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Garden Silk Mills Ltd.

BSE: 500155 Sector: Industrials
NSE: GARDENSILK ISIN Code: INE526A01016
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VOLUME 18318
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OPEN 36.90
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VOLUME 18318
52-Week high 40.90
52-Week low 27.00
P/E
Mkt Cap.(Rs cr) 154
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Garden Silk Mills Ltd. (GARDENSILK) - Director Report

Company director report

MANAGEMENT DISCUSSION AND ANALYSIS

Dear Members

Your Directors hereby present their 37th Annual Report together with the auditedaccounts of your Company for the year ended 31st March 2016.

Summarised Financial Results

The Company's performance during the financial year ended 31st March 2016 onstandalone basis as compared to the previous financial year is summarised below.

('in crores)

2015-16 2014-15
Total Revenue (Net) 2385.32 2648.44
Earnings before interest tax and depreciation (EBITDA) 102.82 116.62
Less: Finance Costs 177.25 183.24
Depreciation 66.82 76.13
Profit / (Loss) before Tax (141.25) (142.75)
(Add)/Less: Provision forTax (0.64) 0.00
Profit / (Loss) after Tax (140.61) (142.75)

Transfer to Reserve

In absence of distributable profits / earnings it is not proposed to transfer anyamount to reserves for the financial year 2015-16.

Dividend

Considering the loss incurred by the Company your Directors do not recommend anydividend on equity shares for the financial year 2015-16.

Nature of Business

Garden Silk Mills Ltd. is one of India's leading man-made fibre-based textilecompanies. It is a vertically integrated manufacturer of a wide range of Polyester ChipsPolyester Filament Yarns (PFY) Preparatory Yarns Woven (Grey) Fabric as well as Dyed andPrinted Sarees and Dress Materials. During the year under review there was no change inthe nature of business of the Company.

Review of Operations

At a standalone level the gross revenue from operations ofyour Company for FY 2016declined by about 9.2% to Rs. 2567.31 crore from Rs. 2846.89 crore in the previous year.This was primarily due to a fall in prices across polyester chain in tandem with the fallin crude oil prices. The fall in selling prices was directly related to the fall in rawmaterial prices which in turn corresponded to the fall in crude oil prices; however theprice of finished goods declined at faster rate compared with the prices of related rawmaterials.

Your Company achieved higher volume of sale of chips for FY 2016 at 127419 MT comparedto 102031 MT in the previous year. In value terms the sale of chips for FY 2016 wasmarginally higher at Rs. 845.57 crore as compared to Rs. 842.85 crore in the previousyear. With better capacity utilization the overall production of chips and polyester meltwas higher at 273577 MT during the year 2016 as compared to 244053 MT achieved in theprevious year.

The total sale of polyester filament yarn (PFY) improved marginally by about 3% at154042 MT as compared to 149222 MT in the previous year. The production of PFY duringthe year was maintained at 152134 MT as compared to 152275 MT in the previous year. Saleof yarn (including processed yarn) declined to Rs. 1519.01 crore as compared to Rs.1726.71 crore in the previous year due to fall in prices. In processed yarn segment FDYmarket saw better demand during FY 2016 with the Company concentrating on finer deniersand also nylon FDY sales. Processed yarn saw lower sales since demand for texturizedyarns was sluggish.

Efficiency in our chip and yarn plant were at their best ever in the year under review.Productivity of some spinning lines was also enhanced by replacing certain 8-end winderswith 16-end winders. An information technology innovation that allows online monitoring ofutility data has resulted in reduced costs which should see payoffs in the coming year.Wherever possible coal heating has replaced higher-cost FO and gas heating.

In the weaving segment your Company achieved grey cloth production of 223.31 lacmeters for FY 2016 as compared to 292.89 lac meters in the previous year. The Company hadto curtail the production during the year to avoid inventory losses due to volatility ofprices of raw material as well as finished goods.

The weaving industry was affected by under-invoiced Chinese imports into the countryestimated to be over 50000 MT per month. Our grey (woven) fabric division suffered as aconsequence; however it was able to maintain profitability due to increased specialtiesand margins. Your Company continued to maintain its price and product leadership in thepolyester weaving industry and we expect this should continue in FY 2017 as well.

Our finished fabric division last year saw a number of large customers shrink salesowing to their financial and market conditions. Sales of high-end natural products fellbut a factory restructuring has reduced costs. We have added 25 new authorized showrooms(franchisees) in FY 2016 whose benefits should accrue in the near future. We are alsoemphasizing export potential though from a low base.

The overall sale of fabrics for the FY 2016 remained at Rs. 184.33 crore as compared toRs. 221.69 crore in the previous year.

Despite a competitive and challenging business environment the income from export forFY 2016 stood at Rs. 339.45 crore compared to Rs. 417.45 crore in the previous year.

Exports have also been affected by global slowdown and excess capacity in Chinaresulting in flooding of its textile products in the international markets coupled withintense competition among Indian yarn and chips producers.

The Earnings before interest tax and depreciation (EBITDA) for the FY 2016 was Rs.102.82 crore as compared to Rs. 116.62 crore in the previous year.

