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CT Cotton Yarn Ltd.

BSE: 500094 Sector: Industrials
NSE: CTCOTTON ISIN Code: INE107D01019
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CT Cotton Yarn Ltd. (CTCOTTON) - Director Report

Company director report

CT COTTON YARN LIMITED ANNUAL REPORT 2007-2008 DIRECTORS' REPORT Dear Members Your Directors are pleased to present the 17th Annual Report on the performance of your company during period ended as on 31st March 2008 along with the Audited statement of Accounts and Auditors Report for the reporting period. FINANCIAL RESULTS The financial results pertain to the period commencing from 1st January 2007 to 31st March 2008 thus covering a period of fifteen months. The board of directors in their meeting held on 31st October 2007 has decided to adopt the financial year as working period of the company from the period beginning froth 01st April 2008 onwards. PARTICULARS For the period 01.01.2007 to 31.03.2008 15 Months (Rs. in Lakhs) Operating Loss before prior period Adjustments & extraordinary income (227.45) Financial Charges 1.53 Depreciation 399.52 Net Profit/ Loss (628,50) Prior Period Adjustment & Extraordinary items 64.52 Provision for Taxes - Excess Provision written back 0.13 Fringe Benefit Tax (0.03) Deficit Carried to Balance Sheet (563.88) OPERATIONAL REVIEW 8 FUTURE PROSPECTS During the fifteen months period under review, the production of cotton yarn was 1977.60 MT and production of Polyester Staple Fiber (PSF) was 41.65 MT The company achieved a total turnover of Rs.1950.89 lakh. The company has also earned other income to the tune of Rs. 6.00 Lakh which includes interest on security deposit with M.P. State Electricity Board of Rs. 4.99 Lakh. Due to deteriorated financial position of the company which led to the shortage of raw material and other factors the production of the company remained stopped for a period of three months. The management of the company once again managed to get the plant operational by infusing some liquidity and also getting some support from the raw material suppliers. However the ever increasing pressure of the secured lender for the repayment of their dues coupled with the company's poor financial position ultimately forced IFCI Ltd.,one of the main secured lender while acting under SARFAESI Act to take over the physical possession of the factory of the company situated at 25-B, Malanpur Industrial Area, Malanpur, Distt. Bhind, Gwalior, M. P vide Panchnama dated 13th March 2008. DIRECTORS During the year Mr. Ashwani Dewan resigned from the post of managing director as well as director on 26th February 2008. Mr. Neeraj Jain, Non-Executive Independent Director has resigned from the post of directorship of the company on 26th February 2008. Mr. Mahendra Sharma who was appointed as an additional director in the meeting of the Board of Directors held on 26th April 2007; ceased to be the director as per the provisions of Section 260 of the Act since he was not reappointed in the previous AGM held on 30th June 2007. We hereby acknowledge the valuable contribution made by Mr. Ashwani Dewan, Mr. Neeraj Jain and Mr. Mahendra Sharma during their tenure on the Board. Mr. Laxman Prasad Kashyap was appointed as an additional director w.e.f 17th December 2007. As per the provisions of Section 260 of the Companies Act, his term of office expires at the ensuing AGM. The company has received a notice under Section 257 of the Companies Act, 1956 proposing the candidature of Mr. Laxman Prasad Kashyap for the post of director of the company. The relevant item for the appointment of Mr. Laxman Prasad Kashyap as a director, of the company is made part of the notice of the ensuing Annual General Meeting of the company. Mr. Sanjay Nalthani was appointed as an additional director w.e.f 17th December 2007. As per the provisions of Section 260 of the Companies Act, his term of office expires at the ensuing AGM. The company has received a notice under Section 257 of the Companies Act, 1956 proposing the candidature of Mr. Sanjoy Naithani for the post of director of the company. The relevant item for the appointment of Mr. Sanjay Naithani as a director of the company is made part of the notice of the ensuing Annual General Meeting of the company. Mr. Harshmnai was appointed as director of the company at the previous annual general meeting held on 30th June 2007. Mr. Harshmani Pant, director of the company retires by rotation and being eligible offers himself for the reappdlntment. The relevant item for the appointment of Mr. Harshmani Pant as a director of the company is made part of the notice of the ensuing Annual General Meeting of the company. The company has posted its requirement for the induction of an Independent director