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Natural Capsules Ltd.

BSE: 524654 Sector: Others
NSE: N.A. ISIN Code: INE936B01015
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VOLUME 1290
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P/E 38.63
Mkt Cap.(Rs cr) 47
Buy Price 0.00
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Sell Price 0.00
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OPEN 72.00
CLOSE 72.05
VOLUME 1290
52-Week high 100.00
52-Week low 69.10
P/E 38.63
Mkt Cap.(Rs cr) 47
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Natural Capsules Ltd. (NATURALCAPSULES) - Director Report

Company director report

TO THE MEMBERS

Your Directors have pleasure in presenting the twenty third Annual Report together withthe Audited Accounts of the company for the year ended 31st March 2016.

FINANCIAL RESULTS:

The Company’s financial performance for the year ended March 31 2016 issummarized below:

(Rs. In Lakhs)
Particulars March 31 2016 March 31 2015
Gross Sales 6683.18 7194.38
Less : Excise duty 477.88 462.30
Net Sales 6205.31 6732.08
Other Income 123.23 79.45
Total 6328.53 6811.53
Profit before depreciation & taxation 1024.24 1155.07
Less : Depreciation 416.77 402.67
Less : Provision for taxation 167.59 236.11
Less: Prior period adjustment (Taxation) 0.29 6.37
Add: Deferred Tax withdrawn 1.85 53.68
Profit after taxation 433.88 564.92
Add: Balance brought forward from previous year 3593.01 3247.99
Surplus available for appropriation 4026.89 3812.91
Appropriations
General Reserve 21.69 28.25
Proposed Dividend 90.19 78.64
Tax on Dividend 18.36 16.01
Additional depreciation on fixed asset as per Companies Act 2013 - 97.00
Balance carried to Balance sheet 3896.65 3593.01
Total 4026.89 3812.91

The company proposes to transfer an amount of Rs. 21.69 lakhs to the General Reserves.An amount of Rs. 3896.65 lakhs is proposed to be retained in the statement of Profit& Loss account.

OPERATIONAL REVIEWS:

The company had a gross turnover of Rs. 6683.18 lakhs as against Rs. 7194.38 lakhs inthe previous year a decline of 7.65%. Profit before depreciation and taxation was Rs.1024.24 lakhs against Rs. 1155.07 lakhs in the previous year. After providing fordepreciation and taxation of Rs. 416.77 lakhs & 167.59 lakhs respectively the netprofit of the Company for the year under review was placed at Rs. 433.88 lakhs as againstRs. 564.92 lakhs previous year.

Due to tough market conditions increase in cost of inputs and reduction in marginsthere was decline in profits as compared to the previous year. Accordingly the profitafter tax has reduced by 30.20% during the year under review.

DIVIDEND:

Based on the performance of the Company and the need for conservation of internalaccruals while maintaining the dividend for the shareholders your Directors are pleasedto recommend a final dividend of Rs. 1.50 per equity share at the rate of 15 % subject tothe approval of members. The dividend if approved by the Members will result in the outflow of Rs.90.19 lakhs from the company in addition to Rs.18.36 lakhs by way of dividenddistribution tax. Dividend if declared will be paid to the Members whose names appear inthe Register of Members as on the date of the AGM.

SHARE CAPITAL:

During the year under consideration the paid up capital increased from Rs. 524.27lakhs to 579.27 lakhs. by conversion of 220000 share warrants into equity (which formedpart of earlier preferential issue of equity shares to promoter group in the financialyear 2014-15) and issue of additional 330000 equity shares of Rs. 10/- each (at apremium of Rs. 70/- per equity share) by the way of preferential issue to non promoters.The company has also issued 1100000 convertible securities / equity share warrants toboth promoters and non promoters on preferential basis. The company has obtained Listingapproval for the preferential issue of equity shares and equity share warrants /Convertible securities from Bombay Stock Exchange.

FINANCE:

Cash and cash equivalents as at March 31 2016 was Rs.19.25 lakhs. The companycontinues to focus on judicious management of its working capital ReceivablesInventories and other working capital parameters were kept under strict check throughcontinuous monitoring.

FIXED DEPOSITS:

Your company has not accepted any deposits within the meaning of Section 73 of theCompanies Act 2013 and the Companies (Acceptance of Deposits) Rules 2014.

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS:

The company has not given any loans or guarantees covered under the provisions ofsection 186 of the Companies Act 2013.

There was an investment of Rs. 507.36 lakhs made by company during the year in partpayment for acquiring 40% equity shares of M/S. Supreem Pharmaceuticals (Mysore) Pvt. Ltdfor total investment of Rs. 1171.02 lakhs.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The company has an internal control system commensurate with the size scale andcomplexity of its operations. The scope and authority of the Internal Audit function isdefined in the Internal Audit Manual. To maintain its objectivity and independence theinternal auditor reports to the chairman of the audit committee and to the Chairman &Managing Director of the Company.

