Sambandam Spinning Mills Ltd Management Discussions.
Core business of the company is manufacture and sale of cotton yarn. The management discussion and analysis given below discusses the key issues of the Industry with specific reference to the cotton yarn spinning sector.
a) INDUSTRY PERFORMANCE
The year 2016-17 has been a year of major challenges faced by the spinning industry, which faced almost year long downtrend in Selling prices, coupled with wide fluctuations in cotton prices. The power situation was also bad in the first few months but got stabilized in the subsequent period. Market demand for yarn was also continuously subdued which forced many units to reduce the working days and lower their production for export orders from global retail giants. On the other hand, from the raw material front during the year 16-17 even though domestic cotton was aplenty, still mills were importing fiber. Quality constraint is observed to be the primary reason for such industry behavior. High trash content, rampant adulteration and abnormal moisture content was observed in domestic supplies and this has resulted in rampant import by many spinners .A cross-section of spinners said that mills in Tamil Nadu have stopped procuring cotton from Gujarat, in particular, and reduced the quantity purchased from Maharashtra due to quality issues. There is said to be authenticated report on the fact that there is a mix up of quality cotton such as Sankar 6 with Comber Noil and carded waste. To make quick money, when demand surges, ginners sell cotton without removing trash. While 2 per cent trash is permissible, in recent months it has soared to 7 per cent. Many traders also liberally douse kapas with water, adding to the moisture content. "The industry experts fears that this could adversely affect the India Cotton branding initiative. "It could be a threat to the entire textile value chain. This has posed additional challenge to procure cotton at competitive costs. Experts in the industry have urged urgent government intervention for stopping such unethical trade practices and also urged for reintroduction of Cotton Control Order and ISI standards be enforced. According to experts in this industry , contracted import volumes could easily touch a record 30 lakh bales. "Mills in Tamil Nadu invariably take the lead in importing the fiber, but this year, spinners in the North have also taken to imports as the realization is 3 to 4 per cent better than the domestic fibre."Such measures will not just conserve forex reserves, but also help every stakeholder in the textile value chain. Despite being the largest producer of cotton and the biggest exporter of yarn, India continues to depend on the US, West Africa and Australia for supply of quality fibre.Cotton farming is sustainable with minimum support from the government. The present state of affairs though would push farmers away from cotton cultivation," is the general industrial observation.
There are about 600 spinning mills registered in Tamil nadu out which majority of them have faced shutdown like situation due to acute competition accentuated by continuous cost pressures from all fronts .The cotton arrivals have been affected to a larger extent due to demonetisation in the second part of the year as farmers preferred cash payment instead of other modes of payment .Spinning mills are under continuous stress .Spinning is feeder industry to weaving and knitting sectors, its fortunes mainly depend upon the dynamics of those sectors This will naturally have a cascading effect on the spinning sector, which feed the weaving and knitting sectors. The spun yarn production has been on the decline month on month from June 2016 onwards. While in oct 2016 all production was lower by about 10% ,cotton yarn production was lower by 12% when compared to the first half of the year .When compared to previous year performance ,countrys export during April nov 2016 was marginally higher, whereas import was lower by 8% in dollar terms.
b) COMPANYS PERFORMANCE
(.i). In Spite of rough market condition as narrated in industry scenario, your company is able to overcome the challenges posed by competitive forces during the year. Thus during the year under review, your Companys turnover increased to Rs.210.40 crores as against Rs.205.92 crores recorded in the previous year. Your Companys performance was much better and earned higher profit for the year 16-17. This is mainly due to cost reduction measures that were adopted by the Company such as tie-up with Private Power Producers to get the required power at a price lesser than the TANGEDCO Power, securing dedicated power supply from EB Substation to all the three units of the Company and minimum use of diesel Gensets, supported by your Companys Wind Turbine generated power. In addition to that the good performance of windmill and price saving in group captive power purchased has helped the company to earn higher profit during the year. These measures helped to achieve improved level of plant utilization to maintain production and quality of the product and achieve reasonable profit after tax of Rs.814.29 lakhs as against Rs.42 lakhs recorded in the previous year.
