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South India Paper Mills Ltd.

BSE: 516108 Sector: Industrials
NSE: SIPAPER ISIN Code: INE088G01014
BSE 15:40 | 16 Feb 130.65 -1.35
(-1.02%)
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OPEN 130.20
PREVIOUS CLOSE 132.00
VOLUME 5875
52-Week high 168.00
52-Week low 90.25
P/E 1866.43
Mkt Cap.(Rs cr) 196
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 130.20
CLOSE 132.00
VOLUME 5875
52-Week high 168.00
52-Week low 90.25
P/E 1866.43
Mkt Cap.(Rs cr) 196
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

South India Paper Mills Ltd. (SIPAPER) - Director Report

Company director report

DIRECTORS' REPORT

To

The Members

Your Directors have the pleasure to present the 58th Annual Report of theCompany along with the audited accounts for the year ended 31st March 2017.

WORKING RESULTS 2016-17 2015-16
Finished Production of Paper & Paperboards 52752 MTs 56268 MTs
Conversion Quantity at the Box Plant (PPD) 26196 MTs 26659 MTs
( Rs. In Lacs) ( Rs. In Lacs)
Gross Sales 20673.18 21899.17
Net Sales excl Excise Duty 19512.41 20661.87
FINANCIAL RESULTS:
Operating Profit 3260.00 3626.01
Less : Finance costs 388.43 165.04
Gross (Cash) Profit 2871.57 3460.97
Less : Depreciation 951.17 797.43
Profit before exceptional items and Tax 1920.40 2663.54
Add : Exceptional items 821.57
Profit before tax 1920.40 3485.11
Less : Provision for Tax-including deferred tax & net of MAT credit 665.00 1073.44
Profit after tax for the year 1255.40 2411.67
Add :Excess Tax Provision reversed (PY Income tax of earlier years) 6.00 (2.68)
Net Profit after Tax 1261.40 2408.99
Add : Balance Surplus brought forward from the previous year 10373.88 8506.50
11635.28 10915.49
APPROPRIATIONS :
Proposed Dividend @ 15% (Previous year 30%) (225.00) (450.00)
Provision for Dividend Tax (45.81) (91.61)
Balance Surplus carried forward 11364.47 10373.88

OPERATIONS

Gross sales for the financial year 2016-17 stood at Rs. 206.73 crores as against Rs.218.99 crores in the previous year. Sales lower by Rs. 12 crore owing to labour striketowards fag end of the Financial Year affecting revenues of about 11 days and generalslowdown in demand for packaging material (paper & paper products) due todemonetisation effect witnessed in the economy during the last 4 months of the FY 2017.Operation at the Paper Mill was lower by about 6% during the year. Printing &Packaging Division operated with slightly lower volumes & the Conversion tonnage wasdown by 2%.

Operating profit reduced to Rs. 3260 lacs from Rs. 3626 lacs owing to above factors.Finance costs increased from Rs. 165 lacs to Rs. 389 lakhs in line with higher term fundsutilisation reflectingfull year's charge post implementation. After making a depreciationprovision of Rs. 951 lacs(Previous year 797 lacs) profit was Rs. 1920 lacs(Previous yearRs. 2663 lacs).Exceptional items Nil as against last year's non recurring item (net) ofRs. 822 lacs.PBT decreased to Rs. 1920 lacs (Previous year Rs. 3485 lacs includingexceptional items (non recurring)). After making a provision for tax of Rs. 659 lacs ( Rs.1076 lacs in the previous year)net profit decreased from Rs. 2409 lacs to Rs. 1261lacs.

FINANCES

During the year cash flow & liquidity remained comfortable.

Sources of funds Rs. in lacs Deployment of funds Rs. in lacs
Cash flow from operating activities 3113 Repayment of Term Loans 100
Interest Income 58 Deferred Payt Credit–Installments paid 287
Forex gain and others 89 Finance Cost 394
Term Loan drawn from Banks 1743 Income tax Paid 541
Dividend & Dividend Tax 535
Capital Expenditure & Advances 2957
Decrease in short term Bank Borrowings 83
Increase in working capital 106
Total 5003 Total 5003

 

31.03.07 31.03.16
Long Term Debt to Equity Ratio 0.23 0.15
Current Ratio 1.72 1.44

Instalments of Term Loans and Interest on Term Loans and Working capital borrowingswere paid within due dates.