The operating margins of the Company have been relatively weak over the last fouryears. This has been due to large volatility in prices of raw materials and finishedgoods sluggish domestic demand growth (especially rural) weak global conditions largecapacity additions by industry players and dumping ofgoods from China.

In line with volume of business and better working capital management your Company wasable to reduce the Interest cost in FY 2016 from Rs. 183.24 crore to Rs. 177.25 crore. TheFinance charges for the year 2015-16 includes Rs. 24.55 crores as mark- to-market(notional) exchange loss on LongTerm Export Advance received in March 2015. (USD-INR:March 16 at 66.255 vs receipt at 62.34)

The overall financial performance of the Company was subdued leading to negative PAT.

Overview of Economy

The Indian economy exhibited significant resilience during the year in contrast to avulnerable global economy. According to most forecasts India's GDP growth was expected tohave been around 7.5% for the FY 2016. Yet industrial growth has been extremely poorwith the IIP growth in FY 2016 at 2.45% (2.0% for manufacturing) vs 2.8% (2.3%) in theprevious year. In particular consumer non-durables grew at -1.8%.

India is anticipated to grow at 7.6% in FY 2017 according to the World Bank retainingits position as the fastest growing major economy in the world. China is forecast to growat 6.7% after 6.9% last year while Brazil and Russia are projected to remain in deeperrecessions than forecast earlier. The outlook assumes rural income and spending willrebound with a return to normal monsoon rainfall after two years poor rain. The Companyanticipates the improved economic conditions will begin to positively impact the polyesterindustry via improved demand and greater utilization levels.

Industry Scenario

The Indian textile industry is a mainstay of the economy. The industry is the secondlargest employer after agriculture providing employment to over 45 million peopledirectly and 60 million people indirectly. The industry contributes approximately 5percent to India's gross domestic product (GDP) and 14 percent to overall Index ofIndustrial Production (IIP). India is a major net textile exporting nation and thus acrucial foreign exchange earner as well. The Indian domestic textile market is around USD110 billion per annum and expected to be the fastest growing major textile market in theworld.

Most of the company's products feed the polyester filament yarn and yarn-based textileindustry. The PFY industry has been the fastest growing textile category both worldwideand in India though India has experienced an unexpected slowdown over the last four years.Fortunately however despite a very weak performance for consumer non-durables in 2015and 2016 Indian polyester filament yarn industry growth improved to 5.0% in 2016(projected) versus 3.5% in the previous year (PCI). Growth for the next two years has beenforecast at 6.5% which is expected to improve utilisation levels and margins in theindustry and for the Company.

The recent years have witnessed very high volatility in prices across polyester chainin line with the crude oil prices. The last two years in particular have witnessedsubstantial falls in raw material price which affected demand and resulted in inventoryloses throughout the polyester chain. However the presently low crude oil and rawmaterial prices are expected to stimulate consumer demand due to lower final productprices.

Continuous backward integration by PFY producers in order to reduce the cost of yarnproduction had deeply affected the merchant sales of existing polyester chipsmanufacturers. Further the dumping of Chinese fabric and apparel imports into Indianmarkets also affected the demand for locally produced fabric and therefore yarn and chipsas well. Under the circumstances chips and yarn manufacturers have been compelled toprice their products at very low margins to protect utilisation levels. Yet demand forboth chips and yarn is expected to grow leading to improved margins and profits in time.

Opportunities Challenges Threats Risks and Concerns

There are several challenges faced by the textile industry in terms of inflexiblelabour laws poor infrastructure and competition from low-cost neighboring countries.Dumping of goods from China remains a persistent problem. The Company is working withindustry associations to counter the dumping. The Company's strategic location in theheart of the textile industry of Surat and close to major ports minimizes infrastructuralproblems. Its thermal power plants keep its power costs significantly lower than gridpower costs.

The Company's high debt and interest cost pose a challenge as well. It is presentlyengaged with its bankers toward a debt-rework.

In the textile and garments industry the preferences of the customers undergo rapidchanges. Moreover the consumer is always seeking something new. The Company has anexperienced marketing and design team and is well-positioned to respond to changing anddiscerning customer needs. In fact we believe that our innovation and product developmentcapabilities are a core competency that will provide significant opportunities in times tocome.

The Company is exposed to currency fluctuations with respect to its raw materialimports as well as its finished product exports. Our hedging policies minimize this risk.We do carry a foreign exchange risk on our foreign borrowings but this presently appearssmall.

The proposed operationalization of Trans-Pacific Partnership (TPP) Agreement amongtwelve Pacific Rim countries may adversely impact textile as well as apparel exports ofour Company. Yet recent protectionist tendencies within the USA make it probable that theTPP may not be passed in a hurry.

The government had last year started a Merchandise Exports from India Scheme. Thisallows duty free credits scrips to be transferred or used for payment of a number ofduties including the basic custom duty. Chips has been included under MEIS (2% rate).This has improved the viability of chips exports. Further a request to include drawtexturised Yarn into MEIS and also increase in existing export benefit from its currentlevel is under consideration by the government.

