Suryalakshmi Cotton Mills Ltd Directors Report.

To

The Members

Your Directors are pleased to present their Fifty Sixth Annual Report on the business and operations of the Company and the financial results for the year ended 31st March, 2019.

Financial Results

(Rs. in Lakhs)
2018-19 2017-18
Gross Profit before Interest & Depreciation 4866.16 6841.13
Less : Interest 3734.86 3897.72
: Depreciation & Amortisation expense 2576.08 6310.94 2887.73 6785.45
Profit/(Loss) before prior year Adjustment (1444.78) 55.68
Exceptional Items * 19.05 215.84
Profit / (Loss) before tax for the year (1425.73) 271.52
LESS : Provision for Income Tax for the year - 63.44
LESS : Deferred tax liability (581.90) (306.97)
Profit / (Loss) after tax (843.83) 515.05
ADD : Profit brought forward from last year / retained earnings 12604.42 12390.03
LESS : opening stock Revaluation difference (237.14) -
11523.45 12905.08
Dividend on Equity share capital - 166.72
Corporate Dividend Tax - 33.94
Transferred to General Reserve - 100.00
Profit transferred to balance sheet 11523.45 12604.42

* Exceptional item of the current year includes Profit on sale of assets of Rs.42.51 lakhs, Loss on sale of assets Rs.15.45 lakhs, Refund of Regulatory Liability charges excess charged by MSEDCL in previous year Rs.54.99 lakhs and Excess Provision of Interest Income till December, 2018 written back of Rs.63 lakhs.

(Previous year exceptional item includes GST transition input credit availed on finished goods and work in process of Rs.153.39 lakhs, profit on sale of assets 38.33 lakhs and Excess Provision written back of Rs.24.12 lakhs).

OPERATIONS

During the year under review, the Company registered a marginal decline in the turnover at Rs.742 crores. The adversities that affected the denim industry continue to plague the industry this year as well. This year, the Company was additionally affected by the agitation for enhanced wages of the workers in Denim Division, Ramtek from 2nd week of February, leading to declaration of lock out by the Company.

The cumulative effect of these factors has been the loss of around Rs.8.44 crores. The performance of spinning division was relatively better because of an improved realization. There has been no improvement in the viability of the power plant.

The denim exports have been slightly better, though the margins are under pressure due to intense competition.

DIVIDEND

In view of the loss, the Board regrets its inability to recommend a dividend for the year 2018-19.

CAPITAL EXPENDITURE

During the year under review the Company incurred capital expenditure of Rs.352.61 Lakhs.

EXPORTS

Thegrowthinexportsof14%invaluetermshasbeentheonly silver lining in the current depressed markets. The sluggish domestic markets has intensified the competitiveness in the export markets, thus putting the margins under pressure. In this trying scenario, the Company has been going all out to develop innovative fabrics with particular emphasis on cost optimization fabrics, which consume less water, chemicals and use of recycled fibre / yarn. The Company has been continuing its exports to international brands and is also supplying its fabric in North / South America / Africa / Asian markets. The lockout is expected to be lifted soon and the Company is confident of focusing on the growth of exports with renewed vigour.

FUTURE OUTLOOK

The Company is confident of maintaining its market share. The Company plans to work out appropriate strategies to handle the new situation evolving in the international market from the tariff wars. The Company is firmly of the opinion that the new threats and the risks in the denim industry ought to be converted to opportunities for further growth.

DIRECTORS

Sri Paritosh Agarwal, Managing Director(DINNo.00008738) will retire at the ensuing Annual General Meeting and being eligible, offers himself for reappointment. Further details about the above Director are given in the Notice for the ensuing Annual General Meeting being sent to the shareholders along with the Annual Report.

During the year, Sri V.V.S.Ravindra (DIN : 01887879) has been appointed as Nominee Director by IDBI Bank Limited in the place of Sri A.Mallikarjun (DIN : 02599532). The Board wishes to place on record its appreciation for the valuable services rendered by Sri A.Mallikarjun.

During the year under review Sri R.Surender Reddy was reappointed as Independent Director for the second consecutive term of 5 years from 01/04/2019 through a Postal Ballot. Also the necessary approvals for the continuation of the appointment of Sri R.S.Agarwal and Sri Navrang Lal Tibrewal as Independent Directors from 01/04/2019 till the end of their current terms of appointment were secured from the members in the same postal ballot.

The Board, on the recommendation of Nomination and Remuneration Committee has reappointed Sri L.N.Agarwal as Chairman & Managing Director and Smt. Padmini Agarwal as Executive Director respectively for a further period of 5 years subject to the approval of the members in the ensuing Annual General Meeting.