CREDIT RATING

ICRA has assigned a long term rating of [ICRA]A- upgraded from earlier rating of[ICRA]BBB+ with a stable outlook and a short term rating of [ICRA]A2+ to theCompany's line of credit. Assigned Ratings will continue with negative implications owingto labour strike.

CURRENT PROSPECTS

Co-generation facility consisting of 50tph CFBC Boiler Steam Turbine of 11 MWcapacity Electro Static Precipitator (ESP) commissioned in the previous year wasstabilized in the year under review. New Transmission line of 66KV is under implementationto bring down the overall energy cost is delayed by procedural issues. These have sincebeen sorted out and likely to be completed within 3 months of resuming operations afterthe end of labour strike which also caused delay in this phase of the Project.

The market conditions for paper continue to be extremely competitive with suppliesfrom new capacities and rising input prices. It is a task for the management to get backthe orders lost owing to labour strike and to report a reasonable performance for FY2017-18 after making good the loss of revenue in the first quarter.

Your management perceives an opportunity for growth by enhancing its box manufacturingcapacity with a new plant at another location which is important for managing the newrisk factors that have emerged now. Various site options are under consideration. Anincrease in paper making capacity through brown-field the higher conversion capacityplanned is seen as the way forward. in the current year with cost increase and loss ofOverallTurnoverandoperatingprofit production caused by the labour strike.

CAPITAL EXPENDITURE PLANS

The Company's plan for the upgradation / modernising / balancing of the existing papermachines with focus on quality & higher grades to sustain in the competitive situationwill continue after stabilising the operation post resumption. Capital expenditureplanned for enhancing the box manufacturing capacity has been completed. Plans forconserving water resources & ETP facility & a new 66KV transmission line for Powerevacuation are in advanced stage and will be completed in about 3 months on resuming theoperations. Adding box manufacturing capacity with a new plant at another location isunder active consideration of your management to minimise the emerging new risks.

This will be financed through debt & internal accruals to obtain optimum returns.Large capital expenditure and substantial capacity increase is under consideration andwill be taken up after completing above capex at the opportune time.

CORPORATE GOVERNANCE

As per SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015separate Report on Corporate Governance along with Auditors Certificate confirming thecompliance is attached.

Directors' Responsibility Statement :

As required by Section 134(5) of the Companies Act 2013we state that :

While preparing the Annual Accounts the Company has followed the applicable AccountingStandards;

The Directors have selected such accounting policies and applied them consistently andhas made judgements and estimates that are reasonable and prudent so as to give true andfair view of the state of affairs of the Company as at 31-3-2017 & of the profit ofthe Company for the financial year 2016-17.

The Directors have taken proper & sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities.

The Directors have prepared the annual accounts on a going concern basis.

The Directors have laid down internal financial controls to be followed by the Companyand the controls are adequate and operating effectively.

The Directors have devised proper systems to ensure compliance with the provisions ofall the applicable laws and these systems are adequate and operating effectively.

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

During the year the Company did not give any Loan / Guarantee or has provided anysecurity or make investment covered under Section 186 of the Companies Act 2013

PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTY

None of the transactions with any of the related parties was in conflict with theinterests of the Company. Details of transactions with related parties are furnished as anannexure in Form AOC-2.

MATERIAL CHANGES & COMMITMENTS

There was no change in the nature of business of the Company during the year.

There was no material changes and commitments in the business operations of the Companysince the close of the financial year on 31 st March 2017 to the date of thisreport.

ISO 9001 CERTIFICATION

Company's Quality Management Systems (QMS) have been audited by Bureau VeritasCertification India Pvt Ltd and ISO 9001: 2008 Certification is awarded to the Printing& Packaging Division of the Company. This Certification issued is valid for 3 years upto 17-5-2018.

FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATION

The Company received FSC certificate under standards of FSC-STD-40 003 V2-1 FSC-STD-40STD-40 007 V 2-0 for its product group. This is an assurance of environmental protectionby providing sufficient documentary controls and traceability throughout the Chain ofCustody.This certification means Company is capable of manufacturing FSC Recycled and FSCMixed products.