Import of raw materials has been minimised owing to better negotiations with local PTAsuppliers who have undertaken capacity expansions. Another large PTA plant is expected tocome on-stream in the current financial year further improving the supply conditions forPTA in India and boosting global competitiveness for polyester companies.

Business Outlook

After four years of poor rural demand the industry is widely expecting improvedpolyester demand on the back of a good monsoon and greater fiscal transfers to rural areasthis year.

Over the next two years we expect business conditions to improve for your Company owingto higher utilisation levels and better margins. This is partly owing to moderate industrygrowth in volume in the next two years at around 6.5% p.a. (PCI). Yet while the supplyoverhang will remain for some time to come the major reason we are hopeful about theCompany's prospects are the breakthroughs we are hoping to make in the specialty chipyarn and fabric businesses.

Domestic and global markets are uncertain at present. Yet a trend toward greateraspirational (vs need-based) buying in India as well as a requirement for stringentquality standards globally are providing some useful opportunities for your company'squality orientation and its innovative products.

The Company has emerged as a leader in specialty chips for polyester film industry aswell as in cationic fine denier melange mother yarn nylon and spandex-based yarns.

Two divisions at CP and Spinning location at Jolva have been merged for administrativepurposes to reduce cost of manpower stores and procurement. The draw warping departmentat Vareli has been shifted to form a single department at Jolva which will reduce energyand overhead costs. The sizing division is also being shifted from Vareli to Jolva toreduce energy costs. The benefits of these efforts will take shape in the ongoing fiscalyear.

Good utilisation and availability of thermal power plants (TPP) and coal heaters arekeeping energy costs low. Coal prices are at historically low rates which are keepingoperating costs down. Company has shifted from gas and FO based captive power to CoalBased Captive Power to reduce costs.

The actual impact of GST on our industry is not yet known as details are not out. Butit is hoped that there will be equalisation in tax treatment between cotton and polyesterproducts which would help demand. Globally polyester is systematically replacing cottonin its share oftextiles and with the tax equalisation the same is anticipated in India aswell.

In finished fabrics segment the Company is exploring the new areas like servicinggarment industry by supplying bulk quantity with consistent quality and further tappingunexplored export markets like the Middle East Far East UK Canada etc. particularlyfor our high-value natural (cotton viscose) products.

Material changes and commitments

There have been no material changes and commitments affecting the financial position ofthe Company which have occurred between the end of the financial year and the date ofthis Report.

Share Capital and disclosure

The Issued Subscribed and Paid-up equity share capital as on 31st March 2016 was Rs.4208.25 Lacs. There was no public

issue rights issue bonus issue or preferential issue etc. during the year. TheCompany has not issued shares with differential voting rights sweat equity shares norhas it granted stock options. As on 31st March 2016 none of the Directors of the Companyhold instruments convertible into equity shares of the Company.

Disclosures in respect ofvoting rights not directly exercised by employees

There are no shares held by trustees for the benefit of employees and hence nodisclosure under Rule 16(4) of the Companies (Share Capital and Debentures) Rules 2014has been furnished.

Presentation offinancial statements

Your Company prepares its financial statements in compliance with the requirements ofthe Companies Act 2013 and the Generally Accepted Accounting Principles (GAAP) in India.The financial statements have been prepared on historical cost basis.

The estimates and judgments relating to the financial statements are made on a prudentbasis so as to reflect in a true and fair manner the form and substance of transactionsand reasonably present the Company's state of affairs loss and cash flows for the yearended 31st March 2016. The financial statements of the Company have been disclosed as perSchedule III of the Companies Act 2013.

Subsidiary Joint Venture and Associate Companies

The Company had two wholly owned overseas subsidiaries namely GAIA International FZEDubai and Garden Exim Pte. Ltd. Singapore at the beginning of FY 2015-16. GAIAINTERNATIONAL FZE is a free zone establishment and is registered with the Ajman Free ZoneAjman U.A.E. The Company is registered to carry out the business of trading in textileand ready-made garments including import and export.

There being no business activity in Garden Exim Pte. Ltd. since its incorporation theCompany submitted its application for winding up / striking off its name from the recordsof Accounting and Corporate Regulatory Authority (ACRA) Singapore the regulator.The saidapplication has been approved bythe regulatorw.e.f. 22nd March 2016.

The financial statements of the subsidiary companies are not attached with this AnnualReport. The Company will make available the annual accounts of the subsidiary companiesand the related information to any member of the Company who may be interested inobtaining the same in accordance with the Section 136 of the Companies Act 2013. Theannual accounts of the subsidiary companies will also be kept open for inspection at theRegistered Office of the Company and are also available on the Company's website. YourCompany does not have any Joint Venture and Associate Company. The policy for determiningMaterial Subsidiaries formulated by the Board of Directors is disclosed on the Company'swebsite.

Consolidated Financial Statements

The directors also present the audited consolidated financial statements incorporatingthe duly audited financial statement of the subsidiaries and as prepared in compliancewith the Companies Act 2013 applicable Accounting Standards and SEBI ListingRegulations 2015 as prescribed by SEBI.