EVALUATION OF THE BOARDS PERFORMANCE

In compliance with the Companies Act, 2013, and as per the latest Listing Regulations, the annual performance evaluation of the Board its Committees and of Individual Directors was carried out during the year under review. More details on the same are given in the Corporate Governance Report.

FAMILIARISATION PROGRAM FOR INDEPENDENT DIRECTORS

The Company has formulated a familiarisation program for the Independent Directors to provide insights into the Company to enable the Independent Directors to understand its business in depth and contribute significantly to the Company. The details of such program are available in the Companys website www.suryalakshmi.com

DECLARATION BY INDEPENDENT DIRECTORS

The Company has obtained the declaration from the Independent Directors confirming that they meet the criteria of Independence laid down in Section 149(6) of the Companies Act, 2013.

MEETING OF INDEPENDENT DIRECTORS

A separate meeting of the Independent Directors was held under the Chairmanship of Sri R.Surender Reddy, Independent Director on February 11,2 019, inter-alia to discuss evaluation of the performance of Non-Independent Directors, the Board as a whole, evaluation of the performance of the Chairman, taking into account the views of the Executive and Non-Executive Directors and the evaluation of the quality, content and timeliness of flow of information between the management and the Board that is necessary for the Board to effectively and reasonably perform its duties.

The Independent Directors expressed satisfaction with the overall performance of the Directors and the Board as a whole.

POLICY ON APPOINTMENT & REMUNERATION OF DIRECTORS

The Board of Directors has framed a policy which lays down a framework in relation to remuneration of Directors, Key Managerial Personnel and Senior Management of the Company. The Policy broadly lays down the guiding principles, philosophy and the basis for payment of remuneration to Executive and Non-executive Directors (by way of sitting fees and commission), Key Managerial

Personnel, Senior Management and other employees. The policy also provides the criteria for determining qualifications, positive attributes and Independence of Directors and criteria for appointment of Key Managerial Personnel / Senior Management and performance evaluation which are considered by the Nomination and Remuneration Committee and the Board of Directors while making selection of the candidates. The above policy has been posted on the website of the Company at www.suryalakshmi.com.

DIRECTORS RESPONSIBILITY STATEMENT

Your Directors state that:

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) the Directors had selected such accounting policies and applied them consistently and made judgements 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 and loss 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 the Companies Act, 2013 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; and

(e) the Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively.

(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.

DISCLOSURES UNDER THE COMPANIES ACT, 2013

i) Annual Return:

The extract of Annual Return as per the provisions of Section 92 of the Companies Act, 2013 and Rule 12 of Companies (Management and Adminsitration) Rules, 2014 in form MGT-9 is annexed to this Boards Report. (Annexure -5)

The Companys Annual Return has been hosted on Companys website and can be accessed at the weblink www.suryalakshmi.com

ii) Number of Board Meetings:

The Board of Directors met four times during the year 2018-2019. The details of the board meetings and the attendance of the Directors are provided in the Corporate Governance Report.

iii) Changes in Share Capital:

There was no change in the share capital during the year under review.

iv) Audit Committee:

The Board has constituted the Audit Committee which comprises of Sri R. Surender Reddy, as the Chairman and Sri R.S.Agarwal, Sri Navrang Lal Tibrewal and Sri V.V.S.Ravindra as the members. More details on the committee are given in the Corporate Governance Report.

v) Related Party Transactions:

All the related party transactions are entered into on arms length basis and are in compliance with the applicable provisions of the Companies Act 2013 and the Listing Regulations.

There are no materially significant related party transactions made by the company with Promoters, Directors or Key Managerial Personnel etc. which may have potential conflict with the interest of the company at large. Thus disclosure in Form AOC-2 is not required. All Related Party Transactions are presented to the Audit Committee and the Board. Omnibus approval is obtained for the transactions which are foreseeable and repetitive in nature. A statement of all related party transactions is presented before the Audit Committee and the Board on a quarterly basis, specifying the nature, value and terms and conditions of the transactions. The Related Party Transactions Policy as approved by the Board is uploaded on the companys website at the web link: http://www.suryalakshmi.com/policyonrelated.html

vi) REPORTING OF FRAUDS

There was no instance of fraud during the year under review, which required the Statutory Auditors to report to the Audit Committee and / or Board under Section 143(12) of Act and Rules framed thereunder.

vii) No Loans/Guarantees / Investments under Section 186 of the Companies Act, 2013 have been made during the year.

viii) There were no significant and material orders passed by the Regulators/ Courts that would impact the going concern status of the Company and its future operations.

