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Rajapalayam Mills Ltd.

BSE: 532503 Sector: Industrials
NSE: RAJPALAYAM ISIN Code: INE296E01026
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OPEN 920.35
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VOLUME 4847
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P/E 18.18
Mkt Cap.(Rs cr) 681
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Sell Price 0.00
Sell Qty 0.00
OPEN 920.35
CLOSE 932.20
VOLUME 4847
52-Week high 1041.80
52-Week low 441.30
P/E 18.18
Mkt Cap.(Rs cr) 681
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Rajapalayam Mills Ltd. (RAJPALAYAM) - Director Report

Company director report

TO THE MEMBERS

Your Directors have pleasure in presenting their 80th Annual Report and theAudited Accounts of the Company for the year ended 31st March 2016.

1. FINANCIAL RESULTS

The financial results for the year ended 31st March 2016 after charging allexpenses and contribution to P.A.C. Ramasamy Raja Memorial Fund of Rs.60 Lakhs (which isless than the limits laid in the Articles of Association) but before deducting financecost and depreciation have resulted in operating profit of Rs. 6216.02 Lakhs againstRs.4965.30 Lakhs for the previous financial year 2014-15.

After deducting Rs.2678.09 Lakhs towards finance cost and providing Rs.2130.90 Lakhstowards Depreciation and considering Rs.1544.13 Lakhs being Dividends received from theshares held by the Company as investments the Net Profit for the year is Rs.2951.16Lakhs as compared to Rs.1913.59 Lakhs for the previous financial year 2014-15. Addingthe surplus of Rs.932.50 Lakhs brought forward from the previous year your Directorspropose to appropriate the total sum of Rs. 3883.66 Lakhs as detailed below:

Rs. in Lakhs
Provision for Taxation - Current Tax 386.18
- Tax Expenses related to earlier years 107.57
- Deferred Tax 104.48
Interim Dividend Rs. 3/- per share 221.28
Tax on Interim Dividend @ 20.358% 45.05
Transfer to General Reserve 2019.10
Balance carried over to Balance sheet 1000.00
TOTAL 3883.66

2. SHARE CAPITAL

The Paid-up Capital of the Company is Rs.737.62 Lakhs (Previous Year: Rs.737.62 Lakhs)consisting of 7376160 Shares of Rs.10/- each.

3. DIVIDEND

Your Directors have already declared an Interim Dividend of Rs. 3/- per share for thefinancial year 2015-16 at the Board Meeting held on 16th March 2016 (PreviousYear Dividend: Rs.2.50 per share). The amount of Interim Dividend outgo for the year wasRs.221.28 Lakhs. The amount of tax on Interim Dividend was Rs.45.05 Lakhs. In view ofconserving resources for repayment of loans your Directors do not recommend any furtherdividend for the financial year 2015-16. The Interim Dividend already paid may be treatedas total Dividend for the year 2015-16.

4. TAXATION

An amount of Rs. 386.18 Lakhs towards Current Tax Rs.107.57 Lakhs towards Income Taxexpenses related to earlier years and Rs. 104.48 Lakhs towards Deferred Tax has beenprovided for the year.

5. MANAGEMENT DISCUSSION AND ANALYSIS

TRADE CONDITIONS

During the year the Company has increased the spindle capacity by 6048 Spindles andinstalled of 2 Nos. of Open End Machines having capacity of 576 Rotors and hence theproduction of yarn has increased from 143.53 Lakhs Kgs to 159.43 Lakhs Kgs.

During the year the cotton prices have come down by 12% and correspondingly the yarnprice was also declined. Sluggish yarn demand in India as well as in export market coupledwith oversupply situation in India dragged the yarn prices both in Domestic as well asExport markets.

The preferential access being given in major importing nations like European Union toother countries including Bangladesh Cambodia Pakistan South Korea Turkey and Vietnamhas put India in disadvantageous position and hence the export volume of textile goodsfrom India to Europe was severely affected. Indian textile goods attract 4 to 16 per centduty in Europe while the majority of the competitors in other countries enjoy zero dutyaccess. The Chinese government's decision to offload its reserve cotton stock has reducedtheir dependence on import of yarn from India and the Pakistan government's decision toimpose regulatory duty for import of cotton yarn into their country have affected theshipments of yarn from India.

