tai chonbang textile industries ltd Directors report

TAI CHONBANG TEXTILE INDUSTRIES LIMITED ANNUAL REPORT 2003-2004 DIRECTORS REPORT To, The Members, Tai Chonbang Textile Industries Limited Your Directors present the 11th Annual Report of the Company together with the Audited Statement of Accounts for the year ended as on 31st March 2004. FINANCIAL RESULTS: (Rs. In Lacs) Particulars 31.03.2004 31.03.2003 INCOME Gross Sales and other Income 4290.26 5579.12 Less Excise Duty 239.71 377.09 Net Sales & other income 4050.55 5202.03 Increase/Decrease in Stock (23.52) 214.08 Total income 4027.04 5416.11 EXPENDITURE Cost of Material 2969.12 3776.28 Staff Cost 543.73 577.24 Power Cost 615.50 810.71 Other Expenditure 354.70 261.49 Total Expenditure 4483.05 5425.72 Interest 743.33 646.94 Profit/ (Loss) before Depreciation & Taxation (1199.34) (656.55) Less: Depreciation 815.39 817.13 Profit/ (Loss) Before Taxation (2014.73) (1473.68) Provision for Taxation - - Profit/ (Loss) after Tax (2014.73) (1473.68) Less: Impact of Unsecured Loan written off & Pre operative & Prior period exps 5.72 995.54 Balance carried to Balance Street (2020.45) (478.14) PERFORMANCE OF THE COMPANY During the year under report, Companys sale has gone down by 22% compared to the sale of previous year. Total Sales for the first quarter ended 30th June 2003 was Rs. 1284.39 lacs out of which 70% was domestic sale. In the subsequent quarters, total sales has gone dawn to Rs. 857.38 lacs (domestic sale 63%), Rs. 735.75 lacs (domestic sale 47%) and Rs. 1140.64 lacs (domestic sale 62%) for the quarter ended 30th September 2003. 31st December 2003 and 31st March 2004. For an EOU, 50% of Export sale is considered for domestic sales quota on 3 years accrual basis. Due to dishonouring of the 100% buy-back obligation by Chonbang Co. Ltd South Korea under Distributionship agreement and unremunerative prices in overseas market, the companys export had gone down during these period and naturally, companys domestic sales quota also eroded. Since the company was not in a position to make domestic sales due to the facts as indicated above. it was forced to cut down production. Capacity utilization was around 78% in the first quarter ended 30th June 2003 which had fallen down to 50% in the second quarter and 43% in third quarter. However it is raised to 70% in the 4th quarter ended 31st March 2004 after debonding consequent to conversion from 100% EOU to EPCG Scheme. The overall utilization for the year 2003-04 was 60.33 as compared to 90.30% of the previous year. Only silver lining in the distressing fact of very lower utilisation and sales volume is that sales rate per kg has gone up by 22% from average sales rate of Rs.94.96 per kg in April/ May 2003 to Rs. 115.51 per kg in February/March 2004, thanks to the overall boost up in domestic and export markets from November 2003 onwards. The heavy operational loss is mainly on account of increase in raw material cotton cost by almost 37% in the year 2003-04 as compared to 2002-03 There had been acute shortage of working capital finance. Due to paucity of funds, procurement of cotton in the season was not possible and because of this, purchase cost of cotton had also gone up. Expenses on power has gone up since costlier GEB power was consumed to the extent of 14% as compared to 6% in previous year due to frequent break down of D G Sets. This has resulted into increase in power cost from Rs.4.18 per kg in 2002-03 to Rs.4.90 per kg in 2003-04. Though. part of this increased cost was absorbed by higher sales realization rate, cotton cost has made a very big dent on the profitability. Since sales volume was very low, it was difficult to absorb the high fixed cost which has further increased tire loss CONVERSION FROM 100% EOU UNIT TO EPCG UNIT In spite of these adversities, your directors did not leave any stone unturned. Quota for domestic yarn sales was exhausted and utilization dropped to 27% in October 2003 and a bold decision was taker to convert the status of the company from 100% EOU to EPCG by debonding on making requisite payment of custom and excise duties to the tune of Rs. 135.58 lacs. out of which an amount of Rs 90.98 lacs was capitalized, being related to capital goods. Your directors ventured to take this step since export market has increasingly become unpredictable especially without the support of Chonbang Co. Ltd and company cannot sustain with its EOU status. This step has helped the company to have free access to domestic market without any restriction and at the same time can make export sales with 6% DEPB benefits. REFERENCE TO BIFR The Companys Net worth has become negative as on 31st March 2004 thereby attracting the Provision of Section 15 of the Sick Industrial Companies (Special Provision) Act 1985, thus, in compliance of the said section the company would be required to make a reference to Board of Industrial and Financial Reconstruction. DIVIDEND In view of financial results under review and past losses, your Directors regret their inability to recommend any dividend for the year under report. FIXED DEPOSIT The Company has not accepted any fixed deposit form the public during the year. INSURANCE All the properties and insurable interest of the Company are adequately insured against normal risk. LISTING The equity shares of the company have been listed on the Mumbai Stock Exchange. the Ahmedabad Stock Exchange, and the Calcutta Stock Exchange Association Ltd. The Company has made an application for delisting of its shares from Calcutta Stock Exchange Association Limited, however the confirmation letter for the same is still awaited. Listing fees for the year 2004-05 has been paid to the Ahmedabad and the Mumbai Stock Exchanges. PARTICULARS OF THE EMPLOYEES None of the employee of the Company was in receipt of remuneration in excess of limits prescribed under Section 217(2A) of the Companies Act, 1956. Hence, particulars as required under the Companies (Particulars of Employees) Rules, 1975 are not given. