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Shankara Building Products Ltd.

BSE: 540425 Sector: Others
NSE: SHANKARA ISIN Code: INE274V01019
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VOLUME 26231
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P/E 129.56
Mkt Cap.(Rs cr) 3,197
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OPEN 1418.00
CLOSE 1423.85
VOLUME 26231
52-Week high 1519.55
52-Week low 545.00
P/E 129.56
Mkt Cap.(Rs cr) 3,197
Buy Price 1404.00
Buy Qty 3.00
Sell Price 0.00
Sell Qty 0.00

Shankara Building Products Ltd. (SHANKARA) - Director Report

Company director report

DIRECTORS ' REPORT

To the Members

Your Directors take pleasure in presenting the 22nd Annual Report on the business andoperations of the Company along with the standalone and consolidated financial statementsfor the year ended March 31st 2017.

Overview

We are one of the leading organised retailers of home improvement and building productsin India operating under the brand name Shankara BuildPro. As on March 31 2017 weoperated 106 Shankara BuildPro stores spread across 9 states and 1 union territory inIndia. We cater to a large customer base across various end-user segments in urban andsemi-urban markets through our multi-channel sales approach processing facilities supplychain and logistics capabilities. Our retail operations are strategically suited tobenefit from growth in housing demand large market for home improvement and increasingcustomer involvement in home solution decisions which have created a need for organizedspecialty home improvement and building product stores. Our growth is further driven byour ability to make available an assortment of quality products under a trusted corporatebrand built over two decades. Our staff creates awareness about products and applicationsand guide customers' purchase decisions. We also provide delivery and facilitateinstallation services for select product categories.

We serve home owners and professional customers (architects and contractors) throughour retail outlets. We offer a comprehensive range of products at our stores includingstructural steel cement TMT bars hollow blocks pipes and tubes Roofing solutionswelding accessories primers solar heaters plumbing tiles sanitary ware water tanksplywood kitchen sinks lighting and other allied products. We offer over 70 productcategories spanning over 20000 SKUs. Shankara now serves as a complete one stop shop forhome improvement and building products requirements.

Brief history

Our Company was incorporated in 1995. We started primarily in the construction materialsegment with focus on steel. Over a period of time we entrenched our presence in SouthIndia. The business grew significantly to ~ Rs. 100 cr in revenues by 2003. We. then addedanother business segment whereby in addition to selling to end customers we startedselling to the channel and to other dealers and retailers. In 2006 we commenced ourretail operations by starting our rst retail store in Bengaluru Over the course of nextfew years by 2010 the retail footprint expanded across South and West India. We alsostarted selling our own private label brands like Taurus Prince Galva and Loha. In 2015we further expanded our product segments to include a wide variety of products. We alsoexpanded our customer categories to include home owners architects and contractors. Webelieved that we had reached a stage in the evolution of our Company whereby to furtherexpand our horizons we need to go public. We initiated the IPO process and faced anunanticipated challenge in the form of demonetisation of bank notes in November 2016.Retail trade and building material sector were expected to be significantly impacted bythis move. Despite falling at the intersection of these sectors the resilience of ourbusiness model stood us well. We were able to grow our revenues and Profitability evenduring these tumultuous times. On 5th April 2017 we got listed on the Indian stockexchanges. Our IPO received good response from all categories of investors includinginstitutional HNI and retail. Our anchor book allocation also saw participation from someof the prestigious investors. Our IPO was oversubscribed 40.8x (net of anchor allocation)and we received over 1 million applications. We extend a warm welcome to all ourshareholders.