on the Board of the company on the website 'Primedirectors.com' developed by SEBI DIVIDEND Your Directors are not in a position to recommend the payment of dividend far the year under report due to the accumulated losses in the company. CORPORATE GOVERNANCE The company has made a conscious effort to institutionalize Corporate Governance. practices and we believe that It shall go beyond adherence to the regulatory framework. Our corporate structure, business and disclosure practices have been aligned to our Corporate Governance Philosophy. Your company always look forward to follow the best corporate governance policies that ensure enhancement of shareholders value, association of the customers, support from the suppliers and adherence to all the regulatory requirements. A comprehensive report on Corporate Governance is attached to this report. The certificate of the Statutory Auditors in line with clause 49 of the stock exchange Listing Agreement supports our claim. This certificate is annexed to and forms pert of the Director's Report. MANAGEMENT DISCUSSION AND ANALYSIS As required under clause 49 of the Listing Agreement with the Stock Exchanges, Management Discussion and Analysis forms part of this report and is annexed herewith. AUDITORS M/s Deepak Gulati &Associates, Chartered Accountants, New Delhi, the Statutory Auditors of the Company holds office until the conclusion of the ensuing Annual General Meeting and they have expressed their inability to continue as the statutory auditor of the company. The company proposes the name of M/s Amit Krishna Agrawal & Co., Chartered Accountants, Hathras to act as the statutory auditor of the company. The relevant item for the appointment of M/s Amit Krishna Agrawal & Co, Chartered Accountants, Hathras as a statutory auditor of the company is made part of the notice of the ensuing Annual General Meeting of the company. The Company has received a certificate u/s 224(1B) of the Companies Act, 1956 from M/s Amit Krishna Agrawal & Co, Chartered Accountants to the effect that their appointment as Statutory Auditors of the company, if made, will be well within the limits as prescribed. AUDIT COMMITTEE The Audit Committee comprises of Mr. Sanjay Naithani, Independent Non- Executive director to be the Chairman and the two members being Mr. Harshmani Pant (Professional Non-Executive director) and Mr. L.P Kashyap (Professional Executive director). The company has posted its requirement for the induction of an independent director on the Board of the company. All the members of the Audit Committee are qualified and having insight to interpret and understand financial statements. During the year, the Audit Committee of the company has been reconstituted after the appointment of Mr. Hatshmani Pant as director in the Board meeting held on 05th July 2007 and again reconstituted consequent to the resignation of Mr. Neeraj Jain & Mr.Ashwani Dewan and appointment of Mr. Sanjay Naithani and Mr. L.P Kashyap in the Board meeting held on 26th February 2008 and Mr. Sanjay Naithani & Mr. L.P.Keshyap were, inducted as members of the committee. AUDITORS' REPORT Your directors are pleased to provide the explanation in respect of the points raised and qualified by the auditor in their audit report as presented to the shareholders The explanations to the points enumerated in the audit report are as follows: a) Note no. 3(a)(I) -The unprecedented events which took place in the period of reporting led to the entire factory being taken over by the IFCI Limited in order to realize its debts. Also losses accumulating year by year led to the erosion of the net worth of the company. Yet the management of the company is optimistic and is contemplating to enter the trading business in textile sector with the promise of full support: of its old and loyal customers. The management envisages that this activity of trading in textile sector will enable the company to run as going concern. b) Note no. 3(a)(II)- The company had with the approval of the Board of Directors of the company had suspended the provision of interest, penal interest, penal charges and liquidated damages payable to the bankers and Financial Institution. The management had a view that since the financial position of the company is; not allowing it to service the debt of the banks and Financial Institution, it was better that these element may be suspended which inflate the losses as reported to its shareholders. c) Note no. 3(a)(III) - The outstanding balances of the banks and financial institution could not be confirmed in spite of several reminders since the cases/ counter claims are pending before DIRT for final disposal. In respect of unconfirmed bank balances with scheduled bank incurrent accounts and margin money