Pursuant to Section 129(3) of the Companies Act 2013 read with Rule 5 of the Companies(Accounts) Rules 2014 a statement containing salient features of the financialstatements of Subsidiaries is given in Form AOC-1 and forms an integral part of thisReport marked as 'Annexure E'.

Finance

During the year FY 2016 your Company repaid term loan from banks and financialinstitutions aggregating to Rs. 8311.78 Lacs. Your Company also availed Rs. 3382.48 Lacsout of the term loan sanctioned in the earlier year. The consortium of banks headed byBank of Baroda continued their support in renewing working capital facilities and otherfacilities during the year. The account remained standard throughout the year 2015-16.

The outlook for the current fiscal is clearly positive compared to the position lastyear. Yet in view of the challenging industry scenario the Company and its lenders areconsidering a long-term debt-rework. The problems facing the Company have beenacknowledged to be due to external circumstances. Consequently majority of polyesterplayers are going through a difficult period.

Deposits

During the year the Company has not accepted any deposits within the meaning ofSection 73 of the Companies Act 2013 read with the Companies (Acceptance of Deposits)Rules 2014 and as such there are no outstanding deposits in terms of the Companies(Acceptance of Deposits) Rules 2014.

Report on Corporate Governance

As per Regulation 34(3) read with Schedule V(c) of the SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 a separate section on Corporate Governancepractice followed by the Company together with a certificate from the Company's Auditorsconfirming compliance forms an integral part of this Report.

All Board members and Senior Management personnel have affirmed compliance with theCode of Conduct for the year 2015-16. A declaration to this effect signed by the ManagingDirector (CEO) of the Company is contained in this Annual Report. The Managing Directorand CFO have certified to the Board with regard to the financial statements and othermatters as required under regulation 17(8) of the SEBI Listing Regulations 2015.Certificate from Auditors of the Company regarding compliance of conditions of corporategovernance is annexed to this report marked as 'Annexure G'.

Extract of Annual Return and other disclosures

Pursuant to the provisions of Section 134(3)(a) of the Companies Act 2013 read withRule 8 of Companies (Accounts) Rules 2014 and Rule 12 of Companies (Management andAdministration) Rules 2014 Extract of Annual Return in Form MGT-9 for the financialyear ended 31st March 2016 made under the provisions of Section 92(3) of the Act isattached as 'Annexure F' which forms part of this Report.

Directors and Key Managerial Personnel

In accordance with the provisions of Section 152(6)(c) of the Companies Act 2013 andthe Company's Articles of Association Shri Suhail P. Shah (DIN: 00719002) Directorretires by rotation at the forthcoming Annual General Meeting and being eligible offershimself for re-appointment. The Board recommends his re-appointment for the considerationof the Members of the Company at the ensuing Annual General Meeting.

During the year under review Shri Rajen P. Shah Non-Executive Director resigned fromthe Board of Directors of the Company with effect from 1st July 2015. Further Shri J. P.Shah Independent Director also resigned from the Board of Directors of the Company witheffect from 8th August 2015. The Board of Directors wish to place on record theirappreciation for the contribution made by Shri Rajen P. Shah and Shri J. P. Shah to theBoard and the Company during their tenure as Directors.

On the recommendations of the Nomination and Remuneration Committee the Boardappointed Shri Deepak N. Shah as an Additional Director w.e.f. 5th December 2015. We seekyour confirmation for his appointment as Independent Director for a term upto5 (five)consecutive years i.e. from the date of the 37th AGM of the Company on non-rotationalbasis.

During the year under review due to realignment of role and responsibilities ShriAlok P. Shah resigned as Joint Managing Director of the Company w.e.f. 31st May 2016.Further considering his experience leadership qualities and operational capabilitiesthe Board of Directors of the Company on recommendation of Nomination and RemunerationCommittee appointed him as Whole-time Director designated as Executive Director CFO andChief Operating Officer (COO) for a period of 3 years w.e.f. 1st June 2016. Shri AlokShah has been associated with the Company for more than 15 years as a member of the Board.Shri Alok Shah has contributed immensely towards the operations of the Company.

Shri Praful A. Shah Managing Director Shri Alok P. Shah Joint Managing Director andCFO and Shri Kamlesh B. Vyas Company Secretary and Compliance Officer were designated as"Key Managerial Personnel" of the Company pursuant to Section 2(51) and 203 ofthe Companies Act 2013 read with the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014. During the year under review there was no change inkey managerial personnel of the Company.

The necessary resolutions for re-appointment of Shri Praful A. Shah as Chairman andManaging Director of the Company for a period of 3 years w.e.f. 1st September 2016 andrevisions in remuneration of Shri Suhail P. Shah w.e.f. 1st June 2016 up to the remainderof his tenure ending on 30th November 2018 are placed for members' approval.

Declaration of Independent Directors

All Independent Directors have given declarations that they meet the criteria ofindependence as laid down under Section 149(6) of the Companies Act 2013 and Regulation16(l)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015and there is no change in their status of independence.