The power cut imposed in Tamil Nadu during the previous years was lifted during theyear. However the restrictions imposed by the Tamil Nadu Generation and DistributionCorporation (TANGEDCO) in evacuation of power generated by wind mills has continued andeven worsened during this year which has resulted in loss in generation of power fromwind mills to the extent of approximately 22.30 million units which translated into Rs.15Crores in monetary terms.

Due to shut-down of wind mills by TANGEDCO the Company was forced to purchase thepower from power generating companies / run the DG & HFO sets which are costlycompared to wind mills. Due to this the power cost during the year has gone upsubstantially.

In spite of reduction in yarn selling price and the increase in power & labourcosts the strategic decision taken by the Company to make investments in value addedmachines like compact spinning system TFO gassing machines etc. has helped the Companyto increase its volume of sales in export / corporate customers who require high qualityvalue added yarn and also helped the Company to control the costs and to increase itsoperational and financial performance.

6. EXPORTS

On the export front during the year we have made export of Cotton Yarn (includingmerchant exports) for a value of Rs. 114.97 Crores as against Rs. 111.44 Crores of theprevious year.

Your Directors are thankful to M/s. Mitsubishi Corporation M/s. Doko Spinning Co.Ltd. and M/s. Unitika Ltd. Japan for their continued support and efforts for promotionof exports to Japan and other countries.

7. MODERNISATION / EXPANSION

As a part of continuous thrust on modernization and expansion programme the Companyhas invested about Rs. 13.52 Crores for investment in textile machinery & equipmentslike Carding Machines Comber Machines Ring Spinning Machines Auto Coners CompactRetrofit system for Ring Spinning Machines Open End Spinning Machines Draw Frames UsterQuantum III Contamination Detecting Machines Waste Collection System etc.

8. PROSPECTS FOR THE CURRENT YEAR

The cotton prices are showing increasing trend due to lower production of cottonprojected during the current cotton season 2015-16 because of reduced acreage of cottonplantation and whitefly attack on cotton crops in Punjab and Haryana. Due to sluggishdemand for yarn the Spinning Mills are not able to increase the yarn prices in line withthe increased cotton cost. With the flexibility to produce value added super fine countsand by using more imported contamination free cotton the Company is now focusing more onexpanding the marketing activities across the globe during the current year.

The Company is maintaining high standards of yarn quality cost effective productionand stringent waste control measures and focusing on more automation with a view toutilize the skilled manpower more efficiently. The Company is making all efforts to copeup with the current challenges through continuous cost reduction imparting training tothe employees at all levels re-engineering of process and improved customer service toprotect & improve the profit margins.

9. WIND MILL

The Company has wind mills with installed capacity of 35.15 MW for its captive powerconsumption. There was delay in the on-set of wind season during the year under review.These wind mills continued to face evacuation constraints imposed by Tamil Nadu Generationand Distribution Corporation (TANGEDCO). Because of this the windmills were not able togenerate power to its full potential and the generation of electricity during the year wasless compared to the previous year.

The wind farm has generated 394 Lakhs Kwh as compared to 515 Lakhs Kwh of the previousyear. All the Units generated by wind mills were adjusted for captive consumption at ourMills in Tamil Nadu. The income during the year from the Wind Mill Division was Rs.26.27Crores as against Rs.30.15 Crores of previous year.

10. INTERNAL FINANCIAL CONTROLS

In accordance with Section 134(5)(e) of the Companies Act 2013 the Company hasInternal Financial Controls Policy by means of Policies and Procedures commensurate withthe size & nature of its operations and pertaining to financial reporting. Inaccordance with Rule 8(5)(viii) of Companies (Accounts) Rules 2014 it is herebyconfirmed that the Internal Financial Controls are adequate with reference to thefinancial statements. ERP System developed by Ramco Systems Limited has been installed foronline monitoring of all functions and management information reports are being used tohave better internal control system and to take decisions in time.

11. VIGIL MECHANISM / WHISTLE BLOWER POLICY

In accordance with Section 177(9) and (10) of the Companies Act 2013 and Regulation 22of SEBI (LODR) Regulations 2015 the Company has established a Vigil Mechanism and has aWhistle Blower Policy. The policy is available at the Company's website.