accounts, your directors wish to state that since these accounts were in operations before the change of the management, these accounts had become non-operational and request for closure of the said accounts were made. Since the same request is still pending and the respective banks have not even confirmed the balances in the respective accounts after the several reminders. d) Note no. 3(a)(IV) - The Company declared its last dividend in the year 1995-96. The dividend account for the distribution of the declared dividend was opened with UCO bank. In the year 2001, there was a change in the management and the employees handling these accounts left the organization after the change in the management and no proper records in respect of these accounts could be traced. The company had several times written to UCO Bank for providing it with the statement so as to ascertain the amount outstanding in respect of unpaid/ unclaimed dividend in these accounts so that the same could be transferred to the Investor Education and Protection Fund. But no response has been received till date from the respective bank and this balance of Rs. 8.92 lacs is the amount being carried forward since 2001 in the absence of any further confirmation from UCO bank. The company has decided to file an application under RTI Act 2005 to collect the information in respect of these accounts. e) Note no. 3(a)(V) - These claims are of contingent nature since cases in the respective courts are pending and subject to settlement with the respective suppliers. f) Note no. 3(a)(VI) - The sales tax (CST and local tax) demand imposed by Assistant Commissioner Commercial Tax, Gwalior vide his order dated 29th January, 2007 for the assessment year 2003-04 carries a provision of appeal against the demand and the management has forwarded its papers pertaining to the matter for legal opinion and is of the view that it shall proceed to file appeal against the demand. Thus, it is of contingent nature, g) Note no. 3(a) (VII) - The inability of the company to repay the debts of the secured lenders ultimately resulted in the physical possession being taken over by the IFCI Ltd., on 13th March 2008. FIXED DEPOSITS Your Company has not accepted any deposits from the public during the year under review. PARTICULARS OF EMPLOYEES None of the employees was in receipt of remuneration as mentioned under Section 217(2A) of Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION,FOREIGN EXCHANGE EARNINGS AND OUTGO Particulars as required under Section 217(1)(e) of the Companies Act, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are set out in the Annexure to this Report. DIRECTOR'S RESPONSIBILITY STATEMENT In terms of sub-section 2AA of section 217 of the Companies Act, 1956, the Board of Directors hereby States that: 1. That in the preparation of the annual accounts for the fifteen months period ended as on 31st March, 2008, the applicable accounting standards have been followed alongwith proper explanation relating to material departure; 2. That the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at end of the financial year and of the losses of Company for the period under review; 3. The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. 4. That the Directors have prepared the annual accounts for the fifteen months period ended 31st March, 2008 on a going concern basis. ACKNOWLEDGEMENTS The Board places,on record its gratitude to the shareholders, various Banks / Financial institutions and the various Government departments for their continued support and assistance provided by them to the company. The Board also conveys its appreciation to all its customers, suppliers and other associated concerns for remaining associated with the company and also for the continued confidence in the company, The Board wishes to place on record its special thanks to the employees of the company working at all levels who had with their sheer hard work contributed their best to the organization. For and on behalf of the Board Place : New Delhi (HARSHMANI PANT) (SANJAY NAITHANI) Dated : 02nd September 2008 Director Director ANNEXURE TO DIRECTORS' REPORT MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENT: Cotton area continued to Increase in India and the U.S. in 2005. The distribution of cotton area among regions In India changed little year to year. The central states of Maharashtra, Gujarat, and Madhya Prdidesh continue to plant approximately 63. percent of India's total cotton area. The U.S. is currently forecast to export 16 million bales this year,. up 1.5 million bales from last year, compered to India's 1.8 million bales,Although India's cotton exports are forecast to more than double this year, it is unlikely to displace very much U.S. cotton in other markets this