1. Results of our operations

( Rs. in Crores except as stated)

Consolidated Standalone
Particulars Year Ended March 31 2017 Year Ended March 31 2016 Year Ended March 31 2017 Year Ended March 31 2016
Revenue from Operations 2310.14 2035.92 1976.04 1774.25
Other Income 0.29 0.72 0.53 0.82
Total Income 2310.43 2036.64 1976.57 1775.07
Operating Expenditure 2155.77 1916.35 1910.68 1724.15
Earnings before Interest Tax 154.66 120.29 65.89 50.92
Depreciation and Amortization
(EBITDA)
Depreciation and Amortization 11.41 9.51 4.02 3.26
Expenses
Finance Cost 50.75 46.01 29.24 29.11
Profit before Tax (PBT) 92.51 64.76 32.63 18.56
Tax expense:
Current Year 28.94 20.57 11.47 6.54
Earlier Year 0.23 0.35 0.26 0.22
Deferred Tax 3.06 3.10 0.21 0.98
Profit After Tax (PAT) 60.28 40.74 20.69 10.81
EARNING PER EQUITY SHARE
(Face Value of Rs. 10 each)
i) Basic 27.55 18.62 9.46 4.94
ii) Diluted 27.55 18.62 9.46 4.94

Our Company operates along three business segments - retail enterprise and channel.Retail segment comprises sales to home owners professional customers (such as architectsand contractors) and small enterprises through our extensive network of 106 retailoutlets. Enterprise sales are primarily to large end users contractors and OEMs. Channelsales cater to dealers and other retailers through our branch network. We are pleased toreport that the consolidated revenues of the Company have grown by 13.4% in FY 2017. Theunderlying revenue mix has also changed. Our retail sales grew by 21% in FY 2017 while theenterprise segment grew by 16% and the channel segment was broadly at. In-line with thechanging revenue mix the Profitability of the Company has also improved. The consolidatedEBITDA of the Company increased from Rs. 120.29 cr in FY 2016 to Rs. 154.66 cr in FY 2017a growth of 28.6%. THE EBITDA margins expanded from 5.9% to 6.7%. PAT growth was evenhigher at 48.0% growing from Rs. 40.74 cr in FY 2016 to Rs. 60.28 cr in FY 2017. We haverecorded the highest ever PAT in our history in FY 2017.

The standalone revenues of the Company have increased by 11.4% with EBITDA growing by29.4% and PAT by 91.4%. Given the significant integration across the value chain theconsolidated numbers of the Company re ect the overall financial performance of theCompany.

2. Dividend

Based on Company's performance the directors are pleased to recommend for approval ofthe members a dividend of Rs. 2.75 per equity share.

3. Key consolidated balance sheet information

We recorded strong Profitability in FY 2017 with ROE expanding from 14.9% to 18.8% inFY 2017.

Our working capital ef ciency improved from 48 days to 45 days. Our Debt: EBITDA ratioreduced from 1.83x to 1.42x.

Consolidated
Metric (Figures in Rs. Crores) Year Ended March 31 2017 Year Ended March 31 2016
Net Worth 393.74 291.14
Net Debt * 223.61 222.68
Net Block 244.98 219.28
Net Working Capital
Debtors 312.30 281.04
Inventory 279.45 255.88
Creditors 261.01 233.81
Net Working Capital Days 45 48
Debtor days 44 46
Inventory days 49 50
Creditor days 48 48
ROE * * 18.8% 14.9%

(*: Net debt figure does not include cash from the IPO proceeds)

(**Note: Since the IPO proceeds were recorded in the books only on March 31 2017 thesame has not been considered for the calculation of these ratios)

4. Capital Expenditure on tangible assets

This year on a standalone basis we undertook a capital expenditure of Rs. 10.74Crores as against

Rs. 11.41 Crores in the previous year. On a consolidated basis our capital expenditurestood at

Rs. 35.73 Crores for FY 2017 as against Rs. 38.02 Crores for the previous year.

5. Particulars of loans guarantees or investments

Loans guarantees and investments covered under Section 186 of the Companies Act 2013form part of the Notes to the financial statements provided in this Annual Report.

6. Transfers to reserves

The Company transferred Rs. 60.27 Crores from the

Profit of the year towards reserve. In addition an amount of Rs. 41.32 Crores (net ofshare issue expenses) was transferred from the IPO proceeds to the Securities PremiumReserve.

7. Particulars of contracts or arrangements made with related parties

Particulars of contracts or arrangements with related parties referred to in Section188(1) of the Companies Act 2013 in the prescribed Form AOC-2 is appended as AnnexureI to the Board's Report.

