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Southern Magnesium & Chemicals Ltd.

BSE: 513498 Sector: Metals & Mining
NSE: N.A. ISIN Code: INE308N01012
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OPEN 27.60
CLOSE 29.05
VOLUME 100
52-Week high 49.50
52-Week low 27.60
P/E
Mkt Cap.(Rs cr) 8
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
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Southern Magnesium & Chemicals Ltd. (SOUTHMAGNESIUM) - Director Report

Company director report

To

The Members

SOUTHERN MAGNESIUM AND CHEMICALS LIMITED

Your Directors hereby present the 31st Annual Report of your Company together with theAudited Statement of Accounts and the Auditors' Report of your company for the financialyear ended 31st March 2017. The summarized financial results for the year ended 31stMarch 2017 are as under:

FINANCIAL REPORT / OPERATIONS: (Rs. In Lakhs)

Particulars Current Year Previous Year
As on 31.03.2017 As on 31.03.2016
Net Sales / Income from Operations 651.92 321.43
Other income 7.09 2.66
Operating Expenses 368.90 180.06
Net Profit (+) / (Loss) before Tax for the Period 290.11 144.03
Tax Expenses 100.47 49.69
Net Profit (+) / (Loss) for the Period 189.64 94.34

REVIEW OF OPERATIONS:

During the period revenue of the Company has increased to Rs. 651.92 Lakhs as comparedto Rs. 321.43 Lakhs of the previous year. The net profit before tax has also increased toRs. 290.11 Lakhs from Rs. 144.03 Lakhs of the previous year.

DIRECTORS' RESPONSIBILITY STATEMENT

The Board of Directors confirm that in the preparation of Profit & Loss Account forthe year end and Balance Sheet as at that date ("Financial Statements") that:

(a) In the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;

(b) The directors had 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 ofthe profit and loss of the company for that period;

(c) The directors 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) The directors had prepared the annual accounts on a going concern basis; and

(e) The directors had laid down internal financial controls to be followed by thecompany and that such internal financial controls are adequate and were operatingeffectively.

(f) The directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

DISCLOSURES UNDER SECTION 134 OF THE COMPANIES ACT 2013

1. State of affairs of the company:

The Company deals in the business of Magnesium Metal and related goods. During theyear the Company has seen increase in terms of the Sale/profits which is reflected in thefinancial results of the Company for the year.

2. Amounts if any carried to reserves:

The company has transferred Rs. 189.64 Lakhs to reserve and surplus.

3. Dividend:

The Company has not declared any dividend during the year under review.

4. Inter - Corporate deposits:

(i) The details relating to deposits are as follows: The Company has Inter CorporateDeposits the details of which are given below.

(a) Accepted during the year - Nil

(b) Remained unpaid or unclaimed as at the end of the year – Nil

(c) Whether there has been any default in repayment of deposits or payment of interestthereon during the year and if so number of such cases and the total amount involved atthe beginning of the year; - Nil

Maximum outstanding during the year; Rs. 3373000/-

Outstanding at the end of the year; - Rs. 3229000/-

(ii) The details of deposits which are not in compliance with the requirements of theAct- Nil.

5. Fixed Deposits

The Company has not accepted any deposits covered under Chapter V of the Companies Act2013.

6. Number of meetings of the Board

Five meetings of the board were held during the year as per the details given below:

Date of meeting Total No. of Directors on the Date of Meeting No. of Directors attended % of Attendance
1. 28.05.2016 6 6 100
2. 27.07.2016 6 5 83.33
3. 28.10.2016 6 5 83.33
4. 10.02.2017 6 5 83.33
5. 21.03.2017 6 5 83.33

7. Material changes and commitments if any affecting the financial position of thecompany which have occurred between the end of financial year of the company to which thefinancial statements relate and the date of the report:

There are no material changes and commitments affecting the financial position of theCompany occurred between the end of the financial year to which these financial statementsrelate on the date of this report.