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO A statement giving above details in accordance with section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the report of Board of Directors) Rules, 1988 is annexed hereto and forms part of this Report. CORPORATE GOVERNANCE Pursuant to Clause 49 of the Listing Agreement, a report on the Corporate Governance is annexed hereto and forms part of this Report. Your Companys Statutory Auditors Certificate confirming the compliance of conditions of the Corporate Governance is annexed to and forms part of the Directors Report. DIRECTORS RESPONSIBILITY STATEMENT Your Directors, pursuant to provision of section 217(2AA) of the Companies Act, 1956, hereby confirm :- (a) that in preparation of the annual accounts, applicable accounting standards have been followed and there are no material departure from the prescribed accounting standards in the adoption of the accounting standards. (b) that the accounting policies followed in preparation of the annual accounts have been consistently applied except where otherwise stated in the notes on accounts. The judgement and the estimates in the preparation of annual accounts have been made on a prudent and reasonable basis 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 or loss of the Company for that period: (c) that the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with provisions of the Companies act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (d) that the directors had prepared the annual accounts on a going concern basis. AUDITORS & AUDITORS REPORT The retiring Auditors, M/s Pareek & Associates, Chartered Accountants, are eligible for re-appointment and have expressed their willingness for re- appointment. Your Directors request you to appoint Auditors for the current year. The observations made in the Auditors Report are self-explanatory and therefore, do not call for any further comments under section 217 (3) of the Companies Act, 1956. DIRECTORS Mr. D.J.Mitra and Mr. Ratan Bhura were appointed as additional Director of the company w.e.f 31st January 2004 and Mr. Munish Tyagi, Textile Consultant was also appointed as additional Director of the company w.e.f 30th June 2004. They hold the office upto the date of ensuing Annual General Meeting. The Company has received notices under Section 257 of the Companies Act, 1956 proposing the appointment of Mr. D.J.Mitra, Mr. Ratan Bhura and Mr. Munish Tyagi as Directors of the company liable to retire by rotation. Dasho Wangchuk Dorji, Mr. Rohan Ghosh and Mr. Vinay Killa have resigned form the Board of the Company w.e.f 31st January 2004. Mr. G.C.Bhura has also resigned from the Board of the Company w.e.f 20th April 2004. Yours directors wish to place on record their appreciation of the valuable services rendered by them during the tenure of their office. In accordance with the provisions of the Companies Act. 1956 and the Articles of Association of the Company, Mr T.R.Sharma and Mr. H.V. Puri, Directors, retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment. COST AUDITOR Pursuant to provisions of section 233B of the Companies Act, 1956, the Central Government has directed your Company to carry out audit of the cost accounts in respect of textiles. Accordingly, your Directors have approved the appointment of M/s. B.R. Shah & Co., a firm of cost accountants, to conduct the audit for the year ending 31st March 2004 and 31st March 2005. APPRECIATION Your directors wish to place on record their deep appreciation for the co- operation and support extended by Bank of India, Dena Bank, Reserve Bank of India, Office of Development Commissioner-Kandla Special Economic Zone, Central Excise & Custom Department, Gujarat Electricity Board, Office of Labour Commissioner and various State and Central Government Agencies and look forward for their continued support and co-operation hereafter. The employee relations in your Company remained harmonious and congenial during the year under review. The Directors would also like to place on record their sincere appreciation of the dedicated efforts and services rendered by the employees of the Company at all levels. Your Directors thank our esteemed shareholders, customers, suppliers and business associates for the faith reposed by them in your Company and its management. For and on behalf of the Board Place : Ahmedabad Date : 31st July, 2004 D.J.MITRA MUNISH TYAGI Director Director ANNEXURE TO THE DIRECTORS REPORT STATEMENT CONTAINING PARTICULARS PURSUANT TO THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988 AND FORMING PART OF DIRECTORS REPORT. (A) CONSERVATION OF ENERGY a) Energy Conservation measures taken: 1. Regular Monitoring of Capacities of Motors and appropriate using of H.P. 2. Anti air pressure controls installed. Air leakages are regularly verified. 3. Controlling of humidity by using appropriate S.A. Fans & Return Air Fans. 4. Use of light and air conditioners are being controlled. 