8. Subsidiary Companies

Shankara Building Products Limited has the following subsidiary companies

1. Taurus Value Steel & Pipes Pvt. Ltd. - Having a tube & galvanized stripprocessing facility at Hyderabad.

2. Vishal Precision Steel Tubes & Strips Pvt. Ltd. – Having a tube & coldrolled strip processing facility at Bengaluru.

3. Steel Network Holdings Pte. Ltd. – Wholly owned subsidiary registered atSingapore having an Indian colour coated Roofing pro ling subsidiary Centurywells RoofingIndia Pvt. Ltd.

4. Centurywells Roofing India Pvt. Ltd Step-down wholly owned subsidiary held throughSteel Network Holdings Pte Limited primarily engaged in providing colour coated Roofingproducts. It has processing facilities in Chennai Bengaluru Coimbatore Pune Vijayawadaand Hubli.

No new subsidiary was added and no company has ceased to be a Shankara BuildingProducts Limited subsidiary during FY 2016-17. The details in Form AOC1 for eachsubsidiary is as per Annexure II

9. Information Technology

We have implemented a company-wide ERP system. This system is used to manage andco-ordinate all resources information and functions of the business on a real-time basis.The ERP system helps in integration of different functional areas to ensure propercommunication productivity quality and ef ciency in decision making. It further helps intracking customer demands and assisting in maintaining optimum inventory levels. We have adedicated IT team which is involved in maintaining the ERP system.

10. Human Resource

As of March 31 2017 we had 1381 permanent employees on the payroll of our Companyand Subsidiaries. The following table sets forth the break-up as of March 31 2017

Sr. No Departments No.of Employees
1. Sales and marketing 435
2. Finance accounts and administration 281
3. Operations 491
4. Supply Chain 174
Total 1381

In addition to the employees listed above we also engage contract labourers tofacilitate our processing operations. As of March 31 2017 we engaged 714 contractworkers. Our Company is in compliance with the Contract Labour (Regulation and Abolition)Act 1970 and the rules prescribed thereunder in this regard.

11. Directors' Responsibility Statement

Pursuant to section 134(5) of the Companies Act 2013 the board of directors to thebest of their knowledge and ability con firm that: i. in the preparation of the annualaccounts the applicable accounting standards have been followed and there are no materialdepartures; ii. they 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 at the end of the financial year and of the Profit of the Company for thatperiod; iii. They have taken proper and suf cient 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; iv.they have prepared the annual accounts on a going concern basis; v. they have laid downinternal financial controls to be followed by the Company and such internal

nancial controls are adequate and operating effectively; vi. they have devised propersystems to ensure compliance with the provisions of all applicable laws and that suchsystems were adequate and operating effectively.

Based on the framework of internal financial controls and compliance systemsestablished and maintained by the Company work performed by the internal statutory andsecretarial auditors and external consultants including audit of internal financialcontrols over financial reporting by the statutory auditors and the reviews performed bymanagement and the relevant board committees including the audit committee the board isof the opinion that the Company's internal financial controls were adequate and effectiveduring FY 2016-17.

12. Directors & key managerial personnel

Pursuant to the provisions of section 149 of the Act Mr. V. Ravichandar Mr. ChanduNair and Ms. Jayashri Murali were appointed as independent directors of the Company. Theyhave submitted a declaration that each of them meets the criteria of independence asprovided in section 149(6) of the Act and there has been no change in the circumstanceswhich may affect their status as independent director during the year. Mr. SiddharthaMundra was appointed as Nominee Director.

Pursuant to the provisions of section 203 of the Act the key managerial personnel ofthe Company are - Mr. Sukumar Srinivas Managing Director Mr. Alex Varghese ChiefFinancial Officer and Ms. Ereena Vikram Company Secretary (w.e.f 8th September 2016).

13.Number of meetings of the Board

Six meetings of the board were held during the year. For details of the meetings of theboard please refer to the corporate governance report which forms part of this report.