(ii) Your Companys Wind Turbine Generators (WTGs) recorded generation of electric power of the value of Rs1409 lakhs during the year (Rs.860 lakhs in 2015-16)..
(iii) Bank interest rates remained high during the year, However management has exercised strict control on inventory and thus could maintain the interest costs at previous year level.
c). FUTURE OUTLOOK
Industry expects improvement during the current financial year as cotton prices are stabilizing and yarn prices have started improving from the first quarter of the financial year 2017-18. Considering the present market demand for products like Viscose, Modal, Linen Fiber and value added products like Gassed and Mercerized Yarn, your Company has planned to produce these new products in addition to the existing products Viz., Combed, Carded and Compact Yarn. The Company also started converting its yarn into fabric as a measure of value addition.
On the wind energy side, with all set for the next windy season in the state, wind energy generation has started picking up. The State has a total installed wind energy capacity of 7,685 MW. Last year (2016-17), just about 262 MW was added in the State. The capacity addition was higher in states such as Andhra Pradesh. However, evacuation has improved in Tamil Nadu and during the last financial year, contribution of wind energy to total energy consumed in the State went up to 40 % during the peak wind season. The winds started in March last year and went on till November. Hence, generation was high in 2016-17. This year, winds started picking up in the first week of April and wind energy generation has steadily increased. Majority of the wind energy investors in the State are industries who have wind mills for captive use. "We continue to appeal to the Government to continue with the banking option on wind energy that gives us a competitive edge in costs,".
d) RISKS AND CONCERNS
Your Company has devised risk management policy which involves identification of the risks associated with the business risks as well as the financial risks, its evaluation, monitoring, reporting and mitigation measures. Audit Committee and the Board of Directors of the Company refined the risk management policy of the Company so that the management controls the risk through properly defined frame work. Heads of departments are responsible for implementation of the risk management system as may be applicable to their respective areas of functioning and report to the Board and the Audit Committee. Details of the risk management mechanism and key risks faced by the Company are enumerated in the risk management policy.
Risk Management Policy adopted pursuant to the provisions of Section 134 (3) (n) of the Companies Act 2013 is hosted on the website of the Company under the web link http://firstname.lastname@example.org
e) ENVIRONMENT PROTECTION, HEALTH AND SAFETY (EHS)
EHS continues to receive the highest priority in all operational and functional areas at all locations of your Company. Systematic process safety analysis, audits, periodic safety inspections are carried out by expert agencies and suitable control measures adopted for ensuring safe operations at the site. Various processes as required for Pollution Control and Environmental Protection are strictly adhered to.
f) INTERNAL CONTROL AND SYSTEMS
Your company has in place well established internal control procedures covering various areas such as procurement of raw materials, production planning, quality control, maintenance planning, marketing, cost control and debt servicing. Steps are taken without loss of time, whenever any weakness is observed, to correct the same.
Your Company is certified ISO 9001, ISO 14001 and OHSAS18001 for the systems. Further, your Companys laboratory is also certified by NABL on Global Organic Textile Standard, Better Cotton Initiative and others as displayed on the cover page of this Annual Report.
g) HUMAN RESOURCES MANAGEMENT
Employees are your Companys most valuable resource. Your Company continues to create a favourable environment at work place. Your Company has formulated and implemented various welfare measures for the employees. The Company also recognizes the importance of training and consequently deputes its work force in various work related courses/seminars including important issues like Total Quality Management (TQM), behavioural skills, soft skills, etc. Because of these labour welfare and improvement measures, your Company is able to attract and retain well trained and dedicated workforce.