Number of meetings of the Board

During the year 5 Board Meetings and 4 Audit Committee Meetings were convened andheld. The details thereof are given in the Corporate Governance Report. The Directorsactively participated in the meetings and contributed valuable inputs on the mattersbrought before the Board of Directors from time to time. The intervening gap between theMeetings was within the period prescribed under the Companies Act 2013.

Independent Directors' Meeting

In compliance with the requirements of Schedule IV of the Companies Act 2013 ameeting of the Independent Directors was held on 10th February 2016 without theparticipation of the Executive Directors or management personnel.

The Independent Directors carried out performance evaluation of Non-IndependentDirectors and the Board of Directors as a whole performance of Chairman of the Companythe quality contents and timelines of flow of information between the Management andBoard based on the performance evaluation framework of the Company.

Familiarisation Programme to Independent Directors

The Company provides suitable familiarisation programme to Independent Directors so asto associate themselves with the nature of the industry in which the Company operates.Directors are periodically advised about the changes effected in the Corporate LawsListing Regulations with regard to their roles rights and responsibilities as Director ofthe Company. The details of the familiarisation programme have been disclosed and updatedfrom time to time on the Company's website.

Committees of the Board

The Board of Directors has the following Committees:

1. AuditCommittee

2. Remuneration and Nomination Committee

3. Committee of Directors (Stakeholders' Relationship Committee)

4. CorporateSocial ResponsibilityCommittee

The details of the committees along with their composition number of meetings andattendance at the meetings are provided in the Corporate Governance Report.

Directors' Responsibility Statement

As required under Clause (c) of sub-section (3) of Section 134 of the Companies Act2013 the directors to the best of their knowledge and belief state that:

a) in the preparation of the annual accounts for the year ended March 31 2016 theapplicable accounting standards read with requirements set out under Schedule III to theAct have been followed and there are no material departures from the same;

b) the Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as at March 31 2016 and of the loss ofthe Company for the year ended on that date;

c) the Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;

d) the Directors have prepared the annual accounts on a going concern basis;

e) the Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively; and

f) the Directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems are adequate and operating effectively.

Board evaluation

Pursuant to the provisions of the Companies Act 2013 the Board has devised a policyon evaluation of performance of Board of Directors Committees and Individual directors.The policy is also in compliance to Regulation 19 read with Schedule II Part D of theSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

The Nomination and Remuneration Committee has defined the evaluation criteria for thePerformance Evaluation of the Board its Committees and individual Directors.

In accordance with the provisions of the Companies Act 2013 and SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 the Board has carried out aformal annual evaluation of its performance and that of its Committees and individualDirectors. The evaluation of each of the directors was done inter-alia on the basis oftheir advisory role and contribution in the decision making. Further the evaluation ofthe Board as a whole and all the Committees of the Directors was done inter-alia on thebasis of the overall directions and guidance provided to the senior executives andsupervision over their performance.

Adequacy of Internal Financial Control

The Company has in place adequate internal financial controls with reference tofinancial statements. Periodic audits are undertaken on continuous basis covering all themajor operations. Reports of internal auditors are reviewed by management from time totime and desired actions are initiated to strengthen the control and effectiveness of thesystem. During the year such controls were tested and no reportable material weaknessesin the design or operation were observed.

The Internal Financial Control with reference to financial statements as designed andimplemented by the Company are adequate. During the year under review no material orserious observation has been received from the Internal Auditors of the Company forinefficiency of such controls.

Related Party Transactions

All transactions entered by the Company with Related Parties were in the OrdinaryCourse of Business and at Arm's Length pricing basis. There are no materially significantrelated party transactions made by the Company with Promoters Directors Key ManagerialPersonnel or other designated persons which may have a conflict with the interest of theCompany at large.

During the year 2015-16 pursuant to section 177 of the Companies Act 2013 andregulation 23 of SEBI Listing Regulations 2015 all Related Party Transactions wereplaced before the Audit Committee for its approval.

Pursuant to section 134 of the Companies Act 2013 and Rules made thereunderparticulars of transactions with related parties as required under section 188(1) of theCompanies Act 2013 read with Rule 8(2) of Companies (Accounts) Rules 2014 there beingno 'material' related party transactions as defined under regulation 23 of SEBI ListingRegulations 2015 there are no details to be disclosed in Form AOC-2 in that regard.

During the year under review the Board of Directors have revised the existing RelatedParty Transaction policy in line with the recently introduced SEBI (LODR) Regulations2015 and Companies (Meetings of Board and its Powers) Second Amendment Rules 2015.

The policy on related party transactions as approved by the Board is uploaded on theCompany's website. The Company's management ensures total adherence to the approved Policyon Related Party Transactions to establish Arm's Length Basis without any compromise.

Suitable disclosures as required under AS-18 have been made in Note 31 of the Notes tothe financial statements. Conservation of Energy Technology Absorption ForeignExchange Earnings and Outgo

Information required pursuant to the provisions ofSection 134(3)(m) of the CompaniesAct 2013 read with Rule 8(3) of the Companies (Accounts) Rules 2014 in respect ofConservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo are setout in the 'Annexure A' forming part of this Report.