MATERIAL CHANGES AND COMMITMENTS

The Denim unit has been under lock out and the suspension of operations at the Denim Plant has badly impacted the Companys profitability for financial year 2018-19 and also the results in the current financial year 2019-20.

CORPORATE GOVERNANCE

As per the latest Listing Regulations on Corporate Governance, Management Discussion and Analysis Report forms part of the Annual Report (Annexure - 6). The Company has complied with the corporate governance requirements under the Companies Act, 2013 and as stipulated under the Listing Regulations. A separate section on corporate governance under the Listing Regulations, along with a certificate from the auditors confirming the compliance, is annexed and forms part of the Annual Report (Annexure - 1).

CORPORATE SOCIAL RESPONSIBILITY POLICY

At Suryalakshmi a major concern has been, the sincere effort by the Company to recognize the role played by the Society at large, the environment and its human resources in its sustainability and growth and to strive to discharge its social responsility as a corporate citizen. To this end, the Company has always tried to strike a fine balance of economic, environmental and social commitments.

The sustainable stewardship mantra is not limited to philanthropy, but encompasses holistic community development and other initiatives to strengthen business sustainability. The core areas for Suryalakshmis Corporate Social Responsibility (CSR) Programmes for this year have been health care, environment and education. Details of the projects / activities implemented by the Company are furnished in a separate Annexure-2 to this report. The Company constituted a Committee of CSR consisting of Sri L.N.Agarwal, Sri Paritosh K. Agarwal and Sri R.Surender Reddy, with Sri L.N.Agarwal as Chairman.

The Company could not spend the planned amounts on the CSR activities in view of certain pending approvals from the local authorities. Steps are being taken to obtain the same at the earliest and complete the commitments.

SUSTAINABILITY AWARD

You will be happy to know that the Garment Division of the Company was recipient of Sustainable Organisation of The Year 2019 award in the manufacturing sector.

STAKEHOLDERS RELATIONSHIP COMMITTEE

The reconstituted Stakeholders Relationship Committee consists of following Directors.

Mr. Navrang Lal Tibrewal, Chairman (Independent Director), Sri L.N. Agarwal, member, Sri Paritosh Agarwal (member) and Sri E.V.S.V. Sarma, Compliance Officer & Company Secretary.

During the financial year, stakeholders relationship committee meeting was held on 12/11/2018.

RISK MANAGEMENT

The Company has instituted a proper mechanism for identifying and establishing controls to effectively manage different kinds of risks viz., Trend Related Risks, Raw Material Risks, Brand / Technology Risks, Operational Quality Risks, Human Resources Risks, Regulatory Risks and Financial Risks. A Committee headed by Sri Paritosh Agarwal, Managing Director periodically reviews the risks and takes steps to mitigate identified risks.

WHISTLE BLOWER POLICY

The Company has in place a Whistle Blower policy for vigil mechanism for Directors and employees to report to the management about unethical behaviour, fraud, violation of Companys Code of Conduct, which also ensures safeguards against victimization of those employees who seek to make use of the free access to the Audit Committee for this purpose. None of the Personnel has been denied access to the audit committee. The Whistle Blower Policy has been posted on the website of the Company at www.suryalakshmi.com.

DECLARATION ABOUT COMPLIANCE WITH THE CODE OF CONDUCT BY MEMBERS OF THE BOARD AND SR. MANAGEMENT PERSONNEL.

The Company has complied with the requirements of Code of Conduct for Board members and Sr. Management Personnel.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (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 Workplace (Prevention, Prohibition and Redressal) Act, 2013. Internal Complaints Committee has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary and trained) are covered under the Policy. The following is a summary of sexual harassment complaints received and disposed off during each Calender year:

a) No. of Complaints received - NIL
b) No. of Complaints disposed off during the year - NIL
c) No. of cases pending as at end of the Financial Year - NIL

AUDITORS

I. Statutory Auditors and their Report:-

M/s.K.S.Rao & Co., Chartered Accountants (ICAI Firm Regn.No.003109S) were appointed as Statutory Auditors of the Company for a period of five consecutive years at the Annual General Meeting (AGM) of the members held on 28/08/2017 on a remuneration mutually agreed upon by the Board of Directors and the Statutory Auditors. Their appointment was subject to ratification by the members at every subsequent AGM held after the AGM held on 28/08/2017. Pursuant to the amendments made to Section 139 of the Companies Act, 2013 by the Companies (Amendment) Act, 2017 effective from May 7, 2018, such ratification is no longer necessary.