The fact that relationship with the employees continues to be cordial is testimony to the Companys ability to retain high quality workforce. In view of the aforesaid relationship no man days were lost during the year under report.
h) DISCLOSURE AS PER THE SEXUAL HARASSMENT OF WOMEN AT WORK PLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT 2013
The Company has in place an Anti Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at Work place (Prevention, Prohibition and Redressal) Act 2013. Management of the Company has set up an Internal Complaints Committee (ICC) to redress any complaint received regarding sexual harassment. All the employees of the Company are covered under this policy. Out of 988 permanent employees on the rolls of the Company, 356 are women and 632 are men. No complaint on sexual harassment has been received from any employee during the year and no complaint is pending at the end of the year.
i). COST AUDIT
Though it is not mandatory, as a best Corporate Governance practice, by way of rotation in place of existing Cost auditors of the Company M/s. S. MAHADEVAN & CO., Audit Committee at the Audit Committee Meeting held on 5th May 2017, board of directors have approved the appointment of M/s.K.M.Krishnamurthy & Co., (Firm Reg No 102198 Cost Accountants for audit of cost accounts of the Company. In accordance with the provisions of the Companies Act 2013 and the Rules framed there under, Cost Audit for the Company is applicable for the financial year commencing from 1st April 2017. On the recommendation of the Audit Committee, Board of Directors of the Company approved the appointment of M/s.K.M.Krishnamurthy & Co., Firm Reg. No 102198, Salem, for audit of Cost Accounts of the Company for the year 2017-18 and the resolution for ratification of the remuneration payable to the Cost Auditor for the year 2017-18 will be placed before the members for their ratification at the 43rd Annual General Meeting of the Company scheduled to be held on 12.08.2017.
In view of the Company maintaining the cost records and the statutory requirement for the cost audit of such records, your directors decided to continue the Cost Audit for the year 2016-17. The Cost Auditor will submit to the Board of Directors his report for the year 2016-17 after duly certifying the cost records. Cost Audit Report for the year 2016-17 will be submitted in XBRL format well before the due date.
j) BOARD MEETINGS :
During the year under review five board meetings were held and the intervening gap between any two board meetings did not exceed 120 days. Dates of the board meetings and details of directors attendance at the meetings are furnished in the Corporate Governance report at Annexure VIII.
At the 40th Annual General Meeting of the Company held on 28.9.2014 members had appointed Sri P.S.Ananthanarayanan, Dr.V.Gopalan, Sri N.Asoka, Sri S.Gnanasekharan and Sri Kameshwar M Bhat, as Independent Directors of the Company for a term of five consecutive years from the date of that AGM till the conclusion of the 45th AGM of the Company. Since all the five Independent Directors are not liable to retire by rotation, out of the remaining five non-independent directors, Smt. S.Abirami. opted to retire by rotation at the ensuing 43rd Annual General Meeting. However, she is eligible for reappointment by members at the 43rd AGM of the Company.
The Chairman and Managing Director (CMD) and the two Joint Managing Directors (JMDs) were appointed by members at the 41st AGM of the Company held on 27.9.2015 for a term of 3 years from 1.10.2015 to 30.09.2018 in accordance with the recommendation of the Nomination and Remuneration Committee and the Board of Directors of the Company and the revised (increased) remuneration payable to them during that period was also approved by members by passing Special Resolution at the 41st AGM. However, the CMD and the two JMDs have not availed the increased remuneration till 31.3.2016.
Details of appointment and resignations of directors are shown in corporate governance report.
Declaration by Independent Directors
Independent directors of the Company have submitted a declaration that each of them meets the criteria of independence as provided in Sub-Section (6) of Section 149 of the Act. Further, there has been no change in the circumstances which may affect their status as Independent director during the year.
l) DIRECTORS RESPONSIBILITY STATEMENT AS PER SECTION 134(5) OF THE COMPANIES ACT, 2013
Pursuant to the requirement of Section 134(5) of the Act, and based on the representations received from the management, the directors hereby confirm that:
i. in the preparation of the annual accounts for the financial year 2016-17, the applicable accounting standards have been followed and there are no material departures; However from the FY 17-18 improved accounting standards such as Ind AS is applicable to the company.
