S P Apparels Ltd Directors Report.

To

The Members,

The Directors of your Company are pleased to present the 14th Annual Report on the business and operations of the Company together with the Audited Financial Statements (Standalone & Consolidated) for the year ended 31st March, 2019. The Management Discussion and Analysis is also included in this Report.

FINANCIAL RESULTS

The Companys financial performance for the year ended 31st March, 2019 is summarised below:

PARTICULARS STANDALONE CONSOLIDATED
2018-19 2017-18 2018-19 2017-18
Sales and other income
Revenue from Operations 7,781.42 6,280.10 8,263.76 6,624.15
Other Income 34.14 164.55 34.40 163.82
Total 7,815.56 6,444.65 8,298.16 6,787.97
Profit before Interest & Depreciation 1,340.60 1,202.87 1,372.77 1,221.97
Less: Interest 60.81 286.20 62.44 287.42
Depreciation 232.79 240.70 215.88 223.89
Profit Before Tax 1,047.00 675.97 1,094.45 710.66
Less : Taxation
Provision for Current Tax 362.08 252.73 367.75 253.71
MAT Credit -- -- (0.89) (1.01)
Deferred Tax Expenses / (Credit) (12.79) 3.12 (6.13) (20.17)
Profit After Tax 697.71 420.12 733.72 478.13
Other comprehensive Income (Net of tax) 40.30 (50.03) 40.30 (50.03)
Minority Interest - - 0.61 (8.59)
Total Comprehensive Income 738.01 370.09 774.63 419.51

Review of Operations: Garment Division:

This financial year has been a good year where we have grown by 19%. During this financial year we have added couple of factories and added sewing machines to our capacity. We have added 450 sewing machines during the current year, and we are in the process of increasing our factories and capacity in coming years. Our customer base has increased, and we are looking to increase our customer base further. Now we have customer across geographies. Our debottlenecking, Modernization and expansion in our spinning plant is completed and we have commenced the production successfully.

Putting up Bio-logical treatment plant in our dyeing house is under process and is expected to be completed by the end of second quarter of the fiscal year 2020.

Retail Division

Our strategy in retail division during the FY 2018 – 19 was to increase our presence in large format stores by another 50%. During the financial year 2019 – 20 our endeavour is to improve our presence through EBOs through franchise model. We are planning to improve our distributor base considerably during the current year and improve the product mix which will improve the revenue during the years to come.

SP UK

Our subsidiary company SPUKs total revenue recorded Rs.481.84 millions for FY 2018 – 19 as against a revenue of Rs.353.63 millions during FY 2017 – 18 at a growth rate of 36.26%. EBITDA recorded Rs.26.96 millions as against Rs. 12.88 million for FY 2017 – 18. There was no change in the nature of business of the Company during the financial year ended 31st March 2019.

DIVIDEND

Considering the capital requirement for ongoing business expansion, the Board of Directors has not recommend any dividend on the equity shares of the Company for the financial year 2018-2019.

RESERVES & SURPLUS

As at March 31, 2019 the Company had reserves of Rs. 4,597.58 million. During the year under review the company has transferred Rs. 738.01 Million to Other Equity (General reserve)

TRANSFER OF UNCLAIMED DIVIDEND TO INVESTOR EDUCATION AND PROTECTION FUND

Since there was no unpaid/unclaimed Dividend, the provisions of Section 124 & 125 of the Companies Act, 2013 relating to transfer of Unclaimed dividend to Investor Education and Protection fund does not arise.

SHARE CAPITAL

The issued, subscribed and paid up share capital of the Company as at 31.03.2019 stood at Rs.25,69,26,000/- divided into 2,56,92,600 Equity Shares of Rs.10/- each. During the financial year under review, the Company has redeemed its entire 2,00,00,000 10% Redeemable Cumulative Preference Shares of Rs.10/- each in accordance with the provisions of Section 55 of the Companies Act, 2013 read with Companies (Share capital and debentures) Rules 2014. During the year under review, the Company has issued and allotted 5,25,000 equity shares of Rs.10/- each at Rs.382.02 per Share to Promoters of the Company on preferential basis.

EXTRACT OF ANNUAL RETURN

Pursuant to section 92 (3) of the Act and Rule 12 (1) of the Companies (Management and Administration) Rules, 2014, an extract of annual return in MGT-9 is annexed as Annexure-A to this report and the same has been hosted on the website of the Company and can be viewed at http://www.spapparels.com/

CAPITAL EXPENDITURE

As on 31st March, 2019, the gross fixed assets block stood at Rs.5,994.85 Million and net fixed assets block at Rs 3,682.34 Million. Additions to Fixed Assets during the year amounted to Rs. 827.57 Million.