12. DIRECTORS

Smt. R. Sudarsanam (DIN: 00433926) was reappointed as Managing Director of the Companyfor a period of three years starting from 01-04-2014 to 31-03-2017 at the AGM held on04-08-2014. Based on the recommendations of the Nomination and Remuneration Committee andAudit Committee made at their meetings held on 27-05-2016 the Board of Directors at theirmeeting held on 28-05-2016 have reappointed her as Managing Director for a further periodof 3 years starting from 01-04-2017. Approval of the Members has been sought for herreappointment in the Notice convening the AGM.

In accordance with the provision of the Companies Act 2013 and in terms of theMemorandum and Articles of Association of the Company the following Directors retire byrotation at the ensuing Annual General Meeting and they are eligible for re-appointment.

1. Shri P.R. Venketrama Raja (DIN: 00331406)

2. Shri A.V. Dharmakrishnan (DIN: 00693181)

Shri K.B. Nagendra Murthy (DIN: 00359864) has been appointed as an Independent Directorfor a period of five years with effect from 04-08-2014 at the Annual General Meeting heldon 12th August 2015.

Smt. Soundara Kumar (DIN: 01974515) has been co-opted on 27th August 2015as an Additional Director under Independent Director category. She will hold the officetill the date of the forthcoming Annual General Meeting. A Notice in writing has beenreceived from a Member signifying his intention to propose the appointment of Smt.Soundara Kumar as a Director under Independent Director category at the Annual GeneralMeeting to hold office for 5 consecutive years with effect from 27th August2015 without being subject to retirement by rotation.

Pursuant to Rule 8(5)(iii) of Companies (Accounts) Rules 2014 it is reported thatother than the above there have been no changes in the Directors or Key ManagerialPersonnel during the year.

The Company has received necessary declarations from all the Independent Directorsunder Section 149(7) of the Companies Act 2013 that they meet the criteria ofindependence as provided in Section 149(6) of the Companies Act 2013.

The Audit Committee has four members out of which three are Independent Directors.Pursuant to Section 177(8) of the Companies Act 2013 it is reported that there has notbeen an occasion where the Board had not accepted any recommendation of the AuditCommittee.

In accordance with Section 178(3) of the Companies Act 2013 and based upon therecommendation of the Nomination and Remuneration Committee the Board of Directors haveapproved a policy relating to appointment and remuneration of Directors Key ManagerialPersonnel and Other Employees. The objective of the Nomination and Remuneration Policy isto ensure that the level and composition of remuneration is reasonable the relationshipof remuneration to performance is clear and appropriate to the long term goals of theCompany.

As required under Regulation 25 (7) of SEBI (LODR) Regulations 2015 the Company hasprogrammes for familiarization for the Independent Directors about the nature of theIndustry business model roles rights and responsibilities of Independent Directors andother relevant information. As required under Regulation 46 (2) of SEBI (LODR)Regulations 2015 the details of familiarisation programme for Independent Directors areavailable of the at the Company's website at the following link athttp://www.rajapalayammills.co.in/pdf/familiarisation-programme-for-independent-directors.pdf

The details of the familiarisation programme are explained in the Corporate Governancereport also.

13. EVALUATION OF BOARD

Pursuant to Section 134(3)(p) of the Companies Act 2013 and Regulation 25(4) of SEBI(LODR) Regulations 2015 Independent Directors have evaluated the quality quantity andtimeliness of the flow of information between the Management and the Board performance ofthe Board as a whole its committee and its Members and other required matters. Pursuantto Schedule II Part D of SEBI (LODR) Regulations 2015 the Nomination and RemunerationCommittee has laid down evaluation criteria for performance evaluation of IndependentDirectors which will be based on attendance expertise and contribution brought in by theIndependent Director at the Board Meeting which shall be taken into account at the timeof reappointment of Independent Director.

14. MEETINGS

During the year five Board Meetings were held. The details of the Meetings of theBoard and its various Committees are given in Corporate Governance Report.

15. PUBLIC DEPOSITS

Pursuant to Rule 8(5)(v) & (vi) of Companies (Accounts) Rules 2014 it is reportedthat the Company has not accepted any deposit from public during the financial year underreview.