Audit Committee

The Audit Committee of Directors comprises of Shri Yatish Parekh (Chairman of theCommittee) Shri Arunchandra N. Jariwala and Shri Sunil Sheth. All the recommendationsmade by the Audit Committee during the year were accepted by the Board of Directors of theCompany. The terms of reference and other details of the Audit Committee are available inthe Corporate Governance Report forming part of this annual report.

Nomination and Remuneration Policy

On recommendation of Nomination and Remuneration Committee the Board of Directors haveapproved a Nomination and Remuneration Policy for the appointment and remuneration of thedirector key managerial personnel (KMP) and other employees. The key objectives of thePolicy are to lay down the criteria for appointment and remuneration of Directors KeyManagerial Personnel and Executives at Senior Management level and recommend to the Boardtheir appointment and also to formulate criteria for evaluation of performance ofIndependent Directors and the Board and to devise a policy on Board diversity. The Policyinter-alia includes criteria for determining qualifications positive attributesindependence of a director and expertise and experience required for appointment ofDirectors KMP and Senior Management.

As per the Policy the remuneration / compensation to the Whole-time Directors shall berecommended by the Nomination and Remuneration Committee to the Board for its approval.However the remuneration compensation to Whole-time Directors shall be subject to theapproval of the shareholders of the Company and Central Government wherever required.Further the Non-Executive Directors shall be entitled to the fees for attending meetingsof Board and Committees within the limits prescribed in the Companies Act 2013. TheNomination and Remuneration Policy is available on the company's website.

Vigil Mechanism / Whistle Blower Policy

Your Company believes in promoting a fair transparent ethical and professional workenvironment. The Board of Directors of the Company pursuant to the provisions of Section177 of the Companies Act 2013 and SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 has framed 'Whistle Blower Policy' for Directors and employees of theCompany for reporting the genuine concerns or grievances or cases of actual or suspectedfraud or violation of the Company's code of conduct and ethics policy. The Whistle BlowerPolicy of the Company has been posted on the website of the Company.

Risk Management

Pursuant to the provisions of Section 134(3)(m) of the Companies Act 2013 andRegulation 21 of SEBI (LODR) Regulations

2015 your Company has voluntarily constituted a Risk Management Committee to formulatea policy for risk management for implementing and monitoring the risk management plan ofthe Company. This framework seeks to create transparency minimize adverse impact on thebusiness objectives and enhance the Company's competitive advantage.

Your Company recognizes that the risk is an integral part of business and is committedto managing the risks in proactive and efficient manner. Your Company periodicallyassesses the risks in the internal and external environment along with treating the risksand incorporates risk management plans in its strategy business and operational plans.

The business plan for the future are devised and approved by the Board keeping in mindthe risk factors which can significantly impact the performance of the particularbusiness. All major capital expenditures commitments are subject to scrutiny by the Boardand investments are permitted only on being satisfied about its returns or utility to theCompany. There are no risks which in the opinion of the Board threaten the existence ofthe Company.

Insurance

The Company has taken all the necessary steps to insure its properties and insurableinterests as deemed appropriate and also as required under the various legislativeenactments.

Transfer of Unpaid Dividend to the Investor Education and Protection Fund (IEPF)

In terms of the provisions of Section 125 of the Companies Act 2013 read with theCompanies (Declaration and Payment of Dividend) Rules 2014 all unclaimed / unpaiddividend up to FY 2007-08 has been transferred to the Investor Education and Protectionfund. Unclaimed / un-encashed dividend for the FY 2008-09 is due for transfer to IEPF on29th September

2016. Those members who have not yet claimed / encashed the same are requested toclaim the same at the earliest before transfer to IEPF.

Statutory Auditors & Audit Report

M/s Natvarlal Vepari & Co. Chartered Accountants (Firm Registration N0.123626W)the auditors ofyour Company hold office upto the conclusion of the forthcomingAnnualGeneral Meeting (AGM) of the Company. Pursuant to the provisions ofSection 139(2) of theCompanies Act 2013 read with Companies (Audit and Auditors) Rules 2014 M/s NatvarlalVepari & Co. are eligible for appointment as Auditors. Your Company has received awritten confirmation from M/s Natvarlal Vepari & Co. Chartered Accountants to theeffect that their appointment if made would satisfy the criteria provided in Section 141of the Companies Act 2013 for their appointment. The Board recommends the appointment ofM/s Natvarlal Vepari & Co. Chartered Accountants as the Auditors of the Company fromthe conclusion of the ensuing AGM to the conclusion of the next AGM.

As regards the comments in the Auditors' Report the relevant notes to the Accounts areself explanatory and may be treated as information / explanation submitted by the Board ascontemplated under provisions of the Companies Act 2013. The report of the StatutoryAuditor does not contain any adverse observation or qualification requiring explanation orcomments from the Board under Section 134(3) of the Companies Act 2013.