BOARD AND COMMITTEE MEETINGS

The details of meetings of Board of Directors and Committees thereof and the attendance of the Directors in such meetings have been enumerated in the Corporate Governance Report.

STATEMENT ON COMPLIANCE WITH SECRETARIAL STANDARDS

The Directors have devised proper systems to ensure compliance with the provisions of all applicable Secretarial Standards and that such systems are adequate and operating effectively. The Company has duly complied with Secretarial Standards issued by the Institute of Company Secretaries of India on meeting of the Board of Directors (SS-1) and General Meetings (SS-2).

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 134(3)(c) of the Companies Act, 2013, with respect to Directors Responsibility Statement, it is hereby confirmed that:

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed;

(b) the directors had 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 at the end of the financial year and of the profit of the company for that period;

(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis;

(e) the directors laid down internal financial controls to be followed by the Company and such internal financial control were adequate and operating effectively and

(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

DETAILS IN RESPECT OF FRAUDS REPORTED BY AUDITORS UNDER SECTION 143(12) OTHER THAN THOSE WHICH ARE REPORTABLE TO THE CENTRAL GOVERNMENT

There were no instances of frauds identified or reported by the Statutory Auditors during the course of their audit pursuant to Section 143(12) of the Companies Act, 2013.

DECLARATION OF INDEPENDENT DIRECTORS

The Company has received declarations from all the Independent Directors of the Company confirming that they met the criteria of independence as stipulated in Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Further, they have also declared that they are not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties with an objective independent judgment and without any external influence.

COMPANYS POLICY RELATING TO DIRECTORS APPOINTMENT, PAYMENT OF REMUNERATION AND OTHER MATTERS PROVIDED UNDER SECTION 178(3) OF THE COMPANIES ACT, 2013

The Company pursuant to the provisions of Section 178 of the Companies Act, 2013 and in terms of Regulation 19(4) of the SEBI Listing Regulations has formulated a policy on Nomination and Remuneration for its Directors, Key Managerial Personnel and senior management. The Nomination and Remuneration Policy of the Company is annexed herewith as Annexure-B and can also be accessed on the Companys website at the link http://www. spapparels.com/

COMMENTS ON AUDITORS REPORT:

There are no qualifications, reservations or adverse remarks or disclaimers made by M/s. ASA & Associates LLP, Statutory Auditors and Mr.M.D.Selvaraj, proprietor of MDS & Associates, Secretarial Auditor in their respective reports.

The maintenance of cost record as specified by the Central Government under Section 148(1) of the Companies Act, 2013 is applicable to the Company and accordingly the cost accounts and records are made and maintained. However, the appointment of Cost Auditor under the provisions of Section 148 is not applicable to the Company.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS MADE UNDER SECTION 186 OF THE COMPANIES ACT, 2013

The Company has duly complied with the provisions of section 186 of the Companies Act 2013 and as required therein the details of the loans is annexed by way of notes to accounts. And also, the details of the loans and investments made in earlier years are given in the Notes to the Financial Statements.

PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES

All transactions entered into with related parties as defined under the Companies Act, 2013 during the financial year 2018-19 were in the ordinary course of business and on an arms length basis. Since there are no transactions which are not on arms length basis and material in nature the requirement of disclosure of such related party transactions in Form AOC-2 does not arise.

The Policy on Related Party Transactions as approved by the Board of Directors of the Company has been uploaded on the Companys website and can be accessed through the link at http://www. spapparels.com/

MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE COMPANY:

There have been no material changes and commitments, if any, affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial year ended 31st March, 2019 relate and the date of the report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The information pertaining to conservation of energy, technology absorption, Foreign Exchange Earnings and outgo as required under section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is annexed as Annexure-C and is attached to this report.

RISK MANAGEMENT

Pursuant to section 134 (3) (n) of the Companies Act, 2013 & Regulation 17(9) of the SEBI (Listing Obligations and Disclosure Requirements) Rules 2015, the Company has framed an effective Risk Management policy in order to analyze, control or mitigate risk. The board periodically reviews the risks and suggests steps to be taken to control the same.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES:

The Corporate Social Responsibility Committee consisting of Directors Mr.P.Sundararajan - Chairman, Mrs.S Latha and Mr.V Sakthivel as members of the committee have formulated and recommended to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company as specified in Schedule VII of the Companies Act, 2013, which has been approved by the Board. The CSR policy can be accessed on the Companys website http://www.spapparels.com. The prescribed (two percent of the average net profit of the Company for last 3 financial years) CSR expenditure for the year 2018-2019 is Rs 12.73 Million. The Company is required to spend Rs. 28.39 Million towards CSR (Rs. 12.73 Million as 2% average net profit for last three financial years plus Rs.15.66 million as carried forward amount of FY 2014-15 to 2017-18). During the year the Company has spent Rs.14.92 Million towards CSR Activities. The annual report on CSR activities is annexed as Annexure-D herewith.