RESEARCH & DEVELOPMENT

Several special application grades have been developed & successfully introducedduring the year to cater to stringent customer specific requirements.

ENERGY CONSERVATION MEASURES

The particulars required under Section 134 (3) (m) of the Companies Act 2013 withregard to energy conservation measures are furnished in the Annexure.

ENVIRONMENTAL PROTECTION

Your company has always endeavoured to remain in harmony with its eco-sphere and triedto equitably balance the interest of all stakeholders in it often going beyond thestatutory impositions placed by regulatory authorities. In such efforts are included theinstallation of a 0.5 acre hold tank and a 2 km delivery pipeline for irrigating otherwisedry lands. The treated effluent water is utilized for irrigation purposes in the nearbyfields of third party farmers with excellent crop yields.

The Company has installed & been operating the Electro Static Precipitator (ESP)Systems for its Boilers for controlling dust emission and dust extractor system forcontrolling dust at its fuel handling system. Centrifuge and with roofingothermachinerieshavebeeninstalledforeffluent controls dust emissions and conserves theresources.

In order to ensure environmentally safe disposal of solid wastes the Company hasstarted disposing Ash and plastic waste to recyclers authorized by KSPCB. Ash is used inbrick manufacturing and plastic is being used in cement kilns.

The Company has engaged the expert services of University of Agricultural SciencesGandhi Krishi Vigyana Kendra Bangalore for a study of ‘Utilisation of Paper MillEffluent for Agricultural Purpose'. After 4 years study a final report has been issuedconcluding that the effluent generated by the paper mill contains small amount ofnutrients higher amount of salts and are within limits of Central Pollution Control Boardnorms. The finding further says that mill effluent along with additional dose of nitrogenhas significant effect in increasing the crop yields.

DIVIDENDS

Your Directors recommend a Dividend of 15% i.e. Rs. 1.50 per equity share of Rs. 10each (last year 30% i.e. Rs. 3 per share). The total distribution including dividend taxamounts to Rs. 270.81 lacs ( Rs. 541.61 lacs)

PARTICULARS OF EMPLOYEES

Particulars of employees as prescribed under Rule 5(2) of the Companies (Appointment& Remuneration of Managerial Personnel) Rules 2014 are annexed.

Extract of Annual Return

The Extract of Annual Return in Form MGT 9 is attached and forms a part of this AnnualReport.

Managerial Remuneration

Requisite details as per Rule 5 of the Companies (Appointment and Remuneration ofManagerial Personnel)Rules

2014 is annexed herewith and forms a part of this Annual report

Meetings of the Board

The number of meetings of the Board held and details thereof are mentioned in theReport on Corporate Governance forming a part of this Annual Report.

Whistle Blower Policy

In deference to Section 177 (9) of the Actread with relevant Rule 7 of the Companies(Meetings of Board and its Powers) Rules 2014 and Listing Regulations the Company hasestablished a vigil mechanism overseen by the Audit

Committee. The Company has formed Whistle Blower policy as required under the CompaniesAct 2013 and Listing

Regulations and no personnel has been denied access to the Audit Committee.

Risk Management

The Company has a risk management framework to identify and evaluate business risks andopportunities. It seeks to create transparency minimise adverse impact on the businessobjective and enhance the Company's competitive advantage. It aims at ensuring that theexecutive management controls the risk through means of a properly defined framework.

The Company has laid down appropriate procedures to inform the Board about the riskassessment and minimization procedures. The Board periodically revisits and reviews theoverall risk management plan for making desired changes in response to the dynamics of thebusiness.

The Board of Directors have constituted a Risk Management Committee as required underthe erstwhile clause

49 of the Listing Agreement vide Board Meeting held on 27.01.2015 to frame implementand monitor the risk management plan of the Company. The Committee comprises of thefollowing Directors.

Mr Manish M Patel Chairman
Mr M G Mohan Kumar Member
Mr S R Chandrasekara Setty Member

The terms of reference of risk management committee include review of Risk managementpolicy and its development within the Company to monitor the effectiveness of riskmanagement policy review major risks of the Company and to advice on mitigation to theBoard.