Cost Auditors

Pursuant to the provisions ofSection 148 of the Companies Act 2013 read with theCompanies (Cost Records and Audit) Rules 2014 as amended by notifications / circularsissued by the Ministry of Corporate Affairs from time to time and on recommendation of theAudit Committee the Board of Directors appointed M/s Manubhai & Co. CostAccountants (CP No.2502) as Cost Auditors to audit the cost accounts of the Company forthe Financial Year 2016-17.

The Cost Auditor has given a Certificate to the effect that the appointment if madewill be within the prescribed limits specified under Section 141 of the Companies Act2013. The Audit Committee has obtained a certificate from the Cost Auditor certifyingtheir independence and arm's length relationship with the Company.

As required under the Companies Act 2013 the remuneration payable to the Cost Auditoris required to be placed before the Members in a general meeting for their ratification.Accordingly a resolution seeking member's approval for the remuneration payable to theCost Auditor is forming part of the Notice convening the Annual General Meeting for theirratification.

Secretarial Auditor & Secretarial Audit Report

Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hasappointed Shri Kunjal Dalai proprietor of K. Dalai & Co. Practicing CompanySecretary (CP No. 3863) Surat to undertake the Secretarial Audit of the Company for theFinancial Year 201516. The Secretarial Audit Report is annexed as 'Annexure D' andforms an integral part of this Report. The report of the Secretarial Auditor does notcontain any adverse observation or qualification requiring explanation or comments fromthe Board under Section 134(3) of the Companies Act 2013.

Internal Auditors

Pursuant to the provisions of Section 138 of the Companies Act 2013 the Board ofDirectors of the Company has appointed Shri Piyush Patel Chartered Accountant (ICAIMembership No.116769) as Internal Auditor of the Company. The audit committee of the Boardof Directors in consultation with the Internal Auditor formulates the scope functioningperiodicity and methodology for conducting the internal audit.

Corporate Social Responsibility (CSR) Initiatives

As required under Section 135 of the Companies Act 2013 the CSR committee comprisingShri Yatish Parekh Independent Director as the Chairman of the Committee ShriArunchandra N. Jariwala Independent Director and Shri Suhail P. Shah Whole-time Directoras its members. The CSR committee has laid down the policy which includes the activitiescovered under the Companies (Corporate Social Responsibility Policy) Rules 2014.

The Company has been contributing in the development of the surrounding areas of itsplant and office. The Company supports and contributes in activities relating to promotionof education sports medical and health care vocational skill development and livelihoodenhancement and programmes and activities relating to environment sustainability etc.

The details of amount spent on CSR activity undertaken during the year by the Companyare given in the 'Annexure B' to this Report. The CSR policy of the Company is alsohosted on the website of the Company www.gardenvareli.com.

Particulars of Employees and related disclosures

The information required under Section 197(12) of the Companies Act 2013 read withRule 5(2) and (3) of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 forms part of this report. However pursuant to first proviso to Section 136(1)of the Companies Act 2013 this Report is being sent to the Shareholders excluding theaforesaid information. Any shareholder interested in obtaining said information may writeto the Company Secretary at the Registered Office of the Company and the said informationis available for inspection at the Registered Office of the Company.

Anti-Sexual Harassment Policy

The Company has in place an Anti Sexual Harassment Policy in line with the requirementsof The Sexual Harassment of Women at the Workplace (Prevention Prohibition &Redressal) Act 2013. The Company has zero tolerance on Sexual Harassment at workplace. Nocomplaint was received from any employee during the financial year 2015-16 and hence nocomplaint is outstanding as on 31st March 2016 for redressal. Your Company has laid downAnti Sexual Harassment policy and it is made available on the website of the Company.

Particulars of Loans Guarantees and Investments

During the year under review your Company has not directly or indirectly -

a) Given any loan to any person or other body corporate other than usual advancesenvisaged in a contract of supply of materials if any;

b) Given any guarantee or provided security in connection with a loan to any other bodycorporate or person; and

c) Acquired by way of subscription purchase or otherwise the securities of any otherbody corporate.

Significant and material orders passed by the regulators or courts

During the year under review there were no significant and material orders passed bythe Regulators or Court or Tribunal which can impact the going concern status of theCompany and its operations in future.

Indian Accounting Standards (IND AS) IFRS Converged Standards

The Ministry of Corporate Affairs vide its notification dated 16/02/2015 has notifiedthe Companies (Indian Accounting Standard) Rules 2015. In pursuance of this notificationthe Company is required to adopt IND AS with effect from 1st April 2017 with thecomparatives for the period ending on 31st March 2017.

Green Initiative

Your Directors would like to draw your attention to Section 20 of the Companies Act2013 read with the Companies (Management and Administration) Rules 2014 as may beamended from time to time which permits paperless compliances and also service of notice /documents (including annual report) through electronic mode to its members. To supportthis green initiative we hereby once again appeal to all those members who have notregistered their e-mail addresses so far are requested to register their e-mail address inrespect of electronic holding with their concerned Depository Participants and/ or withthe Company.