The Company has received the prescribed certificate from the Auditor regarding the continuance and the necessary consent for his appointment as Auditor.

The Auditors Report to the shareholders for the year under review does not contain any qualification, reservation or adverse remark.

II. Cost Auditor and Cost Audit Report

As per the requirements of the Section 148 of the Act read with the Companies (Cost Records and Audit) Rules, 2014 as amended from time to time, your Company is required to maintain cost records and accordingly, such accounts are made and records have been maintained relating to Textile Divisions every year.

Pursuant to Section 148 of the Companies Act, 2013 the Board of Directors on the recommendation of the Audit Committee, has appointed M/s. Aruna Prasad & Co., Cost Accountants (Firm Registration No. 100883) as the Cost Auditors for the Financial Year 2019-20 and has recommended their remuneration to the shareholders for their ratification at the ensuing Annual General Meeting. M/s. Aruna Prasad Co., Cost Accountants have confirmed their appointment is within the prescribed limits and also certified that they are free from any disqualification.

III. Secretarial Auditor and Secretarial Audit Report

The Board had appointed Mr.K.V.Chalama Reddy, Company Secretary in Whole-time Practice (M.No. F9268), to carry out Secretarial Audit under the provisions of Section 204 of the Companies Act, 2013 for the financial year 2019-20. The report of the Secretarial Auditor does not contain any qualifications, reservation or adverse remarks and is annexed to this report as Annexure -3.

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

Your Company has an effective and adequate internal control systems in place commensurate with the size and complexity of the organisation. Internal and operational audit is carried by M/s.K.Vijaya Raghavan & Associates LLP, a reputed firm of Chartered Accountants. The Internal Audit system is designed to meet the statutory requirements as well as ensure proper implementation of management and accounting controls. The internal auditors submit their report to the Managing Director and also to the Audit Committee, which reviews the report and ensures that the Audit observations are attended to by the Management.

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

Information on conservation of energy, technology absorption, foreign exchange earnings and out go, as required to be given pursuant to provision of Section 134 of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 is annexed here to marked Annexure-4 and forms part of this report.

DEPOSITS

The Company has not accepted any deposits from the public during the year under review.

COMPLIANCE WITH SECRETARIAL STANDARDS.

The Company has complied with the Secretarial Standards issued by the Institute of Company Secretaries of India.

EMPLOYEES

Periodic Training programmes for developing a skilled workforce, personality development programmes, yoga camps, etc., encouragement of employee participation in district / state level sports events are regularly undertaken. An integrated woman focused program trains unskilled women to undertake skilled jobs at its units. Disclosure pertaining to the remuneration and other details as required under Section 134 & 197(12) of the Act, and the Rules framed thereunder is enclosed as Annexure-7 to the Boards Report.

ACKNOWLEDGEMENTS

The Board of Directors are pleased to place on record their appreciation of the cooperation and support extended by Banks and various State and Central Government Agencies. The Board also wishes to place on record its appreciation of the valuable services rendered by the employees of the Company.

for and on behalf of the Board
Date : 30th May, 2019. L.N.AGARWAL
Place : Secunderabad Chairman & Managing Director

Annexure 4

Details as required under Companies (Accounts) Rules, 2014.

A. CONSERVATION OF ENERGY

(i) the steps taken or impact on conservation of energy; 1. Arresting compressed air leakages in various machines / pipelines.
2. Further replacement of normal lamps by LED lights.
(ii) the steps taken by the company for utilising alternate sources of energy; 3. Installation of PFD on softener pumps.
4. Installation of new PLC and new cooling tower.
(iii) the capital investment on energy conservation equipments; 5. Utilisation of rice husk instead of coal in process boilers.

B. TECHNOLOGY ABSORPTION

(i) the efforts made towards technology absorption; NOT APPLICABLE
(ii) the benefits derived like product improvement, cost reduction, product development or import substitution; NOT APPLICABLE
(iii) in case of imported technology (imported during the last three years reckoned from the beginning of the financial year)-
(a) the details of technology imported; NIL
(b) the year of import; NOT APPLICABLE
(c) whether the technology been fully absorbed; NOT APPLICABLE
(d) if not fully absorbed, areas where absorption has not taken place, and the reasons thereof; and NOT APPLICABLE
(iv) the expenditure incurred on Research and Development. Rs.10.08 lakhs

C. Foreign Exchange Earnings and Outgo :

The Foreign Exchange earned in terms of actual inflows during the year and the Foreign Exchange outgo during the year in terms of actual outflows.

