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Kandagiri Spinning Mills Ltd.

BSE: 521242 Sector: Industrials
NSE: KANDAGIRI ISIN Code: INE292D01019
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VOLUME 205
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P/E
Mkt Cap.(Rs cr) 15
Buy Price 38.50
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Sell Price 39.00
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OPEN 41.80
CLOSE 41.00
VOLUME 205
52-Week high 65.50
52-Week low 36.85
P/E
Mkt Cap.(Rs cr) 15
Buy Price 38.50
Buy Qty 15.00
Sell Price 39.00
Sell Qty 50.00

Kandagiri Spinning Mills Ltd. (KANDAGIRI) - Director Report

Company director report

Your directors have pleasure in submitting their 40th Annual Report togetherwith the audited accounts for the year ended March 312016 (the year).

Performance Highlights 2015 - 16 2014 - 15
(Rupees in Lakhs}
Export - Direct 179 224
- Merchandise 7544 12706
Domestic Sales 6740 5993
Other operating income 10 13
Total Turnover 14473 18936
Gross profit/(Loss) (i.e. Profit before interest and depreciation) 868 2096
Cash profit/(Loss) (i.e. Profit / before depreciation) (375) 981
Profit/(Loss) before exceptional Item and tax (1134) 227
Exceptional Item - provision for diminution in investments - -
Profit/(Loss) after exceptional Item (before tax) - PBT (1134) 227
Profit/(Loss) after exceptional Item and tax - PAT (1134) 156
Earnings per share - basic and diluted Rs. (29.46) 4.04

Dividend

In view of the loss incurred during the year no dividend is recommended by your Boardof Directors for the financial year 2015-16.

Reserves and Surplus

The current year loss of Rs. 1133.76 lakhs has been added to the deficit at thebeginning of the year of Rs.124.86 lakhs. As such deficit at the end of the yearaggregates to Rs.1258.62 lakhs.

Financial Performance with respect to Operational Performance:

During the year under review your Company's turnover was reduced to Rs. 14473 lakhs asagainst Rs. 18936 lakhs of previous year. Your Company incurred a loss of Rs. 1134 lakhsas against profit of Rs. 227 lakhs in the previous year mainly due to uneconomical yarnprices in the export market where the Company had a higher proportion and priorcommitments.

Your Company's performance was also adversely affected mainly due to steep fall in theyarn selling prices in the domestic market. During the year though the cotton priceremained at the same level the poor offtake of yarn due to recession in yarn marketresulted in losses. Hence the Company forced to slow down the yarn production by nearly15% compared to previous year.

In order to meet the financial needs your company had borrowed additional funds fromBanks resulting in higher interest cost. Adding to the owes the backing-out imposed byTANGEDCO on Company's windmill generated power caused a reduction of generation of powerby nearly 30 lakh units.

management discussion and analysis

The core business of the company is manufacture and sale of cotton yarn. The managementdiscussion and analysis given below discusses the key issues of the cotton yarn spinningsector.

(a) Industry structure and developments:

The FY 2015-16 has been a year of exceptional slow down for yarn markets globally.Surplus production uneconomical exports and reduced demand for quality yarn in thedomestic market are some of the reasons for the lower performance of the industry. Thesecircumstances have created challenges of shifting towards new value added productsselling at higher price or premium price for the better quality of yarn betterproductivity and enhancing marketing strategies for evolution of new markets. Decision toreduce exports at the present juncture due to the uneconomical prices also aggravatedsituation due to competition from other developing countries like Indonesia VietnamBangladesh Philippines etc..

(b) Outlook

The industry expects an improvement during the current year as cotton prices arestabilizing and yarn prices have started improving from the first quarter of the financialyear 2016-17. Further there is an increasing demand for value added yarns and also othercellulosic fibre yarns like Viscose Modal and Linen fibre both in the domestic andinternational markets. In view of these factors Company's performance is expected toimprove during the year 2016-17.

(c) Strategies and Future plans

While product innovation is being resorted to on a continuing basis to improve marketshare and better yields the company has started identifying areas of cost reduction bothin power consumption and other overheads. With the successful commissioning of dedicatedfeeders in all the three units of the Company and purchase of private power under groupcaptive scheme dependence on GENSET power has been totally reduced and uninterruptedpower supply is available to our company resulting in substantial decrease in power costs.The Company is also actively examining the possibility of reducing costs at all levels.Company is also exploring and planning to start fabric production initially by job-work inthe coming years.