14. Policy on directors' appointment and remuneration and other details

The Company's policy on directors' appointment and remuneration and other mattersprovided in section 178(3) of the Act has been disclosed in the corporate governancereport which forms part of this report. The Company has formulated and adopted anomination and remuneration policy which is disclosed on our website athttp://shankarabuildpro.com/corporate_info.html

15. Internal financial control systems and their adequacy

The details in respect of internal financial control and their adequacy are included inthe management discussion & analysis which forms part of this report. The Board hasreappointed M/s GRSM Associates Chartered Accountants as Internal Auditor in the Boardmeeting dated 5th May 2017 for the financial year 2017-18.

16. Audit committee

The details pertaining to composition of audit committee are included in the CorporateGovernance Report which forms part of this report.

17. Auditors

(i) Statutory Auditor: M/s Haribhakti & Co. LLP (Firm Registration No.103523W/ W100048) were appointed as statutory auditors of the Company to hold Office fromthe conclusion of this Annual General Meeting till the Conclusion of 24th Annual GeneralMeeting to be held during calendar year 2019 (F.Y 2018-19). They have con firm ed theireligibility under Section 141 of the Companies Act 2013 and the Rules framed there underfor reappointment as Statutory Auditors of the Company. The Directors recommend the ratication of appointment of M/s Haribhakti & Co. LLP Chartered Accountants asStatutory Auditors of the Company from the conclusion of the ensuing AGM till theconclusion of the 24th Annual General Meeting to be held in the year 2019.

(ii) Secretarial Auditor: Mr. K. Jayachandran Practicing Company Secretary (ACSNo. 11309 and Certi cate of Practice No. 4031) was appointed as the Secretarial Auditor ofthe Company to conduct Secretarial Audit of the Company for the Financial Year 2016-17 asrequired under Section 204 of the Companies Act 2013 and the Rules made there under. TheSecretarial Audit Report for FY 2016-17 is appended as Annexure III to theDirectors' Report.

18. Explanations or comments by the Board on every quali cation reservation or adverseremark or disclaimer made

(i) Statutory Auditor's report

There are no disquali cations reservations adverse remarks or disclaimers in theauditor's report. (ii) Secretarial Auditor's Report The Secretarial Audit Report does notcontain any quali cation reservation or adverse remark made by Secretarial Auditor.

19. Risk Management

Risk is an integral part of any business. The Company has a risk management frameworkthat helps identify monitor and take preventive measures to mitigate any adverse fall outof these risks or take advantage of risks that could prove bene cial to the Company.

20. Corporate social responsibility

The brief outline of the corporate social responsibility (CSR) policy of the Companyand the initiatives undertaken by the Company on CSR activities during the year are setout in Annexure IV of this report in the format prescribed in the Companies(Corporate Social Responsibility Policy) Rules 2014. For other details regarding the CSRCommittee please refer to the corporate governance report which forms part of thisreport. The policy is available on the website of the Company (URL:http://www.shankarabuildpro.com/corporate_info.htm l)

21. Board Evaluation

The Board of Directors has carried out an annual evaluation of its own performanceboard committees and individual directors and found satisfactory.

22. Extract of annual return

In accordance with Section 134(3) (a) of the Companies Act 2013 an extract of theAnnual Return in the prescribed format (MGT-9) is appended as Annexure V to the Board'sReport.

23. Corporate Governance

The Company has complied with the requirements of corporate governance. A report oncorporate governance has been enclosed in the annexure to this report.

Even during the course of the Company transitioning from an unlisted to a listedentity the Company has followed good Corporate Governance standards as per the listingregulation.

As per regulation 34 of the Listing Regulations a separate section on corporategovernance practices followed by your Company together with a certi cate from Mr.K.Jayachandran Company Secretaries on compliance with corporate governance norms underthe Listing Regulations is given from page no. 45 onwards.