The Audit Committee monitors and evaluates the efficacy and adequacy of internalcontrol system in the company its compliance with operating systems accountingprocedures and policies at all locations of the company. Based on the report of internalauditor process owners undertake corrective action in their respective areas and therebystrengthen the controls. Significant audit observations and recommendations along withcorrective actions thereon are presented to the Audit Committee of the Board.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES:

As part of its initiatives under "corporate social responsibility" (CSR) theCSR committee has taken steps to find out such activities to contribute. The CSR committeehas calculated the CSR fund amounting to Rs. 29.09 lakhs for the year ending as on March31 2016 and the amount will be spent on the CSR activities to be identified shortly.Identification of CSR activities is under process.

CONSERVATION OF ENERGY:

Company ensures that the manufacturing operations are conducted in the manner wherebyoptimum utilization and maximum possible savings of energy is achieved. The particulars asper Form A are attached to this report.

TECHNOLOGY ABSORPTION:

Company’s products are manufactured by using in-house know how and no outsidetechnology is being used for manufacturing activities. Therefore no technology absorptionis involved. The company constantly strives for maintenance and improvement in quality ofits products and entire Research & Development activities are directed to achieve theaforesaid goal. The company is having ongoing research anmd development activity todevelop value added products as per details given in Form-B attached to this report.

FOREIGN EXCHANGE EARNINGS AND OUT-GO:

During the period under review your company has gained Rs. 33.73 lakhs owing toforeign exchange fluctuations. Export revenue constituted 29.77% of Total Revenue asagainst 31.41% in the previous year.

Foreign Exchange Earnings : Rs. 177780687/-
Foreign Exchange Outgo : Rs. 44121240/-

INDUSTRIAL RELATIONS:

During the year under review your company enjoyed cordial relationship with workersand employees at all levels.

EXPANSION:

During the year company commissioned a pilot machine to manufacture HPMC capsules atBangalore plant which has a capacity of about 400 million capsules per annum.

Board of Directors in its 113th meeting held on 29th October2015 had approved a scheme of conversion of three existing gelatine capsules lines toHPMC manufacturing lines at a total cost of Rs. 24 Crores to be completed in 30 months.Work on this proposal is likely to start at the end of this current financial year.

DIRECTORS:

Mr. Laxminarayan Moondra and Mrs. Jyoti Mundra Directors retire by rotation and beingeligible offer themselves for re appointment.

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 Regulation25(3) of SEBI (Listing Obligations and Disclosure Requirement) Regulations 2015.

Board Evaluation

SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 mandates thatthe Board shall monitor and review the Board evaluation framework. The framework includesthe evaluation of directors on various parameters such as:

• Board dynamics and relationships

• Information flows

• Decision-making

• Relationship with stakeholders

• Company performance and strategy

• Tracking Board and committee’s effectiveness

• Peer evaluation

The Companies Act 2013 states that a formal annual evaluation needs to be made by theBoard of its own performance and that of its committees and individual directors. ScheduleIV of the Companies act 2013 states that the performance evaluation of independentdirectors shall be done by the entire Board of Directors excluding the director beingevaluated.

The evaluation of all the directors and the Board as a whole was conducted based on thecriteria and framework adopted by the Board. The evaluation process has been explained inthe corporate governance report. The Board approved the evaluation results as collated bythe nomination and remuneration committee.

Independent Director’s meeting:

Independent directors held a separate meeting on 27th January 2016. Theyhave evaluated the performance of executive directors and conducted thorough businessreview affecting the performance of the company as per the requirements of statues.

Listing Agreement

The Securities and Exchange Board of India (SEBI) on September 2 2015 issued SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 with the aim toconsolidate and streamline the provisions of the Listing Agreement for different segmentsof capital markets to ensure better enforceability. The said regulations were effectivefrom December 1 2015. Accordingly all listed entities were required to enter into theListing Agreement within six months from the effective date. The company entered intoListing Agreement with BSE Limited during January 2016.

Policies

We seek to promote and follow the highest level of ethical standards in all ourbusiness transactions guided by our value system. The SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 mandated the formulation of certain policiesfor all listed companies. All our corporate governance policies are available on ourwebsite (http://www.naturalcapsules.com/pages/policies.html).

The policies are reviewed periodically by the Board and updated based on need and newcompliance requirement.