(d) Risks and Concerns

Your Company has devised risk management policy which involves identification of thebusiness risks as well as the financial risks its evaluation monitoring reporting andmitigation measures. The Audit Committee and Board of Directors of the Companyperiodically review the risk management policy of the Company so that management controlsthe risk through properly defined network. Head of Departments are responsible forimplementation of the risk management system as may be applicable to their respectiveareas of functioning and report to the Board and the Audit Committee. The details of riskmanagement mechanism and key risks faced by the Company are enumerated in the riskmanagement policy. Risk management policy is uploaded in the company's website www.kandagirimills.com.

(e) Internal control systems

The Company has in place a well established internal control procedures coveringvarious areas such as procurement of raw materials production planning quality controlmaintenance planning marketing cost management and debt servicing. Necessary checks andbalances have been instituted for timely correction with an effective internal auditsystem.

Your company is certified ISO 9001: 2008 for Quality Management System Standards(Manufacture and supply of yarn) and ISO 14001: 2004 for Environmental Management SystemStandards (the systems). Further your company's laboratory is also certified by NABL.

(f) Human resources management

Employees are your company's most valuable resource. Your Company continues to create afavourable environment at work place.

The company also recognises the importance of training and consequently deputes itswork force to various work related courses/seminars including important areas like TotalQuality Management (TQM) Technical skills etc. The fact that the relationship with theemployees continued to be cordial is testimony to the company's ability to retain highquality workforce.

(g) Environmental Protection Health and Safety (EHS)

EHS continues to receive the highest priority in all operational and functional areasat all locations of your Company. Systematic process safety analysis audits periodicsafety inspections are carried out by expert agencies and suitable control measuresadopted for ensuring safe operations at the site. Various processes as required forPollution Control and Environmental Protection are strictly adhered to.

(h) Corporate Social Responsibility

Board of Directors of the Company has constituted Corporate Social Responsibility (CSR)Committee and devised a CSR policy to carry out CSR initiatives in line with therequirements specified under the Companies Act 2013. Details of CSR expenditure has beengiven in the annexure to this report. Since the Company has incurred loss of Rs. 1134lakhs during the FY 2015-16 Company was not able to discharge the total CSR obligation ofRs. 11.94 lakhs and has spent Rs. 1.65 lakhs towards CSR. The CSR policy has been hostedon the website of the Company www.kandagirimills.com.

Extract of Annual Return

The extract of annual return in Form MGT - 9 has been annexed with this report andforms part of this report. Number of Board Meetings

The details pertaining to meetings of the Board has been explained under CorporateGovernance Report annexed to the director's report and forms part of this report.

Establishment of Vigil Mechanism

The Company has established a vigil mechanism for Directors and employees to reporttheir genuine concerns. The policy has been uploaded on the Company's website under theweb-link: http://www.kandagirimills.com/investors/ksml2014-wbp.pdf

Declaration by Independent Directors

Independent directors of the Company have submitted a declaration that each of themmeets the criteria of independence as provided in Sub-Section (6) of Section 149 of theAct. Further there has been no change in the circumstances which may affect their statusas Independent director during the year.

Secretarial Auditors’ Report

Company appointed M/s B. K. Sundaram & Associates Practising Company Secretariesas Secretarial Auditors to conduct Secretarial Audit of the Company for the financialyear 2015-16. The report of the Secretarial Audit for the financial year 2015-16 in FORMMR-3 is annexed to this report and forms part of this report. There are nodisqualifications reservations or adverse remarks or disclaimers in Secretarial AuditorsReport.

independent Auditors' Report

There is no qualification in the Independent Auditors' Report except IndependentAuditor has pointed out the delay in repayment of bank term loan principal and interestdues to the bankers. Your directors wish to state that due to cash flow constraints therewas delay in repayment of bank term loan principal and interest dues which has beensubsequently paid off. With respect to the term loan principal and interest duesoutstanding as on the board report date your directors wish to state that the same willbe paid in due course.

Audit Committee

Details of Composition of Audit Committee are covered under Corporate Governance Reportannexed with this report and forms part of this report. Further during this year all therecommendations of the Audit Committee have been accepted by the Board.

Policy of Directors Appointment and Remuneration

Company's policy on Directors' appointment and remuneration including criteria fordetermining qualifications positive attributes independence of a director and othermatters provided under section 178(3) of the Act are covered under Nomination andRemuneration Policy hosted on the Company's website www.kandagirimills.com Further informationabout elements of remuneration package of individual directors is provided in the extractof Annual Return as provided under Section 92(3) of the Act in prescribed form MGT-9annexed with this report and forms part of this Report.