5. Recycling of water. b) Additional investments and proposals, if any, being implemented for reduction of Consumption of Energy: The Company as a policy takes necessary steps for investments in energy saving devices. c) Impact of measures mentioned above for reduction of energy consumption and consequent impact on cost of production of goods With the above measures taken, the Company derives better quality of power resulting in better and optimum performance. d) Total energy consumption and energy consumption per unit of production in prescribed From "A"; FORM "A" Disclosure of particulars with respect to Conservation of Energy 1. POWER AND FUEL CONSUMPTION: 1. Electricity: (a) Purchased Units (KWH in Lakhs) 26.65 Total Amount (Rs. In Lakhs) 151.48 Rate/Unit (Rs.) 5.68 (b) Own Generation Through Diesel Generator Units (KWH in Lakhs) 22.91 Units per Ltr. of Diesel Oil 3.57 Cost/ Unit (Rs.) 6.10 Through Furnace Oil Units (KWH in Lakhs) 139.04 Units per Ltr. of Furnace Oil 3.98 Cost/ Unit (Rs.) 2.33 2. Furnace Oil Quantity in MT : 3323 Total Amount (Rs. in Lakhs) : 324.36 Average Rate (in Rs. Per MT) : 9761 II. ELECTRIC CONSUMPTION PER UNIT OF PRODUCTION OF YARN(KG): Current Year : 4.90 Previous Year : 4.18 B. TECHNOLOGY ABSORPTION . FORM "B" Disclosure of particulars with respect to Technology Absorption Research & Development : 1. Specific Areas in which R&D is carried out by the Company : ) Nil 2. Benefits derived as a result of above R&D : ) Nil 3. Future Plan of Action : ) Nil 4. R&D Expenditure : ) Nil Technology absorption, adaptation and innovation 1. Efforts in brief made towards technology absorption, adaptation and Innovation: ) Nil 2. Benefits derived as a result of the above efforts : ) Nil 3. Information regarding technology imported during the last 6 years : ) Nil C. FOREIGN EXCHANGE EARNINGS AND OUTGO 1. Activities relating to exports, initiative to increase exports, development of new export markets for products and export plans: Major exports have been to Korea. The Company has also exported to Taiwan, Honkong, South Africa, Behrin and Bangladesh. 2. Total foreign exchange used and earned i) Total foreign exchange used: (Rs. in Lacs) [a] Imported Capital Goods (C&F) NIL [b] Imported Stores & Spares (C&F) 8.09 [c] Interest on FCTL 50.55 [d] Travelling & others Exp. 1.76 60.40 ii) Total Foreign exchange earned (FOB) Rs. 102.11 Lacs For and on behalf of the Board Place : Ahmedabad Date : 31st July, 2004 D.J.MITRA MUNISH TYAGI Director Director MANAGEMENT DISCUSSION & ANALYSIS REPORT The Textile Industry is one of the oldest and key segments of our economy accounting for almost 15% of Industrial production, 8% of GDP. and 30 to of export earnings and engaging 35 million people in direct and indirect employment. The demand as well as sales rate has gone up since November 2003 both in Export and Domestic Markets. Since our Domestic Sales quota accrued on the basis of 50% Export Sales, as prescribed for 100% EOU, was getting exhausted, this situation created problem to sell in domestic market, the company had contemplated to change its EOU status to EPCG. Considering the favorable disposition of the market, company converted its status from EOU to EPCG unit by paying requisite Custom & Excise duties to the tune of Rs. 135.58 lacs on imported Capital goods, spares parts, stocks in two phases in December 2003 & March 2004. This has positioned the company to have a free access to domestic market. With the dismantling of Quota regime in export of textile goods with effect from 1st January 2005, Export opportunities for India would further open. However, the textile Industries across the world will be under severe competition. Regional Trade Agreements and Preferential Trade Agreements by the USA and EU with select countries will pose formidable challenge for export. As per 2004-05 Budget feedbacks, the domestic demand for cotton yarn is expected to grow by 6%. In the Budget proposals, Excise duty on cotton yarn reduced from 8% to 4% and blended yarn from 16% to 8%. It also offers option to all cotton yarn, fabrics and garment manufactures to opt for complete exemption from CENVET. This effectively brings down the excise duty on the entire cotton textile chain to 0%. The duty cut and option will have a very positive impact on Cotton yarn spinning mills. Theses measures will also make fabrics and garments cheaper and will encourage vertical integration of spinning, weaving , knitting, processing and garments in textile chain. It was also pointed out that CENVET option will diminish hitherto disparities and level playing field between handlooms, power looms and composite mill. A higher growth rate in export market is also predicted as driven by strong off take from China and other non-quota markets which in fact import yarn and re-export fabric and garments. This scenario will have further change with the end of quota regime from 1st January 2005. The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition, and that transactions are authorised, recorded and reported properly. The Internal Control System is supplemented by an extensive program of internal audits by an independent auditor on perpetual basis. The prime objective of such audits, inter alia, is to check the adequacy and effectiveness of internal control system. As a non EOU, the Company will be a major player in medium count segment of the domestic market in and around Gujarat/ Western India. Excise restructuring in the Budget proposals for the year 2004-05, when stabilized, may help the company to establish a dominant role in the domestic market. On export front, the company is mainly concentrating through merchant export. The hope of a favourable moonson alongwith the fact of more area coming under cotton cultivation and introduction of high yield Bt Cotton, the prospect of cotton crop is expected to be better. The discussion on financial and operational performance of the Company is covered in the Directors report.