8. Board Evaluation:

The board of directors has carried out an annual evaluation of its own performanceBoard Committees and individual directors pursuant to the provisions of the Act and thecorporate governance requirements to the extent applicable as prescribed by Securities andExchange Board of India ("SEBI").

The performance of the Board was evaluated by the Board after seeking inputs from allthe directors on the basis of the criteria such as the Board composition and structureeffectiveness of board processes information and functioning etc.

The performance of the committees was evaluated by the board after seeking inputs fromthe committee members on the basis of the criteria such as the composition of committeeseffectiveness of committee meetings etc.

The Board and the Nomination and Remuneration Committee ("NRC") reviewed theperformance of the individual directors on the basis of the criteria such as thecontribution of the individual director to the board and committee meetings likepreparedness of the issues to be discussed meaningful and constructive contribution andinputs in meetings etc.

In a separate meeting of Independent Directors performance of Non- Independentdirectors performance of the Board as a whole taking into account the views of ExecutiveDirectors and Non-Executive Directors. The same was discussed in the board meeting thatfollowed the meeting of the Independent Directors at which the performance of Board itscommittee and individual directors was also discussed.

9. Policy on Directors' appointment and remuneration and others details:

The company's policy on Directors appointment and remuneration and other mattersprovided in section 178 of the Companies Act are as under:

NOMINATION AND REMUNERATRION POLICY OF SOUTHERN MAGNESIUM AND CHEMICALS LIMITED

INTRODUCTION

The Remuneration Policy of Southern Magnesium and Chemicals Limited (the"Company") is aligned with the compensation philosophy of its competitors whichis to pay competitively and reward performance. To achieve this philosophy totalcompensation is based on employee's role market value of job and employees contributions.

This Policy is designed to attract motivate and retain talent by creating a congenialwork environment encouraging initiatives personal growth and team work and inculcatinga sense of belonging and involvement besides offering appropriate remuneration packagesand retirement benefits.

The policy reflects the Company's objectives for good corporate governance as well assustained long term value creation for shareholders.

This Remuneration Policy applies to Directors and senior management including its KeyManagerial Personnel (KMP) of the Company.

1. DEFINITIONS

Act means the Companies Act 2013 and Rules framed there under as amended from time totime. "Board" means Board of Directors of the Company.

"Committee" means Nomination and Remuneration Committee constituted by theBoard "Directors" mean Directors of the Company.

"Key Managerial Personnel" means

Chief Executive Officer or the Managing Director or Manager Whole-time director; ChiefFinancial Officer;

Company Secretary; and such other officer as may be prescribed by the Companies Act2013. "Executive Directors" mean Managing Director/ Jt. Managing Director andWhole Time Director if any.

"Senior Management" means personnel of the company who are members of seniorleadership typically vice presidents or equivalent and higher position levels.

2. GUIDING PRINICIPLE

The guiding principle is that the remuneration and the other terms of employment shouldeffectively help in attracting and retaining talented employees.

While designing remuneration packages industry‘s best practices cost of livingand potential of employees are also taken into consideration.

3. POLICY RELATING TO THE REMUNERATION FOR THE WHOLE- TIME DIRECTOR KMP AND SENIORMANAGEMENT PERSONNEL

3.1. General:

a) The remuneration package of KMP will be determined by the Committee and recommendedto Board for approval. In addition the approval of the shareholders of the Company andCentral Government wherever required will be obtained for the remuneration package ofExecutive Directors. The remuneration package of other senior management personnel will berecommended by Chairman & Managing Director and submitted to Committee for approval.

b) The remuneration package of Executive Directors shall be in accordance with thepercentage / slabs / conditions laid down in the Act.

c) Increments to the existing remuneration package of Executive Directors may berecommended by the Committee to the Board which should be within the slabs approved by theShareholders.

3.2. Where any insurance is taken by the Company on behalf of its Directors ExecutiveDirectors Whole-time Director Chief Executive Officer Chief Financial Officer theCompany Secretary and any other employees for indemnifying them against any liability thepremium paid on such insurance shall not be treated as part of the remuneration payable tosuch personnel.