Particulars of Employees

None of the employees or directors of the Company has drawn remuneration exceeding Rs.5lakhs per month or Rs.60 lakhs per annum during the year.

Managerial Remuneration

Statistical Disclosures pursuant to Rule 5 of Companies (Appointment and Remunerationof Managerial Personnel) Rules 2014 is annexed with this report and forms part of thisreport.

Related Party Transactions

Transactions entered with related parties have been explained in Form AOC -2 annexedwith this report and forms part of this report. Further Policy on dealing with RelatedParty Transactions has been uploaded on the Company's website under the web link: http://www.kandagirimills.com/investors/ksml2014-rptp.pdf

Board Evaluation

The board of directors had carried out an annual evaluation of its own performanceBoard committees and individual directors pursuant to the provisions of the Companies Act2013 and SEBI Regulations.

In the separate meeting of the Independent directors performance of non-independentdirectors performance of the board as a whole and performance of the Chairman wasevaluated taking into account the views of executive directors and non-executivedirectors. The same was discussed at the next Board Meeting and the Independent Directorswere evaluated without the presence of the director getting evaluated and also theperformance of the Board its Committees and individual directors were also discussed bythe Board. The individual directors and the board as a whole in accordance with theperformance Evaluation Policy guidelines were evaluated mainly on the basis of thecriteria such as attendance participation contribution and the benefits derived by theCompany. The Chairman was evaluated on the key aspects of his role. The performance of thecommittees was evaluated by the board after seeking inputs from the committee members onthe basis of the criteria such as the composition of committees effectiveness ofcommittee meetings etc. The Performance Evaluation policy is uploaded in the Company'swebsite.

None of the Independent directors are due for reappointment.

Familiarisation Programme of the Independent Directors

Periodic presentations are made by Senior Management Statutory and Internal Auditorsat the Board/Committee meetings on business and performance updates of the Company globalbusiness environment business risks and its mitigation strategy impact of regulatorychanges on strategy etc. Updates on relevant statutory changes encompassing important lawsare regularly intimated to the Independent directors.

Deposits

The following are the details of deposits covered under Chapter V of the Act

i. Deposits Accepted from shareholders during the year (2015 - 16) : Rs. 63.49 lakhs

ii. Remained unpaid or unclaimed as at the end of the year : NIL

iii. Any default in repayment of deposits or payment of interest thereon during theyear: NIL

Company has duly complied with the provisions of section 73 of the Companies Act 2013read with relevant rules with respect to fixed deposits.

Cost Audit Report

Cost Audit was not applicable for the Company for the year 2014-15. In view of theCompany maintaining the Cost Records continuously and in order to provide the comparableaudited figures for the year 2014-15 in the cost audit report for the year 2015-16 CostAudit for the year 2014-15 was carried out on a voluntary basis.

In accordance with the amendments effected in the Cost Audit rules Cost Audit isapplicable for the year 2015-16. M/s. S. MAHADEVAN &CO. Cost Accountants werereappointed as Cost Auditors of the Company for the FY 2015-16 and the Cost Audit reportfor the year 2015-16 in XBRL format will be filed with MCA well within the due date.

On the recommendation of the Audit Committee M/s. S. MAHADEVAN &CO. CostAccountants were reappointed as Cost Auditors of the Company for the FY 2016-17 and Boardplaces before the members the resolution for ratification of remuneration payable to CostAuditors.

Directors

All the Independent directors of the Company viz. Dr. V. Gopalan Sri PS.Ananthanarayanan Sri N. Asoka Sri S. Gnanasekharan and Sri Kameshwar M. Bhat wereappointed at the 38th AGM of the Company held on 28.09.2014 for a term of fiveconsecutive years from the date of 38th AGM till the conclusion of the 43rdAGM of the Company. Non- Executive directors Sri M. Rajamani and Dr. A. Sarayu were alsoappointed at the 38thAGM of the Company held on 28.09.2014 and they are liableto retire by rotation. Sri S. Devarajan retires by rotation this year and being eligibleoffers himself for reappointment and the resolution is placed before the members forapproval.

Chairman and Managing Director Sri R. Selvarajan reappointed for a term of three yearsat the last AGM held on 27.09.2015. Company's Code of Conduct applicable to the board hasbeen adopted by the board and all directors of the company have confirmed compliance withthe Code of Conduct

Key Managerial Personnel

Members at the last AGM held on 27.09.2015 approved the revision in the remunerationpackage of Chairman and Managing Director Sri R. Selvarajan and Chief Financial Officerand Non - Executive director Sri S. Vijay Shankar. Sri S. Vijay Shankar receivesremuneration only in his capacity as Chief Financial Officer and do not receive sittingfees etc. in his capacity as non-executive director.