Name of the policy Brief description Web link
Whistle blower Policy (Policy on vigil Mechanism) The company has adopted the whistle blower mechanism for directors and employees to report concerns about unethical behaviour actual or suspected fraud or violation of the Company’s code of conduct and ethics. There has been no change to the Whistle blower Policy adopted by the Company during fiscal 2016. No employee has been denied access to the audit committee. http://www.naturalcapsules.com/ pdf/vigil-mechanism-and-whistle- blowers-policy.pdf
Nomination and Remuneration policy This policy formulates the criteria for determining qualifica- tions competencies positive attributes and independence for the appointment of a director (executive/non-executive) and also the criteria for determining the remuneration of the directors key managerial personnel and other employees http://www.naturalcapsules.com/ pdf/nomination-and-remuneration- policy.pdf
Corporate Social Responsibility Policy The policy outline the Company’s strategy to bring about a positive impact on society through programs relating to hun- ger poverty education healthcare environment and lower- ing its resource footprint. http://www.naturalcapsules.com/ pdf/corporate-social-responsibility- policy.pdf
Determination of materiality for disclosures Policy The information covered by this Policy shall include "informa- tion related to the Company’s business operations or perfor- mance which has a significant effect on securities invest- ment decisions" that the company is required to disclose in a timely and appropriate manner by applying the guidelines for assessing materiality. http://www.naturalcapsules.com/ pdf/Determination-of-Materiality-for- Disclosures.pdf
Related Party Transaction Policy The Policy regulates all transactions between the Company and its related parties. http://www.naturalcapsules.com/ pdf/policy-on-related-party- transactions.pdf
Insider Trading Policy The policy provides the framework in dealing with securities of the Company http://www.naturalcapsules.com/ pdf/Code-of-Conduct-Insider- Trading.pdf
Document Retention and Archival Policy The policy deals with the retention and archival of corporate records of Natural capsules limited. http://www.naturalcapsules.com/ pdf/Document-Retention-and- Archival-Policy.pdf

Meetings

During the year Seven Board Meetings and Four audit committee meetings were convenedand held. The details of which are given in the corporate governance report. Theintervening gap between the meetings was within the period prescribed under the CompaniesAct 2013.

DIRECTOR’S RESPONSIBILITY STATEMENT:

In terms of Section 134 (5) of the Companies Act 2013 the directors would like tostate that:

i) In the preparation of the annual accounts the applicable accounting standards havebeen followed.

ii) The directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that were reasonable and prudent so as to give a true andfair view of the state of affairs of the company at the end of the financial year and ofthe profit or loss of the company for the year under review.

iii) The directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act for safeguardingthe assets of the company and for preventing and detecting fraud and other irregularities.

iv) The directors have prepared the annual accounts on a going concern basis.

v) The directors have laid down internal financial controls to be followed by thecompany and that such internal financial controls are operating effectively.

vi) The directors had devised proper system to ensure compliance with the provisions ofall applicable laws and that such system were adequate and operating effectively.

RELATED PARTY TRANSACTIONS:

All related party transactions that were entered into during the financial year were onarm’s length basis and were in the ordinary course of the business. There are nomaterially significant related party transactions made by the company with promoters keymanagerial personnel or other designated persons which may have potential conflict withinterest of the company at large.

A) Name of the related party and nature of relationship where control exists:

Name of Related Party Nature of Relationship
M/s Mundra Enterprises Entity in which Director or KMP is Related
M/s. Balurghat Technologies Ltd Entity in which Director or KMP is Related
M/s.Minakshi Enamels Entity in which Director or KMP is Related
Mr. Sunil L Mundra Key Management Personnel
Mr. Laxminarayan Moondra Key Management Personnel
Mr. Satyanarayan Mundra Key Management Personnel

(B)(i) Related Party Transactions:

Name of Related Party Nature of Transactions Amount of Transactions Amount Outstanding at the end of year
Credit (Rs.) Debit (Rs.)
Current Year\ (Previous Year) Current Year\ (Previous Year) Current Year\ (Previous Year)
M/s Mundra Enterprises Operating Lease
Rental Payments 576000 43200 -
(540000) - -
Mr. Sunil L Mundra Managerial Remuneration 4050000 232144 -
(3760000) (464704) -
Mr. Laxminarayan Moondra Managerial Remuneration 2745000 167308 -
(1950000) - -
Mr. Satyanarayan Mundra Managerial Remuneration 2790000 165730 -
(2610000) - -
M\s Minakshi Enamels Purchase of Copper Rivets 19085 - -
(36481) - -
M/s. Balurghat Technology Ltd Travelling Agency 236557 - -
(525920) - -

There were no material significant related party transactions having potential conflictwith the interest of company.

The disclosures relating to holding vs. Subsidiary companies are not relevant.

SUBSIDIARY COMPANIES:

The company does not have any subsidiary.