(Figures Rs. in Lakhs)
2018-19 2017-18
Foreign Exchange Earned
FOB Value of Exports 18090.19 15656.37
CIF Value of Exports 18278.23 15878.27
Foreign Exchange Used
(a) Commission on export sales 245.84 233.89
(b) Foreign Travel Expenses 26.29 19.87
(c) Raw material 1831.68 778.46
(d) Plant / Machinery & Others 1.18
(e) Stores & Spares 2345.39 1707.75
(f) Repayment of loans 349.84
(g) Interest 17.60
(h) Foreign Technical and Consultancy Services and 0.97 21.01
(i) Others 9.78 41.94

Annexure 7

Statement of particulars as per Rule 5(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

(i) The ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year 31ST March, 2019;

Sl.No. Name of the Director Ratio of the remuneration to the median remuneration of the employees
1. Sri L.N.Agarwal 106.91
2. Sri Paritosh K. Agarwal 93.88
3. Smt. Padmini Agarwal 62.39

(ii) The percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year.

Sl.No. Name of the Director Percentage increase in the remuneration
1. Sri L.N.Agarwal NIL
2. Sri Paritosh K. Agarwal NIL
3. Smt. Padmini Agarwal NIL
4. Sri Siddhant Sharma NIL
5. Sri E.V.S.V.Sarma NIL
6. Sri P.S.Subramanyam NIL

(iii) The percentage increase in the median remuneration of employees in the financial year;

8%

(iv) The number of permanent employees on the rolls of company;

There are 3873 employees on the rolls of the Company.

(viii) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration;

8%

(xii) Affirmation that the remuneration is as per the remuneration policy of the Company.

The remuneration paid to the Key Managerial Personnel is as per the Remuneration Policy of the Company.

On behalf of the Board
Place : Secunderabad L.N.Agarwal
Date : 30th May, 2019. Chairman & Managing Director

STATEMENT OF PARTICULARS OF EMPLOYEES PURSUANT TO SECTION 134 OF THE COMPANIES ACT, 2013 READ WITH RULE 5(2) OF THE COMPANIES (APPOINTMENT & REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014

List of Top 10 salaried employees for the financial year ended 31st March, 2019.

S. No Name of the employee Designation Remuneration received (INR) in Lakhs Nature of the employment Qualification Experience in years Organisation worked for before Suryalakshmi Date of commencement of the employment Date of Birth Age of the employee % of the equity shares held by the company Wether the employee is relative of any Director or Manager
1 Mr. L N Agarwal Chairman & Managing Director 80.20 Regular Undergraduate 57 NIL 22/6/1994 8/9/1933 86 8.18 Yes
2 Mr. P K Agarwal Managing Director 70.42 Regular Graduate 24 Suryavanshi Spinning Mills Limited 6/9/1994 18/3/1973 46 8.87 Yes
3 Mrs. Padmini Agarwal Wholetime Director 46.8 Regular Graduate 9 Suryakiran International Limited 15/5/2010 1/1/1975 44 5.83 Yes
4 Mr. Siddhant Sharma CEO-Denim Division 39.55 Regular B.Tech (Textile) 30 ETCO Denim 27/2/2017 8/7/1964 55 Nil No
5 Mr. Goutam Dhang President 23.76 Regular B.Sc. (Technology) RSWM Ltd. 10/9/2016 2/1/1967 52 Nil No
6 Mr. M Haragopal Vice President - Garment Division 20.88 Regular B.A. (MES), Master of Financial Management 21 Sai Lakshmi Industries 4/5/2007 9/8/1975 44 Nil No
7 Mr. E V S V Sarma Company Secretary 26.02 Regular B.Sc, ACMA, ACS, LLM 47 Transport Corporation of India 3/5/1995 11/2/1951 68 0.03 No
8 Mr. Prabal Kumar G M - Exports 20.16 Regular Masters in Management; Masters Diploma in International Trade 24 RSWM Ltd 18/4/2014 1/8/1969 50 Nil No
9 Mr. Vasudeo Tipre G M - Exports 19.85 Regular BSc Statistics , MBA Marketing 25 Mafatlal Industries Ltd-Denim Division 25/9/2014 28/6/1969 50 Nil No
10 Mr. P Siva Subramanyam President (Finance) 19.14 Regular BSc. ACA 31 Andhra Cements Ltd 1/9/1992 15/12/1961 57 0 No