There has been no default in the repayment of deposits / payment of interest thereonduring the year. The Company has no deposit which is not in compliance with the Chapter Vof the Companies Act 2013.

16. ORDERS PASSED BY REGULATORS

Pursuant to Rule 8(5)(vii) of Companies (Accounts) Rules 2014 it is reported that nosignificant and material orders have been passed by the Regulators or Courts or Tribunalsimpacting the going concern status and Company's operations in future.

17. PARTICULARS OF LOANS GUARANTEES AND INVESTMENTS

Pursuant to Section 186(4) of the Companies Act 2013 it is reported that:

(a) the Company has not given any loans during the year 2015-16 under Section 186 ofthe Companies Act 2013.

(b) the particulars of the guarantees and investments are provided under NoteNo.26(18)(h) and Note No. 10 respectively of Notes forming part of financial statements.The guarantees are to secure the loans from Banks / Financial Institutions to theborrowers.

18. CORPORATE SOCIAL RESPONSIBILITY

In terms of Section 135 and Schedule VII of the Companies Act 2013 the Board ofDirectors have constituted a Corporate Social Responsibility (CSR) Committee and adopted aCSR Policy which is based on the philosophy that "As the Organisation grows theSociety and Community around it also grows."

The Company has undertaken various projects in the areas of education health ruraldevelopment water and sanitation promotion and development of traditional artsprotection of national heritage livelihood enhancement projects etc. largely inaccordance with Schedule VII of the Companies Act 2013.

Your Directors are pleased to inform that the Company has fulfilled its CSR obligationspursuant to Section 135(5) of the Companies Act 2013 for the year 2015-16. As againstthe requirement of Rs. 58.58 Lakhs the Company has spent Rs. 168.17 Lakhs on CSR.

The Annual Report on CSR activities as prescribed under Companies (Corporate SocialResponsibility Policy) Rules 2014 is attached as Annexure - I.

19. AUDITS

STATUTORY AUDIT

M/s. M.S. Jagannathan & N. Krishnaswami Chartered Accountants and M/s.Ramakrishna Raja and Co. Chartered Accountants are the Statutory Auditors of theCompany.

At the 78th Annual General Meeting the above Auditors have been appointedas a statutory auditors for a period of 3 consecutive years being their remaining eligibleperiod in terms of Rule 6 of Companies (Audit and Auditors) Rules 2014. The matterrelating to their appointment for the third year of their term is being placed before theMembers for ratification at the ensuing Annual General Meeting in accordance with therequirements of Section 139(1) of the Companies Act 2013.

The Auditors have confirmed their eligibility for their reappointment under Section141 of the Companies Act 2013. As required under Regulation No: 33(1)(d) of SEBI (LODR)Regulations 2015 the Auditors have also confirmed that they hold a valid certificateissued by the Peer Review Board of the Institute of Chartered Accountants of India.

The report of the Statutory Auditors for the year ended 31st March 2016does not contain any qualification reservation or adverse remark and no instance of fraudhas been reported by Auditors under Section 143(12) of Companies Act 2013.

SECRETARIAL AUDIT

Shri M.R.L. Narasimha a Practicing Company Secretary has been appointed to conduct theSecretarial Audit of the Company. Pursuant to Section 204(1) of the Companies Act 2013the Secretarial Audit Report submitted by the Secretarial Auditor for the year ended 31stMarch 2016 is attached as Annexure - II. The report does not contain any qualificationreservation or adverse remark.

COST AUDIT

Cost Audit is not applicable to the Company for the financial year 2014-15. HoweverMinistry of Corporate Affairs has amended the Companies (Cost Records and Audit) Rules2014 vide its notification dated 31-12-2014 and Textile Mills are required to file costaudit report with effect from the financial year 2015-16.

The Board of Directors had approved the appointment of Shri M. Kannan Cost Accountantas the Cost Auditor of the Company to audit the Company's Cost Records relating tomanufacture of textile products for the year 2015-16 & 2016-17.

The remuneration of the cost auditor is required to be ratified by the Members inaccordance with the provisions of Section 148(3) of the Companies Act 2013 and Rule 14 ofthe Companies (Audit and Auditors) Rules 2014. Accordingly the matter is being placedbefore the Members for ratification at the ensuing Annual General Meeting.