4. REMUNERATION TO EXECUTIVE DIRECTORS KMP AND SENIOR MANAGEMENT PERSONNEL: 4.1.1. Payand Allowances:

The Executive Directors KMP and Senior Management Personnel shall be eligible for amonthly remuneration as may be approved by the Committee or Board on the recommendation ofthe Committee. The remuneration comprises of basic pay and allowances in addition toperquisites such as contribution to Provident Fund Gratuity group life insurance groupmedical insurance etc.

4.1.1.1. Minimum Remuneration:

If in any financial year the Company has no profits or its profits are inadequatethe Company shall pay remuneration to its Executive Directors in accordance with theprovisions of Schedule V of the Act and if it is not able to comply with such provisionswith the previous approval of the Central Government.

4.1.1.2 Provisions for excess remuneration:

If any Whole-time Director draws or receives directly or indirectly by way ofremuneration any such sums in excess of the limits prescribed under the Act or without thesanction of the Central Government where required he / she shall refund such sums to theCompany and until such sum is refunded hold it in trust for the Company. The Companyshall not waive recovery of such sum refundable to it unless permitted by the CentralGovernment.

5. Remuneration to Independent Directors: 5.1. Remuneration/Commission:

The remuneration/commission shall be fixed as per the slabs and conditions mentioned inthe Act.

a) Sitting Fees:

Independent Director may receive remuneration by way of fees for attending meetings ofBoard or Committee thereof. Provided that the amount of such fees shall not exceed theamount fixed by the Board from time to time.

b) Commission:

Commission may be paid within the monetary limit approved by shareholders subject tothe limit not exceeding 1% of the profits of the Company computed as per the applicableprovisions of the Act.

c) Stock Options:

An Independent Director shall not be entitled to any stock options of the Company.

d) Expenses for attending meetings

The expenses incurred by the Independent Directors for attending the meetings of Boardof Directors and Committees of the Board shall be reimbursed by the Company oralternatively the Company may provide air tickets lodging facility and conveyance to theIndependent Directors.

6. Disclosure of information

Information on the total remuneration of members of the Company's Board of DirectorsWhole time Directors and KMP/senior management personnel may be disclosed in the Company'sannual financial statements/ Annual Report as per statutory requirements.

7. Application of the Remuneration Policy

This Remuneration Policy shall continue to guide all future employment of DirectorsCompany's Senior Management including Key Managerial Personnel.

8. Performance evaluation criteria for independent directors:

The Board of Directors evaluates the performance of independent directors on yearlybasis.

a. All pecuniary relationship or transactions of the non-executive directors

The company has paid Rs. 1500/- as fees for attending Board meetings to Mr. K.Eshwariah (Non-Executive- independent Director) during the financial year ended on March31 2017.

b. Disclosure with respect to remuneration:

No other element of remuneration package is paid to the Non-Executive Directors exceptpayment of sitting fees to the Independent Non Executive Director as disclosed above.

The Company did not issue any stock options during the year.

The Composition of Nomination and remuneration Committee as on March 31 2017 is asfollows:

Name Category Designation
Mr. G. Raghavendra Rao Independent Non- Executive Director Chairperson
Mr. V. S. S. Prakash Independent Non- Executive Director Member
Mr. K. Eshwaraih Independent Non- Executive Director Member
Mr. N. Rajender Prasad Executive Director Member

Three meetings of the committee were held during the year as per the details givenbelow:

Date of meeting Total No. of Directors on the Date of Meeting No. of Directors attended % of Attendance
1. 28.05.2016 4 4 100
2. 27.07.2016 4 4 100
3. 21.03.2017 4 4 100

8. Stakeholder relationship committee:

The Composition of Stakeholder relationship committee as on March 31 2017 is asfollows:

Name Category Designation
Mr. G. Raghavendra Rao Independent Non- Executive Director Chairperson
Mr. V. S. S. Prakash Independent Non- Executive Director Member
Mr. K. Eshwaraih Independent Non- Executive Director Member
Mr. N. Rajender Prasad Executive Director Member

One meeting of the committee was held during the year on 28-10-2016 which was attendedby all committee members.