CONSOLIDATED FINANCIAL STATEMENTS

Your Directors have pleasure in attaching the Consolidated Financial Statements pursuant to the provisions of the Companies Act, 2013. They are prepared in accordance with the Accounting Standards prescribed by the Institute of Chartered Accountants of India, in this regard. The Consolidated Financials also show a significant increase in Revenues as well as Profitability.

ANNUAL EVALUATION OF THE BOARD ON ITS OWN PERFORMANCE AND OF THE INDIVIDUAL DIRECTORS

Pursuant to the provisions of the Companies Act, 2013, the Board of Directors evaluated the annual performance of the members of the Board and its Committees vis a vis the nature of business of the Company, its performance during the year and the contribution of each of the Directors based on the criteria laid down by the Nomination and Remuneration Committee.

The Independent Directors held a meeting during the year and inter-alia, reviewed the performance of the Non-Independent Directors and the Board as a whole and assessed the quality, quantity and timeliness of flow of information between the Company and the Board.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Mrs. S. Latha, Executive Director, (DIN: 00003388), retires by rotation at the Annual General Meeting and being eligible, offer herself for re-appointment. Your Directors recommend herself re-appointment. The Board at its meeting held on 13th August 2019 has re-appointed Mr.S.Chenduran (DIN: 03173269) as Director (operations) of the Company for a further period of 3 (Three) years with effect from 30th March 2020. Accordingly, necessary resolution proposing the re-appointment of Mr.S.Chenduran as Director (operations) of the Company has been included in the Agenda of the Notice convening the Annual General Meeting for the approval of the members. Mr.V.Sakthivel (DIN : 00005720) was appointed as an Independent Director of the company pursuant to Section 149 of the Companies Act, 2013 for the first term of 5 years and will and hold office upto 29th March 2020.Considering his knowledge, expertise and experience and the substantial contribution made by Mr.V.Sakthivel during his tenure as an independent director since his appointment, the nomination & remuneration committee and the board has recommended the reappointment of Mr.V.Sakthivel as independent director on the board of the company, to hold office for the second term of five consecutive years commencing from 30th March 2020 and not liable to retire by rotation.

The company has received declaration from Mr.V.Sakthivel that he continue to fulfil the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013 as well as SEBI (Listing Obligations and Disclosure Requirement) Regulation, 2015 (including statutory re-enactment thereof for the time being in force). Mr.V.Sakthivel will attain the age of 75 years on 9th August 10, 2024 and hence, continuation of his directorship beyond the age of 75 years requires the approval of members by way of a special resolution In terms of the provisions of Section 160(1) of the Companies Act, 2013, the Company has received notice a Member signifying his intention to propose the candidature for the reappointment of Mr.V.Sakthivel for the office of Independent Director.

The Board of Directors recommends the re-appointment of Mr.V.Sakthivel as independent director by way of a special Resolution.

Key Managerial Personnel of the Company as required pursuant to Section 2 (51) and 203 of the Companies Act, 2013 are

Mr.P.Sundararajan - Chairman and Managing Director,
Mrs.S.Latha - Executive Director
Mr.S.Chenduran - Director (Operations)
Mr.V.Balaji - Chief Financial Officer and
Mrs.K.Vinodhini - Company Secretary.

SUBSIDIARIES, JOINT VENTURES AND ASSOCIATE COMPANIES.

The Company has two subsidiary companies viz. Crocodile Products Private Limited and S.P.Apparels (UK) Private Limited. The consolidated financial statements of the company and its subsidiaries were prepared in accordance with the applicable accounting standards have been annexed to the Annual Report. The annual accounts of the subsidiary companies are posted on the website of the Company viz. http://www.spapparels.com/. A report containing the salient features of the subsidiaries as required under Section 129(3) of the Companies Act 2013 has been annexed herewith in AOC – 1 and is attached as Annexure-E to this report.

The Company has formulated a Policy for determining Material Subsidiaries. The Policy can be accessed at: http://www.spapparels. com/.

The Company does not have Joint Venture or Associate Company.