The Cost Audit Report for the financial year 2015-16 is due to be filed within 180 daysfrom the closure of the financial year and will be filed within the stipulated period.

20. CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE

EARNINGS AND OUTGO

Pursuant to Section 134(3)(m) of the Companies Act 2013 and Rule 8(3) of Companies(Accounts) Rules 2014 the information relating to Conservation of Energy TechnologyAbsorption and Foreign Exchange Earnings and Outgo is attached as Annexure - III.

21. EXTRACT OF ANNUAL RETURN

In Accordance with Section 92(3) of the Companies Act 2013 read with Rule 12(1) ofCompanies (Management and Administration) Rules 2014 an extract of the Annual Return inForm MGT-9 is attached herewith as Annexure - IV.

22. CORPORATE GOVERNANCE

The Company has complied with the requirements regarding Corporate Governance asstipulated in SEBI (LODR) Regulations 2015. As required under Schedule V(C) of SEBI(LODR) Regulations 2015 a Report on Corporate Governance being followed by the Companyis attached as Annexure - V. As required under Schedule V(E) of SEBI (LODR) Regulations2015 a Certificate from the Auditors confirming compliance is also attached as Annexure -VI to this Report.

23. PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

The disclosures in terms of provisions of Section 197(12) of the Companies Act 2013read with Rule 5(1) (2) and (3) of Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 relating to remuneration are provided in Annexure- VII.

Having regard to the first proviso to Section 136(1) of the Companies Act 2013 thephysical copy of the Annual Report excluding the aforesaid information is being sent tothe members of the Company. The said information is available for inspection at theRegistered Office of the Company during working hours and any Member interested inobtaining such information may write to the Company Secretary and the same will befurnished on request. The full Annual Report including the aforesaid information is beingsent electronically to all those Members who have registered their email addresses and isalso available on the Company's website.

24. INDUSTRIAL RELATIONS AND PERSONNEL

The Company has 3198 employees as on 31-03-2016. Industrial relations with employeesremained cordial during the year. Human Resources Development activities receivedconsiderable focus. The emphasis was on imparting training and development of theskill-set of the employees to enable them to face the challenges in the work environment.

25. RELATED PARTY TRANSACTION

Prior approval / Omini bus approval is obtained from the Audit Committee for allRelated Party Transactions and the transactions are also periodically placed before theAudit Committee for its approval. No transaction with the related party is material innature in accordance with Company's "Related Party Transaction Policy" andRegulation 23 of SEBI (LODR) Regulations 2015. In accordance with Accounting Standard -18 (Related Party Disclosure) the details of transactions with the related parties areset out in Note No. 26 (18) of disclosures forming part of Financial Statements.

As required under Regulation 46 (2) (g) of SEBI (LODR) Regulations 2015 the Company'sRelated Party Transaction Policy is disclosed in the Company's website and its web link ishttp://www.rajapalayammills.co.in/pdf/related-party-transaction-policy.pdf

26. RISK MANAGEMENT POLICY

Pursuant to Section 134(3)(n) of the Companies Act 2013 and Regulation 17(9) of SEBI(LODR) Regulations 2015 the Company has developed and implemented a Risk ManagementPolicy. The Policy envisages identification of risk and procedures for assessment andminimization of risk thereof.

27. DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 134(5) of the Companies Act 2013 the Directors confirm that:

(a) they had followed the applicable accounting standards along with proper explanationrelating to material departures if any in the preparation of the annual accounts for theyear ended 31st March 2016;

(b) they had 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 as on 31st March 2016 and of the profitof the Company for the year ended on that date;

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

(d) they had prepared the Annual Accounts on a going concern basis;

(e) they had laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and were operating effectively; and

(f) they had devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively.

ACKNOWLEDGEMENT

The Directors are grateful to the various Departments and agencies of the Central andState Governments for their help and co-operation. They are thankful to the FinancialInstitutions and Banks for their continued help assistance and guidance. The Directorswish to place on record their appreciation of employees at all levels for their commitmentand their contribution.

On behalf of the Board of Directors
For RAJAPALAYAM MILLS LIMITED
RAJAPALAIYAM P.R. RAMASUBRAHMANEYA RAJHA
28th May 2016. CHAIRMAN