9. Internal Financial Control Systems and their Adequacy:

The details in respect of internal financial control and their adequacy are included inthe Management Discussion and Analysis which forms part of this report.

10. Audit Committee

The Composition of Audit Committee as on March 31 2017 is as follows:

Name Category Designation
Mr. G. Raghavendra Rao Independent Non- Executive Director Chairperson
Mr. V. S. S. Prakash Independent Non- Executive Director Member
Mr. K. Eshwaraih Independent Non- Executive Director Member
Mr. N. Rajender Prasad Executive Director Member

All members of Audit Committee are financially literate and have accounting and relatedfinancial management expertise.

a. Meetings and attendance during the year

During the financial year Audit Committee met four times on May 28th 2016; July 27th2016; October 28th 2016 and February 10th 2017.

The details of the meetings attended by the Members are given below:

Name Number of meetings held Number of meetings attended
Mr. G. Raghavendra Rao 4 4
Mr. K. Eshwariah 4 4
Mr. V.S.S. Prakash 4 4
Mr. N. Rajender Prasad 4 4

13. Declaration by Independent Directors:

The Company has received necessary declaration from each Independent Director underSection 149(7) of the Companies Act 2013 that he meets criteria of Independence laiddown in Section

14. Risk Management:

The Board of the company regularly reviewed and has adopted measures to frameimplement and monitor the risk management plan for the company. The Board is responsiblefor reviewing the risk management plan and ensuring its effectiveness. The audit committeehas additional oversight in the area of financial risks and controls. Major riskindentified if any by the business functions are systematically addressed throughmitigating actions on a continuing basis.

15. Particulars of Loans Guarantees or Investments Under Section 186 of the CompaniesAct 2013:

There were no loans guarantees or investments made by the Company under Section 186 ofthe Companies Act 2013 during the year under review.

16. Particulars of contracts or arrangements made with related parties:

No transactions/contracts/arrangements of the nature as specified in Sec.188 (1) of theCompanies Act 2013 entered by the company during the year under review with relatedparty(/ies).

During the year the Company had not given Loans and Advances in the nature of Loans tofirm/ companies in which directors are interested.

17. The change in the nature of business if any:

There was no change in the nature of Business.

18. The details of directors or key managerial personnel who were appointed or haveresigned during the year:

During the period under review at the Annual General Meeting held on 25th August2016 Mr. Nuthakki Ravi Prasad (DIN: 00319537) had been re-appointed as the ManagingDirector and Chief Executive Officer whose tenure was due to expire on 12.11.2016 for afurther period of three years i.e. from 13.11.2016 to 12.11.2019 and Mr. Rajender PrasadNuthakki (DIN: 00145659) as the Joint Managing Director and Chief Finance officer of theCompany whose tenure was due to expire on 09.08.2016 for a period of three years i.e. from10.08.2016 to 09.08.2019.

Further in the Board meeting held on 21st March 2017 Board noted resignation letterdated 16-03-2017 tendered by Mrs. Chilukuri Mariamma Nominee of Andhra Pradesh IndustrialDevelopment Corporation (A.P.I.D.C) and approved appointment of Mrs. EdupugantiMahalakshmi has Nominee Director for Andhra Pradesh Industrial Development Corporation(A.P.I.D.C).

19. The names of companies which have become or ceased to be its Subsidiaries jointventures or associate companies during the year:

The Company does not have any Subsidiary Joint venture or associate company which havebecome or ceased to be its Subsidiaries joint ventures or associate company during theyear.

20. The details of significant and material orders passed by the regulators or courtsor tribunals impacting the going concern status and company's operations in future:

There are no material orders passed by the regulators or courts or tribunals impactingthe going concern status and company's operations in future. However the company hasreceived few show-cause notices from stock exchanges for which company has repliedaccordingly.