FIXED DEPOSITS

The Company has not accepted any deposits from public within the meaning of Section 73 of the Companies Act, 2013, read with the Companies (Acceptance of Deposits) Rules, 2014 and hence no amount on account of principal or interest were outstanding for payment on the date of the Balance Sheet.

FINANCE

Prompt repayments, facilitated by healthy cash flows, elevated the standing of the Company. It enabled prudent application of funds and better negotiation strength. This trend is expected to continue.

DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANYS OPERATION IN FUTURE

No significant and material order was passed by any Regulators that have any impact on the going concern status and the operations of the Company.

ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS

The Company has an adequate Internal Control System, commensurate with the size, scale and complexity of its operations. The Audit Committee of the Board periodically reviews the Internal Financial Control Systems and their adequacy and recommends corrective action as and when necessary to ensure that an effective internal control mechanism is in place.

The directors confirm that the Internal Financial Control (IFC) are adequate with respect to the operations of the Company. A report of Auditors pursuant to Section 143(3)(i) of the Companies Act, 2013 certifying the adequacy of Internal Financial Control is annexed with the Auditors Report.

AUDITORS

a) STATUTORY AUDITORS

M/s. ASA & Associates LLP, Chartered Accountants, Chennai were appointed as the Statutory Auditors of the Company for a period of five years at the Annual General Meeting of the Company held on 11th August 2017. In accordance with the Companies Amendment Act, 2017, enforced on 7th May 2018 by the Ministry of Corporate Affairs, the appointment of Statutory Auditors is not required to be ratified at every Annual General Meeting. The Company has received a certificate from the Statutory Auditors to the effect that their appointment as the Statutory Auditors of the Company, would be within the limits prescribed under section 139 of the Companies Act, 2013.

b) SECRETARIAL AUDITOR

The Board has appointed Sri.M.D.Selvaraj of M/s. MDS & Associates, Company Secretaries in Practice, Coimbatore as the Secretarial Auditors of the Company for the year 2019-20 to carry out the Secretarial Audit, pursuant to the provisions of Section 204 of the Companies Act, 2013. The report of the Secretarial Auditors for the financial year 2018-19 is annexed as Annexure-F to this Report.

c) INTERNAL AUDITOR

The Board has appointed M/s. Deloitte Haskins & Sells LLP, Chartered Accountants, Coimbatore as Internal Auditors for the financial year 2018-19.

EMPLOYEE WELFARE

The Employee Welfare Initiatives and practices followed by the Company is among the best in the Corporate sector. The Company employs close to 13,444 workers.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORK PLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

The Company has complied with the provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. An Internal Complaints Committee has been set up to define the policy and redress complaints received. All employees (permanent, contractual, temporary, trainees) are covered under this policy. There were no complaints received from any employee or third parties during the Financial Year 2018-19.

PARTICULARS OF EMPLOYEES

Statement pursuant to Section 134 of the Companies Act, 2013, read with the Companies (Particulars of Employees) Rules, 1975 and Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is annexed as Annexure-G attached to this report.

CORPORATE GOVERNANCE

A report on Corporate Governance is annexed and forms part of this report. The Company has complied with the conditions relating to Corporate Governance as stipulated in Regulation 27 of SEBI (Listing Obligation & Disclosure Requirements) Regulations, 2015.

AUDIT COMMITTEE

The Audit Committee of the Board of Directors has been duly constituted in accordance with the provisions of Section 177 of the Companies Act, 2013. Details relating to the composition, meetings and functions of the Committee are set out in the Corporate Governance Report forming part of this Annual Report. The Board has accepted the Audit Committee recommendations during the year whenever required and hence no disclosure is required under Section 177(8) of the Companies Act, 2013 with respect to rejection of any recommendations of Audit Committee by the Board.

VIGIL MECHANISM AND WHISTLE BLOWER POLICY

The Company has provided for adequate safeguards to deal with instances of fraud and mismanagement and to report concerns about unethical behaviour or any violation of the Companys Code of Conduct. During the year under review, there were no complaints received under this mechanism. The policy can be accessed on the Companys website at http://www.spapparels.com/

ACKNOWLEDGEMENT

Your Directors wish to place on record their appreciation, for the contribution made by all the employees at all levels but for whose hard work, and support, your Companys achievements would not have been possible. Your Directors also wish to thank its customers, suppliers and bankers for their continued support and faith reposed in the Company.

For and on behalf of the Board of Directors
P. Sundararajan S. Latha
Chairman & Managing Director Executive Director
(DIN : 00003380) (DIN : 00003388)
Place : Avinashi
Date : 13.08.2019