year. Cotton consumption in India IS unlikely to keep pace with India's growing production. An increasing amount of India's cotton will find its way into export channels, particularly If world prices rise relative to domestic prices, as the rising stock situation is unsustainable. India's increased cotton production will have a growing impact on the U.S. cotton industry in future years: CCYL does not envisage any problem in marketing of its finished products as it has a widely established dealer and distributor network. The emphasis will be to strengthen the existing dealer and distributor network, and,.to expand the same. OPPORTUNITIES AND THREATS The cotton yarn industry has been showing signs of increasing production and the long term outlook and growth prospects of the industry are also encouraging. The company has established a position for itself in the market as; supplier of cotton yarn and the product quality has been. acceptable. The company expects that specialization in Cotton Yarn will provide further opportunities to increase the customer base. But as per the records available it has been' noticed that as an industry cotton yarn's production in India has been decreasing from the financial year, 19b5-1996 up to 2003-2004. After last year's record cotton production, the U.S is forecast at the second highest production on record at 22.7 while India's cotton production forecast is equal to last year's record: Thus, the company looks forward to increase the capacity utilization of the plant and also to build up a 'good distribution network. SEGMENT -WISE /PRODUCT WISE PERFORMANCE Since the company manufactures only one product i.e cotton yarn, reporting of product wise performance is not applicable to the company. OUTLOOK Analysis of the textile industry provides that the industry shall witness an upward movement. Thus, considering the fortunes of the industry, company looks forward to increase its operations. The company has an overview that it can be on better margins if it get itself diversified into the production of combed yarn, readymade garments and made ups which are currently in demand and fetching good prices in the international market. RISKS AND CONCERNS The company has adopted a risk management process which works on the evaluation of the associated business risk so as to enable the company to survive in the competitive environment. The company looks forward to get itself: diversified into the production of other product which has a stable and growing market. The complete evaluation of the market in respect of these products will be carried out and calculations for the risk factor involved will be undertaken to enable the company to make a foray into the new market. INTERNAL CONTROL SYSTEM AND ADEQUACY The company has set up an internal control system that functions at various levels of the organization. The system ensures compliance with the relevant laws & regulations, efficiency of operations, minimization of wastage, disclosure & adequate reporting of financial transactions, proper administration. The internal control system in the company works on the delegation of responsibility attached with the accountability for the respective assignments. The Audit Committee of the company periodically reViews and ensures adequacy of internal control system prevalent in the organization. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE The Government allows a 100% Export Oriented Unit (106% EOU) to sell only 50% of its exports (Considered on F.O.B. value basis) in the Domestic Tariff Area (DTA) market. Since intbrnational prices of the company's products have declined substantially, it is unremunerative to export at the present time. The emerging paradox is that in the absence of export, the company is not allowed to sell in the DTA. As a result of developments in the international market in the past couple of years, the margins in export of yarn had shrunk, and were also negative at times. Due to peculiar position of the company as an EOU, it was forced to accept unremunerative orders in the international market to maintain a high level of aggregate production and be able to sell in the DTA; the loss incurred in the export sales was thus required to be made good from sales in DTA (the latter suffering from impost of custom duty). During the fifteen months period under review, the production of cotton yam was 1977.60 MT and production of Polyester Staple Fiber (PSF) was 41.65 MT The company achieved a total turnover of Rs. 1950.89 lakh. The company has also earned other income to the tune of Rs. 6.00 Lakh which includes interest on security deposit with M. P Stag Electricity Board of Rs. 4.99 Lakh. The company was unable to service its debt both by way of payment of interest and