexed. Extract of Annual R eturn

The Extract of Annual Return in Form MGT 9 is attached and forms a part of this Annual Report. M anagerial Rem uneration

Requisite details as per Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 is annexed herewith and forms a part of this Annual report.

Meetings of the Board

The number of meetings of the Board held and details thereof are mentioned in the Report on Corporate Governance forming a part of this Annual Report.

Whistle Blower Policy

In deference to Section 177 (9) of the Act,read with relevant Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Listing Regulations the Company has established a vigil mechanism overseen by the Audit Committee. The Company has formed Whistle Blower policy as required under the Companies Act 2013 and Listing Regulations and no personnel has been denied access to the Audit Committee.

Risk M anagement

The Company has a risk management framework to identify and evaluate business risks and opportunities. It seeks to create transparency, minimise adverse impact on the business objective and enhance the Companys competitive advantage. It aims at ensuring that the executive management controls the risk through means of a properly defined framework.

The Company has laid down appropriate procedures to inform the Board about the risk assessment and minimization procedures. The Board periodically revisits and reviews the overall risk management plan for making desired changes in response to the dynamics of the business.

The Board of Directors have constituted a Risk Management Committee as required under Cl 49 of the Listing Agreement vide Board Meeting held on 27.01.2015, to frame, implement and monitor the risk management plan of the Company. The Committee comprises of the following Directors.

Mr Manish M Patel - Chairman

Mr M G Mohan Kumar - Member

Mr S R Chandrasekara Setty - Member

The terms of reference of risk management committee include review of Risk management policy and its development within the Company, to monitor the effectiveness of risk management policy, review major risks of the Company and to advice on mitigation to the Board.

LABOUR RELATIONS

The industrial relations climate in the Company during the year was cordial and harmonius. A 6 year Wage settlement agreement signed with workers union at the Paper Mill will be in force upto 31-3-2022. In case of the Box unit, a 4 year Wage settlement agreement signed with workers union will be in force upto 31-3-2020.

DIRECTORS

In terms of Section 152 of the Companies Act, 2013 Mr Jitendra A Patel (DIN 00248302) retires by rotation and he, being eligible, offers himself for reappointment. Your Directors recommend his reappointment.

Pursuant to the provisions of the Companies Act, 2013 read with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Mr M G Mohan Kumar, Mr S R Chandrasekara Setty, Mr Jagdish M Patel, Mr. N S Kishore Kumar and Mrs Girija Shankar were appointed w.e.f 31-03-2015, by the Company at the 56th Annual General Meeting held on 10th September 2015. The tenure of Independent Directors was for a period of 5 years and will end on 31-03-2020. All the Directors are eligible to be appointed for a second term in office for tenure upto 5 years as Independent Directors under the Companies Act 2013.

The Nomination and Remuneration Committee of the Board at its meeting held in May 2019 recommended the re-appointment of Independent Directors for a second term from 1st April 2020 to 31st March 2025. The re-appointment of Independent Director for a second term, however require the Company to pass a special resolution in general meeting as per Section 149 (10) of the Companies Act 2013. Further Regulation 17(1A) of the SEBI (LODR) Regulations 2015, requires special resolution to be passed for the appointment or continuance in any office of any person beyond the age of 75 years as Non executive Director. Mr S R Chandrasekara Setty and Mr Jagdish M Patel have attained the age of 75 years. Accordingly approval of the shareholders is sought by way of special resolution for re appointment of all the Independent Directors.

The resolution for re-appointment of these directors as Independent Directors for a second term of 5 years is now being placed before the Members for their approval.

Your directors recommend the resolution set out in Item Nos. 4 to 8 of the notice for the approval by the members of the Company.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received declaration from all the Independent Directors under Section 149(7) of the Companies Act 2013, in respect of meeting the criteria of independence as provided under Section 149(6) of the Act.

BOARD EVALUATION

The Board of Directors have carried out an annual evaluation of its performance, Board Committees and Individual Directors pursuant to the provisions of the Companies Act and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

The Board has recorded overall satisfaction.

In a separate meeting of Independent Directors held on 27-03-2019, the performance of Non Independent Directors, Board as a whole and the performance of the Chairman was evaluated.They have expressed overall satisfaction on such evaluation.

POLICY ON D IRECTO RS APPOINTM ENT AND REMUNERATION

The Companys Policy on directors appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a Director and other matters as provided under Section 178(3) is annexed hereto and forms part of this Annual Report.

Criteria for performance evaluation of Independent Directors as required by the Listing Regulations also forms part of this report.

CORPORATE SOCIAL RESPONSIBILITY

The Board has constituted a Corporate Social Responsibility Committee as mandated by Section 135 of the Companies

Act 2013 vide Board Meeting held on 27.01.2015.

The broad terms of reference of the CSR Committee are as under:

• Formulating and recommending to the Board, the CSR Policy which shall indicate the activities to be undertaken by the Company.

• Recommending the amount of expenditure to be incurred on the aforesaid activities and;

• Reviewing and Monitoring the CSR Policy of the company from time to time.

Company has planned for CSR projects for the benefit of villagers in the villages around the factory. As the required land for the project was not made available to the Company, by the Gram Panchayath so far, planned CSR project could not be done. Amount will be spent once the Gram Panchayath clears the site for the Project.

A report on CSR Activities is annexed herewith and forms a part of the Directors Report.

APPOINTM ENT OF KEY M ANAGERIAL PERSONNEL

There are no changes in Key Managerial Positions during the year. AUDITORS

M/s. Murthy Swamy & Associates LLP, Chartered Accountants continue to be the statutory auditors of the Company. At the 59th Annual General Meeting of the Company held on 20th September, 2018, shareholders ratified the appointment of M/s. Murthy Swamy & Associates LLP, Chartered Accountants to hold office for a period of four years commencing from the conclusion of 59th AGM, till the conclusion of 63rd AGM, without seeking any further ratification of their appointment from the shareholders of the company for their appointment as statutory auditors till the conclusion of their tenure.

There are no adverse comments by the auditors in their report annexed herewith.

STATEMENT ON COM PLIANCES OF APPLICABLE SECRETARIAL STANDARDS The company has complied with the applicable secretarial standards.

SECRETARIAL AUDIT

Pursuant to Section 204(1) of the Companies Act, 2013, read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr S N Hitaish Kumar, Practicing Company Secretary (C P No. 6553), to conduct the Secretarial Audit of the Company for Financial Year 2018-19. The Secretarial Audit Report in Form MR 3 is annexed.

There are no qualifications in the Secretarial Audit Report. INTERNAL AUDITOR

Pursuant to Section 138(1) of the Companies Act, 2013, the Company has appointed M/s Rau and Nathan Chartered Accountants (Firm Regn. No.003178S), Mysore, to conduct Internal Audit of the functions and activities of the Company for Financial Year 2018-19.

COST AUDIT

Companys products are not notified for Cost Audit in FY 2018-19. APPRECIATION

Your Directors take this opportunity to place on record their appreciation for services rendered by the employees, sales agents, Banks & Financial Institutions.

for and on behalf of the Board of Directors
Bengaluru M anish M. Patel
23rd May, 2019 Chairman & Managing Director