21. 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 remuneration of each director to the median remuneration of theemployees of the company for the financial year:

Non Executive Directors Ratio to median remuneration
Mr. G. Raghavendra Rao NA
Mrs. Chilukuri Mariamma NA
Mr. V.S.S. Prakash NA
Mr/ K. Eshwariah NA
Executive Directors Ratio to median remuneration
Mr. N. Ravi Prasad 15.35:1
Mr. N. Rajender Prasad 14.81:1

b. The percentage increase or decrease in remuneration of each Director ChiefExecutive Officer Chief Financial Officer Company Secretary in the financial year:

Director chief executuive officer chief financial % of increase in remuneration
officer company secretary in the financial year
Mr. N. Ravi Prasad –MD and CEO 5.27
Mr. N. Rajender Prasad – Jt.MD and CFO -4.50

c. The percentage increase in median remuneration of employees in the financial year :-7.56

d. The number of permanent employees on the rolls of the company: 26

e. average percentile increase already made in the salaries of employees other than themanagerial personnel in the last financial year and its comparison with the percentileincrease in the managerial remuneration and justification thereof and point out if thereare any exceptional circumstances for increase in the managerial remuneration:

Average increase in salaries of employees other than managerial personnel in 2016-17was 6.62%.

Average increase in salaries of managerial personnel in 2016-17 was 0.24%.

f. Affirmation that the remuneration is as per the remuneration policy of the company:

The Company affirms remuneration is as per the Remuneration policy of the company.

22. The details about the policy developed and implemented by the company on corporatesocial responsibility initiatives taken during the year:

The Company has not developed and implemented any Corporate Social Responsibilityinitiatives as the said provisions are not applicable.

23. Disclosure as per Sexual Harassment of Women at Work Place (Prevention Prohibitionand Redressal) Act 2013:

Your company has zero tolerance for sexual harassment at work place and has adopted apolicy on prevention prohibition and Redressal of sexual harassment at work place in linewith the provision of Sexual Harassment of Women at Work Place (Prevention Prohibitionand Redressal) Act 2013 and rules framed there under.

No compliant have been received by the company on sexual harassment during thefinancial year 2016-2017.

24. Disclosure Requirements:

As per Regulation 15 of SEBI (LODR) 2015 corporate governance report with certificatefrom Practising Company Secretary thereon is not applicable to the company. ManagementDiscussion and Analysis as required is attached hereunder and forms part of this report.

The company has formulated a whistle blower policy. A copy of the same is madeavailable at the registered office of the company and also at the website of the company.The provisions of this policy are in line with the provisions of section 177(9) of theact.

Your Company has a vigil mechanism to deal with instances of fraud and mismanagementif any. The Whistle Blower Policy enables reporting of unethical behaviour actual orsuspected fraud or violation of the Company's code of conduct or ethics policy to themanagement. The vigil mechanism also ensures strict confidentiality is maintained andprovides adequate safeguards against victimization of employees who avail of the mechanismand also provided for direct access to the Chairman of the Audit committee in exceptionalcases.

Your company would like to inform that w.e.f. 19-07-2017 shareholders can now gettheir securities demateralized through NSDL DPs also.

25. Auditors:

Pursuant to the provisions of section 139 and other applicable provisions if any ofthe Companies Act 2013 read with Companies (Audit and Auditors) Rules 2014 (includingany statutory modification(s) or re-enactment thereof for the time being in force)consent of the members of the company be and is hereby accorded to appoint M/s. Brahmayya& Co. Chartered Accountants (Firm Registration No. 000513S) Hyderabad as StatutoryAuditors of the Company to hold office from the conclusion of this Annual General Meetingtill the conclusion of the fifth consecutive Annual General Meeting (subject toratification of the appointment by the Members at every Annual General Meeting to be heldafter this Annual General Meeting) on such remuneration and out of pocket expenses as maybe decided by the Board of Directors from time to time.