repayment of principal. Thus, it was decided by the management to suspend the providing of interest, penal interest, penal charges and liquidated damages payable to bankers, FIs w.e.f 01/04/2005. Due to inability of the company to settle with secured lender, IFCI, Ltd., one of the main secured lender while acting under SARFAESI Act took over the physical possession of the factory of the company situated at 25-B, Malanpur Industrial Area, Malanpur, Distt. Bhind, Gwalior, M.P vide Panchnama dated 130, March 2008. HUMAN RESOURCES The human resource department of the company works for the company development, motivation, training of the employees of the company. Because of the various recreational efforts being put by the HR department of the company, the employees morale and dedication remains high which makes them to contribute their fullest and best to the organization, CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis and in the Directors' Report, describing the company's objectives, projections and estimates, contain words or phrases such as 'will', 'plan' and similar expressions or variations of such expressions that are forward looking and progressive within the meaning of applicable laws and regulations. Actual results may vary materially from those expressed or implied by the forward looking statements due to risks or uncertainties associated therewith depending upon economic conditions, government policies and other incidental factors. Readers are cautioned not to place undue reliance on these forward-looking statements. ANNEXURE TO DIRECTOR'S REPORT TOTAL ENERGY CONSUMPTION AMOUNT IN RS. Current Previous Period Year 15 months 12 months 1. CONSERVATION OF ENERGY A. POWER & FUEL CONSUMPTION. 1. Electricity a) Purchased (i) Unit 11000700 14355900 (ii) Total Amount 46043445 60742571 (iii) Rate/Unit 4.19 4.23 b) Own Generation (i) Unit - - (ii) Units per ltr - - (c) Cost/Unit - - 2. Coal (i) Quantity N.A N.A (ii) Total Cost N.A N.A (iii) Average Rate N.A N.A 3. Furnance Oil 0 0 4. Other/Internal Generation N.A N.A b. Consumption of electricity per unit of Cotton Yarn Production. 5.45 5.86 II. DISCLOSURE OF PARTICULARS WITH RESPECT TO ABSORPTION A. Research and Development: Specific Area in which R&D carried out: The Company has an R & D Department equipped with the latest sophisticate machines to monitor the quality parameters at each stage of production. This ensure consistently good quality of yarn. Benefits Derived as a result of R&D: The company in order to survive in the competitive world needs to develop its quality parameters that are acceptable to the market. The R&D department of the company dedicatly works on the measures required for making the product competitive in the market. Future Plan of Action The company plans to arrange for training /development of its R&D personnel that will enable them to get . themselves updated with the advanced technology and ways of production that they further contribute to the production and quality of the product of the company. Expenditure on R&D Being a process based production process, no external R&D was carried out. Only the ways of improvement as suggested by the R&D department are implemented in the production process and the salary of the R&D department forms a negligible part of the total expenditure fro effecting the sales. B. Technology Absorption The Company's production is carried out in processes on the different machines involved in each process. The company is not using imported technology. Emphasis is on continuous improvement of quality through incremental measures that walks on fixed parameters. III. FOREIGN EXCHANGE EARNING AND OUT GO Activities relating to exports The company being a 100% EOU (upto 27th December, 2006) was required to sell only 50% of its exports in the DTA market. Initiatives taken to Increase exports As a result of developments in the international market in the past couple of years, the margins in export of yarn had shrunk & were also negative at times. Development of new export market As an EOU, it was forced to accept unremunerative orders in the international market to maintain high level of aggregate production Export Plans The company has plans to discover new market for sales of its production to achieve higher sales value realization FOREIGN EXCHANGE EARNING AND OUT GO DURING THE YEAR current Previous Year Year 15 months 12 months Foreign exchange earning of the Company on account of exports (FOB Value) were: 64,534,256 199,389,409 Foreign exchange outgo was as under: On account of import of capital goods - - On account of travel - - On account of import consumable/spares - - On account of selling commission - - On account of discount of sales - -

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