In view of the unsatisfactory financial performance of the Company CMD and CFO hadforgone their increase in salary as a gesture.

Auditors

The auditors M/S M.S. Krishnaswami & Rajan Chartered Accountants retire at theensuing annual general meeting and have confirmed their eligibility and willingness toaccept office if appointed. On the recommendation of the Audit Committee your Company'sboard is placing the resolution u/s 139(2) of the Company's Act 2013 for reappointment ofthe statutory Auditors of the Company for the current financial year.

Particulars of Loans Guarantees or investments under Section 186 of the Companies Act2013

Details of loans guarantees and investments covered under the provisions of Section186 of the Companies Act 2013 are given in the Note 3.19 of the notes to the financialstatements.

Disclosure as per Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013

The Company has zero tolerance for sexual harassment at workplace and has adopted apolicy on prevention prohibition and redressal of sexual harassment at workplace in linewith the provisions of Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013 and the rules framed there under. The Company has set up aCommittee for addressing issues related to women and during the financial year 2015-16there were no complaints received on sexual harassment.

Performance of Associate Company

Your Company has an associate M/s SPMM Healthcare Services Private Limited within themeaning specified under Section 2 (6) of Companies Act 2013. M/s SPMM Healthcare servicesprivate Limited has recorded a total revenue of Rs. 31859942 during the year 2015-16 asagainst Rs. 3924357/- in the previous year and profit after tax of Rs.4729843 duringthe year 2015-16 as against Rs.4363920/- in the previous year. A separate statementcontaining the salient features of the financial statement of the associate in FORM AOC -1has also been annexed with this report as per the requirements of provisions of section129 of the Companies Act 2013 and forms part of this report.

Significant And Material Orders Passed By The Courts Or Tribunals impacting The Company: NIL Material Changes and Commitments during the year if any

There were no material changes and commitments between the end of the period underreview and the date of this report which could have an impact on the Company's operationin the future or its status as a "going concern".

Annexures to this Report

The following are the annexures to this report

1. Director's Responsibility Statement in Annexure 1

2. Conservation of energy technology absorption Research and development and foreignexchange earnings and outgo in Annexure 2

3. Statement containing salient features of the financial statement of associatecompany (Form AOC - 1) in Annexure 3

4. Form AOC - 2 in Annexure 4

5. Extract of Annual Report (Form MGT-9) in Annexure 5

6. Secretarial Audit Report (Form MR-3) in Annexure 6

7. Details of CSR Expenditure in Annexure 7

8. Particulars of Remuneration in Annexure 8

9. CEO / CFO Certification in Annexure 9

10. Corporate Governance Report in Annexure 10

Cautionary Note

Statements in the Directors' report and the management discussion and analysisdescribing the Company's objectives expectations or predictions may be forward lookingwithin the meaning of applicable securities laws and regulations. Actual results mightdiffer materially from those either expressed or implied in the statement. Importantfactors that could influence the Company's operations include global and domestic demandand supply conditions affecting selling prices of finished goods input availability andprices changes in government regulations tax laws economic developments within thecountry and other related factors such as litigation and industrial relations.

Acknowledgement

Directors of your Company record their sincere appreciation of the dedication andcommitment of all employees in achieving and sustaining excellence in all areas of thebusiness. Your directors thank the Shareholders Customers Suppliers Bankers and otherstakeholders for their continued support during the year. Your Company's consistent growthhas been made possible by the hard work solidarity cooperation and support of themanagement team. The directors of your company thank State Bank of India Karnataka BankLimited and Axis Bank Limited Central/State Governments and other government agencies fortheir support and look forward to their continued support in future.

For and on behalf of the Board
Salem R. Selvarajan
May 21 2016 Chairman and Managing Director

Annexure - 1

(i) Directors' Responsibility Statement as per section 134(5) of the Companies Act2013

Pursuant to the requirement of Section 134(5) of the Act and based on therepresentations received from the management the directors hereby confirm that:

i. in the preparation of the annual accounts for the financial year 2015-16 theapplicable accounting standards have been followed and there are no material departures;

ii. they have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of the Company at the end of the financial year and of the profitof the Company for the financial year;

iii. they have taken proper and sufficient care to the best of their knowledge andability for the maintenance of adequate accounting records in accordance with theprovisions of the Act. They confirm that there are adequate systems and controls forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;

iv. they have prepared the annual accounts on a going concern basis;

v. they have laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and operating properly; and

vi. they have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively.