26. Clarifications on Auditors Comments in Auditors Report:

Management replies to the observations comments and qualifications made by thestatutory auditor are as under:

1. The Company did not have an appropriate internal control system for customeracceptance credit evaluation and establishing customer credit limits for sales whichcould potentially result in the Company recognizing revenue without establishingreasonable certainty of ultimate collection.

The company largely deals with government entities and has not had any default incustomer payments in past 3 years and directors are positive about payment from existingparties.

27. Secretarial Auditors' Report:

The company has appointed M/s D. Hanumanta Raju & Co Company SecretariesHyderabad as the Secretarial Auditor of the company to undertake audit as per theprovisions of section 204 of the Companies Act 2013 and the report of the secretarialauditor is annexed to this report. Management's reply to the observations comments andqualifications made by the secretarial auditor are as under:

1. The Company has not appointed "Company Secretary" and the "ComplianceOfficer" as required under Section 203(1) of the Companies Act 2013 read with Rule 8of Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 andRegulation 6(1) of SEBI (LODR) Regulations 2015.

The board of directors of the company have discussed that the company is required toappoint a Company Secretary as per the provisions of section 203 of the Companies Act2013 and the relevant rules made thereunder and as per SEBI (LODR) Regulations 2015.Also they express their inability to find a suitable candidate for the post inspite ofcontinuous efforts made by them. They have discussed the requirement of a good candidatewith a few professors and reputed Practicing Company Secretaries and Chartered Accountantsknown to them and are hoping to find a suitable candidate soon to meet the requirements asper the Act.

2. The company has received few show cause notices from Stock Exchange. The companyreplied to such notices & there is no further communication/ information from StockExchange.

The company has received few show cause notices from stock exchange. Company replied tosuch notices and there is no further communication/ information from stock exchange. Ifany further communication/ information will be required by stock exchange the same willbe relevantly replied and dealt with by the company.

3. The remote E-voting facility was open to shareholders only for one day for theAnnual General Meeting held on 25.08.2016.

The board of directors of the company submit that voting facility was supposed to beopened and closed as per the provisions of the Act but due to some technical error theE-voting facility could be opened only for one day. However this time company has takenadequate care and has given strict instructions to provide voting facility in electronicmode as per the provisions of the Act.

4. As required under Regulation 31(2) of Securities and Exchange Board of India(Listing Obligations and Disclosure Requirements) Regulations 2015 hundred percent ofthe shareholding of promoters and promoters group in not in dematerialized form.

The board of directors of the company is discussing the matter with the promoters andhas requested them to complete de-materialization of their share holding immediately.

28. Annual Return:

The extracts of Annual Return pursuant to the provisions of Section 92 read with Rule12 of the Companies (Management and Administration) Rules 2014 is attached to thisReport.

29. Conservation of energy technology absorption foreign exchange earnings and outgo:

The information pertaining to conservation of energy technology absorption Foreignexchange Earnings and outgo as required under Section 134 (3)(m) of the Companies Act2013 read with Rule 8(3) of the Companies (Accounts) Rules 2014 is as under

(A)Conservation of energy NIL
(B)Technology absorption Not Applicable
(C)Foreign exchange earnings NIL
(D)Foreign exchange outgo Rs. 25571946/-

30. Acknowledgement:

Your Directors wish to place on record their gratitude to shareholders and thank thecustomers bankers vendors State and Central Governments Authorities for their continuedsupport to your Company's growth. Your Directors also wish to place on record theirappreciation for the contribution made by the employees at all levels who through theircompetence sincerity hard work solidarity and dedicated support enabled to your companyto make continued progress.

For and on behalf of the Board Southern Magnesium and Chemicals Limited

Sd/- Sd/-
N. Rajender prasad N. Ravi Prasad
Jt. Managing Director & CFO Managing Director & CEO
(DIN- 00145659) (DIN- 00319537)

Place : Hyderabad Date : 28.08.2017