LABOUR RELATIONS

The industrial relations climate in the Company during the year was generally cordialand harmonious.except towards the end of the financial year. Previous settlement for aperiod of 4 years signed with the Workers' Union was in force upto 31-3-2016. Negotiationfor a 4 year agreement was in progress. There was an unwarranted and unjustified labourstrike from 20-3-2017 at the Paper mill and from 21-3-2017 at the Box unit despite theongoing negotiation. Management is viewing this disciplinary issue seriously and lookingfor a longer settlement.

DIRECTORS

In terms of Section 152 of the Companies Act 2013 Mr Ajay D Patel (DIN 00466905)retires by rotation and he being eligible offers himself for reappointment. YourDirectors recommend his reappointment.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received declaration from all the Independent Directors under Section149(7) of the Companies Act 2013 in respect of meeting the criteria of independence asprovided under Section 149(6) of the Act.

BOARD EVALUATION

The Board of Directors have carried out an annual evaluation of its performance BoardCommittees and Individual Directors pursuant to the provisions of the Companies Act andSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

The Board has recorded overall satisfaction.

In a separate meeting of Independent Directors held on 31-03-2017 the performance ofNon Independent Directors Board as a whole and the performance of the Chairman wasevaluated.They have expressed overall satisfaction on such evaluation

POLICY ON DIRECTOR'S APPOINTMENT AND REMUNERATION

The Company's Policy on director's appointment and remuneration including criteria fordetermining qualifications positive attributes independence of a Director and othermatters as provided under Section 178(3) is annexed hereto and forms part of this AnnualReport.

Criteria for performance evaluation of Independent Directors' as required by theListing Regulations also forms part of this report.

CORPORATE SOCIAL RESPONSIBILITY

The Board has constituted a Corporate Social Responsibility Committee as mandated bySection 135 of the Companies Act 2013 vide Board Meeting held on 27.01.2015. The broadterms of reference of the CSR Committee are as under:

Formulating and recommending to the Board the CSR Policy which shall indicate theactivities to be undertaken by the Company.

Recommending the amount of expenditure to be incurred on the aforesaid activities and;

Reviewing and Monitoring the CSR Policy of the company from time to time.

Company has planned for CSR projects for the benefit of villagers in the villagesaround the factory. Company has contributed Rs. 5.25 Lakhs to Prime Minister's NationalReliefFundtowardstheendofthefinancialyear as required land for the project was not madeavailable to the Company by the Gram Panchayath so far. Balance will be spent once theGram Panchayath clears the site for the Project.

A report on CSR Activities is annexed herewith and forms a part of the Directors'Report.

APPOINTMENT OF KEY MANAGERIAL PERSONNEL

There are no changes in Key Managerial Positions during the year.

AUDITORS

There are no adverse comments by the auditors in their report annexed herewith.

The Company's Auditors M/s B S Ravikumar & Associates Chartered AccountantsMysore retire at the forthcoming Annual General Meeting. As per Section 139 of theCompanies Act 2013 and the rules made thereunder M/s B S

Ravikumar and Associates have completed the transitional period as provided by theCompanies Act 2013 and hence cannot be re appointed. The Board wishes to place on recordits appreciation for the professional services rendered by them during their tenure.

The Board / Audit Committee is considering the appointment of new Statutory Auditorsand is in the process of finalising the Auditors appointment. Once finalised the Boardwill recommend the proposed appointment for the approval of shareholders at the ensuing58th AGM.

SECRETARIAL AUDIT

Pursuant to Section 204(1) of the Companies Act 2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hasappointed Mr S N Hitaish Kumar Practicing Company Secretary (C P No. 6553) to conductthe Secretarial Audit of the Company for Financial Year 2016-17. The Secretarial AuditReport in Form MR 3 is annexed.

There are no qualifications in the Secretarial Audit Report.

INTERNAL AUDITOR

Pursuant to Section 138(1) of the Companies Act 2013 the Company has appointed M/sRau and Nathan Chartered

Accountants (Firm Regn. No.003178S) Mysore to conduct Internal Audit of the functionsand activities of the Company for Financial Year 2016-17.

COST AUDIT

Company's products are not notified for Cost Audit in FY 2016-17.

APPRECIATION

Your Directors take this opportunity to place on record their appreciation for servicesrendered by the employees sales agents Banks & Financial Institutions.

For and on behalf of the Board of Directors
Bengaluru Manish M. Patel
25th May 2017 Chairman & Managing Director