Annexure - 2

(ii) Conservation of energy technology absorption and research and development andforeign exchange earnings and outgo

A. Conservation of energy
(a) Power and fuel consumption 2015-16 2014-15
1. Electricity
(i) Purchased units* '000 KWH 22385 21804
Total cost Rs. Lakhs 1788 1898
Cost/unit Rs. 7.98 8.70
*net of units generated through wind energy converters
(ii) Own generation
1) Through diesel generator
Generated units '000 KWH 322 811
Units per litre of diesel KWH 3.21 3.34
Cost/unit Rs. 14.52 16.08
2) Through steam turbine/generator - -
3) Through Wind energy converters '000 KWH 11089 15734
Generated units (fed to TNEB Grid)
Cost/unit Rs. 3.01 3.28
*Cost includes maintenance charges interest and depreciation
2. Coal - -
3. Furnace oil - -
4. Others - -
b) Consumption per unit of production
Production (Yarn) Kgs. Lakhs 81.14 93.58
Consumption of electricity '000 KWH 33796 38349
Consumption Per kg. of Yarn KWH 4.16 4.10
B. Technology absorption and research and development
C. Foreign exchange earnings and outgo
(a) Active relating to exports Yarn exports
(including merchandise exports) Rs. Lakhs 7723.70 12930.20
(b) Total Foreign exchange used and earned
1) CIF value of Imports Spares for Capital goods* Rs. Lakhs 41.78 3.35
Raw materials (cotton)* *exclusive of net exchange difference Rs. Lakhs 73.27 1171.39
2) Other expenditure in foreign Currency
Interest Rs. Lakhs - 0.61
Other matters Rs. Lakhs - 7.84
3) Foreign exchange earned Yarn export Rs. Lakhs 179.14 223.83

FORM AOC - 1 Annexure - 3

PART "A": SUBSIDIARIES

Not Applicable since the Company does not have any subsidiary.

PART "B": ASSOCIATES

Statement pursuant to Section 129 (3) of the Companies Act 2013 related to AssociateCompanies.

Name of Associate SPMM Healthcare Services Private Limited
1. Latest audited Balance Sheet Date 31-03-2016
2. Shares of Associate held by the Company on the year end: Number of Shares 2000000
Amount of Investment in Associates Rs. 20000000
Extend of Holding % 50%
3. Description of how there is significant influence Associate Company
4. Reason why the associate / joint venture is not consolidated Not Applicable since associate company accounts has been consolidated.
5. Networth attributable to Shareholding as per latest audited Balance Sheet Rs. 94.62 lakhs
6. Profit for the year Rs. 47.30 lakhs
Profit attributable to the Shareholding Rs. 23.65 lakhs

1. Names of associates or joint ventures which are yet to commence operations: NIL

2. Names of associates or joint ventures which have been liquidated or sold during theyear: NIL

3. The Company does not have any joint venture.

For and on behalf of the Board

R. Selvarajan S. Devarajan J. Asifa S. Vijay Shankar
Salem Chairman and Managing Director Director Company Secretary Chief Financial Officer
May 212016 DIN : 00001703 DIN : 0001910

Form No. AOC-2 Annexure - 4

(Pursuant to clause (h) of sub-section (3) of section 134 of the Act and Rule 8(2) ofthe Companies

(Accounts) Rules 2014)

Form for disclosure of particulars of contracts/arrangements entered into by thecompany with related parties referred to in sub-section (1) of section 188 of theCompanies Act 2013 including certain arms length transactions under third proviso thereto

1. Details of contracts or arrangements or transactions not at arm's length basis : NIL

2. Details of material contracts or arrangement or transactions at arm's length basis :NIL

note

All transactions entered by the Company with Related Parties were in the OrdinaryCourse of Business and at Arm's Length pricing basis. The Audit Committee granted omnibusapproval for the transactions (which are repetitive in nature) and the same was reviewedby the Audit Committee and the Board of Directors. There were no materially significanttransactions with Related Parties during the financial year 2015-16 which were in conflictwith the interest of the Company. Hence the related party transactions of the Company forthe financial year 2015-16 not fall under the purview of disclosure under Form AOC - 2.Suitable disclosures as required under AS-18 have been made in Note 3.8 of the Notes tothe financial statements.

Salem R. Selvarajan
May 21 2016 Chairman and Managing Director