ii. they have 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 the financial year;
iii. they have taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in accordance with the provisions of the Act. They confirm that there are adequate systems and controls for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
iv. they have prepared the annual accounts on a going concern basis;
v. they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating properly; and
vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
m) SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS
During the year under view no significant material orders were passed by the Regulators or Courts or Tribunals impacting the going concern status and the operations of the Company.
n) PARTICULARS OF EMPLOYEES - information pursuant to Rule 5 (2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
None of the employees or directors of the Company has drawn remuneration exceeding Rs.8.5 lakhs per month or Rs.102 lakhs per annum during the year.
o) BOARD EVALUATION
Board of Directors carried out annual evaluation of its own performance and that of the Committees and the individual directors pursuant to the provisions of Section 134(3)(p) of the Companies Act 2013, and the corporate Governance requirements prescribed in the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015. Performance of the Board was evaluated as per standard guide line prescribed by SEBI vide circular dt 5th January, 2017after seeking input from the Directors on the basis of board evaluation guideline ,the criteria such as the Board Composition, effectiveness of board process, information flow and functioning of the Board. Performance of the Committees was evaluated by the Board after seeking inputs from the Committee Members on the basis of the criteria such as composition of the Committees, effectiveness of the Committee meetings, etc. and it was observed that the performance of the Board as well as the Committees was adequate.
Performance of the non-independent Directors were evaluated by the Independent directors at the meeting of the Independent directors on the basis of six criteria, viz. attendance and participation; Qualification, knowledge, skill and enterprise; updating of skill and knowledge; individual contribution; adherence to Companys policies and procedures and benefits derived by the Company. On the basis of the above criteria performance of all the non-independent directors were found to be adequate. As regards the performance of the Chairman & Managing Director, after taking into consideration the views of the Executive Directors and the non-executive directors the Independent Directors were of the unanimous view that the Chairman & Managing Director is not only well informed and knowledgeable about the Industry but also has the requisite experience to execute his duties as Chairman and Chief Executive of the Company. His insight and forward looking policies have elevated the status of the Company in the eyes of the stakeholders and the wholesome performance of the Company is in his safe hands and the future of the Company is bright.
Performance evaluation of the independent directors was done by the entire board excluding the director being evaluated. None of the independent director is due for reappointment.
p) FAMILIARIZATION PROGRAMME OF THE INDEPENDENT DIRECTORS
Periodic presentations are made by Senior Management and Internal Auditors at the Board meetings and Committee meetings on the business and performance updates of the Company, global business environment, business risks and its mitigation strategy, impact of regulatory changes on strategy etc. Updates on relevant statutory changes encompassing important laws are regularly intimated to all the Directors including the Independent Directors.
Following are the details of deposits covered under Chapter V of the Companies Act 2013 :
|i. Deposits Accepted from shareholders during the year (2016-17)||: Rs. 82.9 lakhs|
|ii. Deposits remaining unpaid or unclaimed as at the end of the year||: NIL|
|iii. Any default in repayment of deposits or payment of interest thereon during the year||: NIL|
|iv. Total Deposits from shareholders outstanding at the end of the year||: Rs. 438.05 lakhs|
Company has duly complied with the provisions of Section 73 of the Companies Act, 2013 read with relevant rules with respect to fixed deposits.
r) INDUSTRY ASSOCIATIONS
Sri S.Dinakaran, Joint Managing Director of the Company is a member of the Committee of Administration and Chairman of the Yarn Committee of the Cotton Textiles Export Promotion Council (TEXPROCIL), Mumbai and the Confederation of Indian Textile Industry (CITI), Delhi. By virtue of the offices he holds, Sri S.Dinakaran has been representing to the Industries and Finance Ministries at the appropriate time to get relief to the ailing Textile Industry.
s) REPORT ON PERFORMANCE AND FINANCIAL POSITION OF THE ASSOCIATE COMPANIES:
There are two associate Companies
SPMM Health Care Services Pvt. Ltd. - 49.75% investment in the share capital
This Company has recorded total revenue of Rs 3,74,39,022 and profit after tax (PAT) of Rs 17,97,013 during the year ended 31.3.2017 as against Rs. 3,18,59,942 Revenue and Rs. 47,29,843 PAT recorded in the previous year.