Statutory Information

The Disclosure required under Section 197(12) of the Companies Act 2013 read with theRule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 is annexed as 'Annexure C' and forms an integral part of this Report. TheCompany had 4948 permanent employees as at 31st March 2016.

None of the directors or Managing Directors of the Company received any remuneration orcommission from Subsidiary Companies of your Company.

The details of remuneration paid to the Directors including Executive Directors of theCompany are given in Form MGT-9 forming part of the Directors Report.

The Business Responsibility Reporting as required by Regulation 34(2) of the SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 is not applicable toyour Company for the financial year ending 31st March 2016.

Reward Recognition & Quality Systems Certification

During the year your Company achieved Certificate of Recognition as "Three StarExport House" awarded by the Office of Dy. Director General of Foreign TradeMinistry of Commerce & Industry Government of India on achieving the required Exporttargets.

Our IT department works closely with our departments to give them a data-driven edge.One initiative called 3P System (Parameters-Performance - Properties) won a prestigiousaward: "IDC insight awards 2015" for excellence in transformation category inDecember 2015 at Hyderabad. Also this Project was in top three nominations in"Digital India Summit Awards-2016" in Good for Business - Manufacturing categoryin March 2016 at New Delhi.

During the year 2014-15 the Company's CP Division got certified OSHAS 18001:2007 byBureau Veritas. Our quality health and safety processes are now continuously monitoredassessed and improved to meet internationally recognized standards.

Each raw-material and product is tested extensively and all manufacturing processes arecontinually optimized with a strong commitment to energy efficiency occupational healthenvironmental responsibility and safety.

The Company's Vareli Plant enjoys the unique distinction of being the first inpolyester weaving industry to achieve ISO 9002:1994 certification by Bureau VeritasQuality International (BVQI). The processes certified are Draw-Warping and TexturizingTwisting Sizing Warping and Weaving. The scope of audit includes "Manufacture ofWoven Greige Fabrics and Processed Yarns".

The manufacturing ofTexturized Flat Polyester Filament Polyester Partially OrientedYarn (POY) and Fully Drawn Yarn (FDY) at Jolva are also ISO 9001:2000 certified by BVQI.

Internal Control System and their Adequacy

The Internal Control System provides for well documented policies / guidelinesauthorizations and approval procedures. Considering the nature of its business and size ofoperations your Company through its Internal Auditors carries out periodic audit based onthe plan approved by the Audit Committee.

The summary of the Internal Audit observations and status of implementation aresubmitted to the Audit Committee. The status of implementation of the recommendations isreviewed by the Audit Committee on a regular basis and desired actions are initiated tostrengthen the control and effectiveness of the system. Concerns if any are reported tothe Board.

On a periodical basis the Board also engages the services of professional experts inthe said field in order to ensure that adequate financial controls and systems are inplace.

Health safety and environment

Your Company continued its focus in creating an aesthetic environment-friendlyindustrial habitat in its factory units mobilizing support and generating interest amongstaff and labour for maintaining hygienic and green surroundings. The Company continues tofocus on maintenance and performance improvement of pollution control facilities at itsmanufacturing locations. Your Company recognizes protection and management of environmentas one of its highest priority and every effort is made to conserve and protect theenvironment.

The Company has its own Effluent Treatment Plant (ETP) at its Vareli Complex forprocessing the effluents generated in fabric processing. Further the Company has ETP atJolva complex to take care of the effluents generated from its CP Spinning Thermal Powerand other plants.

The Company obtained necessary approvals from concerned Government Department /Pollution Control Board and all required environment clearances / safety clearances /stipulations are complied with at both Plant facilities of the Company.

Industrial Relations / Human Resources

Your Company maintained healthy cordial and harmonious industrial relations at alllevels during the year under review.

The Company continuously works to nurture this environment to keep its employees highlymotivated result oriented and adaptable to changing business environment. Your Company'svalue proposition is based on providing value to our customer through innovation and byconsistently improving efficiency at all levels.

Your Directors wish to place on record their appreciation for the dedicated andcommendable services rendered by the employees of the Company.

Cautionary Statement

Statements in this Directors' Report and Management Discussion and Analysis describingthe Company's objectives projections estimates expectations or predictions may be'forward-looking statements' within the meaning of applicable securities laws andregulations. Actual results could differ materially from those express or implied.Important factors that could make difference to the Company's operations include rawmaterial availability and its prices cyclical demand and

pricing in the Company's principle markets changes in Government regulations Taxregimes economic developments within India and the countries in which the Companyconducts business and other ancillary factors.

Appreciation

Your Directors wish to acknowledge the co-operation and assistance extended to theCompany by the Company's Bankers and State & Central Government agencies. YourDirectors also wish to place on record their appreciation of the contribution made byemployees at all levels.

Your Directors also acknowledge with gratitude the support of the shareholders otherinvestors customers dealers agents and suppliers for their continued faith and supportwhich has helped the Company to sustain its growth even during these challenging times.

For and on behalf of the Board of Director
Praful A. Shah
Chairman & Managing Director
Mumbai 28th May 2016. DIN:00218143