CODE OF CONDUCT:

The Board of Directors has approved a code of conduct which is applicable to themembers of the Board/committees and all employees in the course of day to day businessoperations of the company. The company believes in "Zero Tolerance" againstbribery corruption and unethical dealings / behaviours of any form and the Board has laiddown the directives to counter such acts. The code laid down by the Board is known as"code of business conduct" which forms an appendix to the code. The code hasbeen posted on the company’s website www.naturalcapsules.com.

The code lays down the standard procedure of business conduct which is expected to befollowed by the Directors and the designated employees in their business dealings and inparticular on matters relating to integrity in the work place in business practices andin dealing with stakeholders. The code gives guidance through examples on the expectedbehaviour from an employee in a given situation and the reporting structure.

All the Board members and the senior management personnel have confirmed compliancewith the code. All management staff was given appropriate training in this regard.

PREVENTION OF INSIDER TRADING:

The Board of Directors has adopted the Insider Trading Policy in accordance with therequirements of the SEBI (Prohibition of Insider Trading) Regulation 2015. The InsiderTrading Policy of the Company lays down guidelines and procedures to be followed anddisclosures to be made while dealing with shares of the Company as well as theconsequences of violation. The policy has been formulated to regulate monitor and ensurereporting of deals by employees and to maintain the highest ethical standards of dealingin Company securities. The Insider Trading Policy of the Company covering code ofpractices and procedures for fair disclosure of unpublished price sensitive informationand code of conduct for the prevention of insider trading is available on our websitehttp:// www.naturalcapsules.com/pdf/Code-of-Conduct-Insider-Trading.pdf

All Directors and the designated employees have confirmed compliance with the Code.

AUDITOR’S REPORT / SECRETARIAL AUDIT REPORT:

The observation made in the Auditors’ Report read together with relevant notesthereon are self explanatory and hence do not call for any further comments under Section134 of the Companies Act 2013.

As required under section 204 (1) of the Companies Act 2013 the Company has obtained asecretarial audit report. Certain observations made in the report with regard to nonfiling of some forms were mainly due to ambiguity and uncertainty of the applicability ofthe same for the relevant period. However the company would ensure in future that all theprovisions are complied with the fullest extent.

AUDITORS:

The Auditors M/S. Gnanoba & Bhat Chartered Accountants Bangalore continues to beeligible as company’s statutory auditors and it is proposed to ratify theirappointment for the financial year 2016-17 on the same remuneration in this AGM.

SECRETARIAL AUDIT:

Pursuant to provisions of section 204 of the Companies Act 2013 and The Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the company hasappointed Mr. R.Parthasarathi company Secretary in practice to undertake the SecretarialAudit of the Company for the financial year 2016-17 in the board meeting held on 27thMay 2016. The Secretarial Audit report for the financial year 2015-16 is annexed herewithas "Annexure B"

Regarding auditors remarks relating to not spending CSR expenditure the management isstill in the process of identifying the areas for expenditure and the same is likely to bespent in the current year.

EXTRACT OF ANNUAL RETURN:

The details forming part of the extract of the Annual Return in form MGT-9 is annexedherewith as "Annexure C".

BUSINESS RISK MANAGEMENT:

Pursuant to section 134 (3) (n) of the Companies Act 2013 & Regulation 17(9) (b)of SEBI (LODR) Regulations 2015 the company has constituted a business risk managementcommittee. The details of the committee and its terms of reference are set out in thecorporate governance report forming part of the Boards report.

At present the company has not identified any element of risk which may threaten theexistence of the company.

PARTICULARS OF EMPLOYEES:

The information required pursuant to Section 197 read with rule 5 (1) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 in respect of Directorsand KMP are given in CORPORTE GOVERNANCE REPORT which form an integral part ofthis Report are set out as separate Annexure.

CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION & ANALYSIS REPORTS

The Corporate Governance and Management Discussion & Analysis Report which form anintegral part of this Report are set out as separate Annexure together with theCertificate from the auditors of the Company regarding compliance with the requirements ofCorporate Governance as stipulated in Scheduled V(E) of the SEBI (Listing Obligations andDisclosure Requirement) Regulations 2015.

There were no material changes and commitments affecting the financial position of thecompany from the end of financial year 2015-2016 up to the date of this report.

ACKNOWLEDGEMENTS:

Your Company and its Directors wish to extend their sincerest thanks to the Members ofthe Company Bankers State Government Local Bodies Customers Suppliers ExecutivesStaff and workers at all levels for their continuous cooperation and assistance.

For and on behalf of the
Board of Directors
Satyanarayan Mundra
Bangalore Sunil L Mundra
Whole Time Director
July 30 2016 Managing Director