24. Management Discussion and Analysis Report

In terms of regulation 34 of the Listing Regulations the Management Discussion andAnalysis Report on your Company's performance industry trends and other material changeswith respect to your Company and its subsidiaries wherever applicable are presented frompage 40 of this Annual Report

25. Particulars of employees

The information required under section 197 of the Act read with rule 5(1) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are givenbelow: a. The ratio of the remuneration of each director to the median remuneration ofthe employees of the Company for the financial year:

Name of the Director Ratio to median remuneration
Mr.Sukumar Srinivas 55.7x
Mr.C.Ravikumar 23.2x
Mr. RSV Siva Prasad 18.5x

b. The percentage increase in remuneration of each director chief financial Officerand company secretary in the financial year:

Directors Chief Financial Officer and Company Secretary % increase in remuneration in the
financial year
Mr. Sukumar Srinivas 15%
Mr. C Ravikumar 14%
Mr. RSV Sivaprasad 13%
Mr. Alex Varghese 14%
Ms. Ereena Vikram Appointed with effect from
8th September 2016

c. Af firm ation that the remuneration is as per the remuneration policy of theCompany:

The Company af firm s remuneration is as per the remuneration policy of the Company.

d. The statement containing particulars of employees as required under section197(12) of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 is provided in a separate annexure forming part of thisreport. Further the report and the accounts are being sent to the members excluding theaforesaid annexure. In terms of section 136 of the Act the said annexure is open forinspection at the Registered Office of the Company. Any shareholder interested inobtaining a copy of the same may write to the Company Secretary.

26. Disclosure requirements

As per SEBI Listing Regulations corporate governance report with auditors' certi catethereon and management discussion and analysis are attached which form part of thisreport.

27. Deposits from public

There are no deposits from Public.

28. Conservation of energy technology absorption foreign exchange earnings and outgoConservation of energy:

The information pursuant to Section 134 (3) (m) of the Companies Act 2013 read withRule 8 of the Companies (Accounts) Rules 2014 in respect of conservation of energytechnology absorption and foreign exchange earnings and outgo are enclosed in the AnnexureVI to the Directors' report.

Technology absorption adaption and innovation:

The Company continues to use the latest technologies for improving the productivity andquality of its services and products. The Company's operations do not require significantimport of technology.

Foreign Exchange earnings and outgo

There was no Foreign Exchange in ow and out ow during the year.

29. Disclosure under the sexual harassment of women at workplace (PreventionProhibition & Redressal) Act 2013

The Company has in place policy on Prevention Prohibition and Redressal of SexualHarassment for women at workplace in accordance with the requirements of The SexualHarassment of Women at Workplace (Prevention Prohibition and Redressal) Act 2013. Allwomen employees are covered under this policy. The Company has not received any complaintsduring the year.

30. The details of significant and mat erial orders passed by the regulators or courtsor tribunals impacting the going concern status and company's operations in future;

No significant or material orders has been passed by the regulators or courts ortribunals impacting the going concern status and company's operations in future.

31. Other disclosures

(i) Details of equity shares with differential rights The Company has not issued anyequity shares with differential rights during the year.

(ii) Details of sweat equity shares issued

The Company has not issued any sweat equity shares during the year.

32. Vigil Mechanism

The Company in compliance with Section 177 of the Companies Act 2013 and Regulation 22of SEBI Listing Regulations has established a Whistle Blower policy / Vigil Mechanism forthe directors and employees to report genuine concerns or grievances about unethicalbehavior actual or suspected fraud or violation of the company's Code of Conduct orEthics Policy. The Company has a vigil mechanism process wherein the employees are free toreport violations of laws rules regulations or unethical conduct.

Protected Disclosure against the Whistle Blower and Ethics Officer should be addressedto the CEO & MD of the Company and the Protected Disclosure against the CEO & MDof the Company should be addressed to the Chairman of the Audit Committee.

“The Chairman of the Audit Committee Shankara Building Products Limited G-2Farah Winsford 133 Infantry Road Bengaluru - 560 001”

The con dentiality of those reporting violations is maintained and they are notsubjected to any discriminatory practice. The whistle blower policy of the Company isdisclosed on our website at the belowlink:-http://shankarabuildpro.com/corporate_info.html

ACKNOWLEDGEMENT

Your Directors acknowledge the co-operation extended by the employees & businessassociates of the Company and thank them for their services and continued support. YourDirectors would particularly like to acknowledge & thank our Bankers Citibank KotakMahindra Bank Ltd. IndusInd Bank Ltd Standard Chartered Bank & IDBI Bank Ltd.

The directors appreciate and value the contributions made by every member of theShankara family.

For and on behalf of the Board of Directors
June 19 2017 Sukumar Srinivas
Bengaluru Managing Director