Salem IVF Centre Pvt. Ltd. 32.53% investment in the share capital of that Company.
This Company incorporated on 17th November 2014 has recorded total revenue of Rs 1,85,79,117 and Loss of Rs 100,55,242 during the third year of its operations as against the revenue of Rs. 1,81,82,428 and loss recorded Rs 93,31,265 in the Previous Year (Period from 01.04.2015 to 31.3.2016).
Highlights of performance of subsidiaries or Associate Companies
SPMM Health Care Services Pvt Ltd., revenue increased by 17.5% from operations during 16-17 when compared to 15-16. However, Profit after tax has reduced by 62%.,and this is due to increase in operational expenditure by 11.32% in 16-17 when compared to 15-16.
Salem IVF Centre Pvt Ltd., revenue from operations has increased by 2.18% from operations during 16-17 when compared to 15-16. This company was incorporated in November 2014 and is in its 3 rd year of operation and it is in gestation period and is still in progress and will take a few years to earn profit .
t) CHANGES OR COMMITMENTS AFTER THE YEAR END ON 31.3.2017
No material change or commitment affecting the financial position of the Company has occurred between the close of the financial year on 31.3.2017 and the date of this report.
Information pursuant to section 197 (12) of the Act read with Rule 5(1) & 5(2) of the Companies (Appointment and Remuneration of Managerial personnel) Rules 2014 :
(i). Ratio of the remuneration of each Director, Company Secretary, Chief Financial Officer and Chief Technical Officer to the median remuneration of the employees of the Company; AND
(ii) Percentage increase in their remuneration in 2016-17 as compared to the previous year (2015-16): (Median Remuneration : Rs.1,18,560 in 2016-17)
|Name of whole-time Directors and KMP||Remuneration in 2016-17||Remuneration in 2015-16||% increase in 2016-17||Ratio to Median||Ratio of 2016-17||Remuneration to|
|Rs. lakhs||Rs. lakhs||Remn.||Remn.||Revenue||Net Profit|
|Mr.S.Devarajan, CMD||48.00||36.00||33.33||40.59||0.22 %||5.89 %|
|Mr.S.Jegarajan, JMD||45.60||30.00||52.00||38.56||0.22 %||5.60 %|
|Mr.S.Dinakaran, JMD||19.20||6.00||220.00||16.24||0.09 %||2.36 %|
|Company Secretary||11.14||6.85||62.63||9.40||0.05 %||1.37 %|
|Mr. D.Niranjan Kumar, CFO||18.00||18.00||NIL||15.22||0.08 %||2.21 %|
|Mr.J.Sakthivel - CTO||18.00||18.00||NIL||15.22||0.08 %||2.21 %|
|Name of Non-executive Directors||# Sitting fees in 2016-17||# Sitting fees in 2015-16||% increase / (% decrease) in 2016-17|
|Rs. lakhs||Rs. lakhs||Sitting fees|
|Name of Independent||# Sitting fees in 2016-17||# Sitting fees in 2015-16||% increase / (% decrease) in 2016-17|
|Rs. lakhs||Rs. lakhs||Sitting fees|
|Mr.Kameshwar M Bhat||2.95||2.50||18.00%|
# Only sitting fees is payable to Non-executive and Independent Directors for the meetings of the Committee or of the Board attended by them.
(iii) Percentage increase in the remuneration of employees in 2016-17 : NIL
(a) No increase in the sitting fees of Directors.
(b) Variation in the sitting fees paid to Directors depends on their attendance at the Board / Committee Meetings.
(iv) Number of permanent employees on the rolls of the Company : 988
(v) No variable component of the remuneration availed by any director.