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Virat Industries Ltd.

BSE: 530521 Sector: Industrials
NSE: N.A. ISIN Code: INE467D01017
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VOLUME 3890
52-Week high 169.00
52-Week low 68.30
P/E 20.58
Mkt Cap.(Rs cr) 59
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Sell Price 0.00
Sell Qty 0.00
OPEN 125.00
CLOSE 119.00
VOLUME 3890
52-Week high 169.00
52-Week low 68.30
P/E 20.58
Mkt Cap.(Rs cr) 59
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Virat Industries Ltd. (VIRATINDS) - Director Report

Company director report

Your Directors are pleased to present the 27th Annual Report together with the AuditedStatement of Accounts for the year ended 31 March 2017.

FINANCIAL RESULTS AND ACCOUNTS:

The Financial Results are as under :

( in Lacs)

Particulars 2016 - 2017 2015 - 2016
Gross Income 2649.02 2639.24
Profit Before Interest and Depreciation 576.85 574.33
Finance Charges 8.02 3.89
Gross Profit before Depreciation 568.83 570.43
Provision for Depreciation 129.89 122.26
Net Profit Before Tax 438.94 448.17
Provision for Tax 148.00 146.35
Net Profit After Tax 290.94 301.82
Balance of Profit brought forward 890.45 766.96
Balance available for appropriation 1181.40 1068.78
Proposed Dividend on Equity Shares (previous year 2.50 per Equity Share) (Refer Note No. (i)) 123.09
Tax on proposed Dividend 25.06
Transfer to General Reserve 30.18
Surplus carried to Balance Sheet 1181.40 890.45
Note: (i) Proposed Dividend on Equity Share
Proposed Dividend for the year ended 31 March 2017
2.50 per share 123.08
Dividend Distribution Tax on proposed dividend 25.06

Proposed Dividend on equity share are subject to approval in the Annual General Meetingand are not recognised as liability (including Dividend Distribution Tax thereon) as at 31March 2017.

Year in retrospect

The year under review has been quite satisfying and successful for your Companyagainst the backdrop of many challenges and fierce global headwinds.

Revenues:

The knitting production of 63.08 lakh pairs this year being the all time high achievedso far recorded commendable volume growth of 11.53% over the previous year. Thedespatches of 60.20 lakh pairs this year the highest made since inception of the factoryare 9.20% higher compared to the previous year reflecting an improved demand pull foryour Company's socks in both overseas and domestic markets. Sales for the year remainedflat at 2344 lakh against 2340 lakh of the previous year. The disparity in growth ratesbetween pairs of socks despatched and sales value earned is due to 8.20% decline in therealised rate per pair caused by a weak pound prices under pressure and increased shareof sneaker socks in the sales-mix. The prices of sneaker socks which have very low leglength are 25% to 30% lower than men socks but their profitability per unit of knittingcapacity is in parity with men socks due to their reduced cost structure.

The export sales constituted 86.17% of total sales of your Company.

Domestic sales of your Company comprise mainly of contract manufacturing of sockssupplied to Branded outlets and also under the Company's own Brand ‘Lord Walker'launched in the end of 2014. Under the own brand ‘Lord Walker' the Company suppliessocks to some big cities through distributors and children socks to all India branches ofa very reputed shoe supplying brand. Domestic sales this year were the highest ever andstood at 324.34 lakh and posted a robust growth of 86%. This was achieved with increasedcontract manufacturing volumes of business from existing brands and also reaching out tonew reputed brands. Gradually your Company is emerging as one of the premium qualitysupplier of socks to domestic outlets also. After exports the domestic marketing is onemore thrust area which your Company is striving to focus on and thereby spread the riskof relying solely on export business.

Exchange Rate:

Your Company is predominantly an export unit and therefore vulnerable to fluctuationsin exchange rates. There was a steep depreciation of the Great Britain Pound (GBP) in theaftermath of Brexit. The rupees per one GBP actually realised by your Company from poundcurrency export sales during the year were 87.98 against 98.63 of the previous year. Thisresulted in a loss of 76.45 lakh in export value realisation during the year. The actualrealised exchange rate of rupees to dollar by your Company remained in the bandwidth of64.44 to 68.56 during the year against 60.88 to 72.82 in the previous year.

Your Company follows a conservative and risk-averse approach towards managing itsforeign currency exposure. Hence the Company endeavoured this year to further mitigate therisk associated with the exchange fluctuation by entering into forward contracts with theCompany's Bankers else the losses due to exchange rates would have been higher.

Expenditure:

Raw materials constitute 37% of sales value of your Company. The prices of all rawmaterials particularly of 20s combed cotton yarn both dyed and mlange steadilyescalated during the year. The prices of 20s black combed cotton yarn increased from 334per kg in April'16 to 373 per kg in March'17. The price of 20/70 nylon covered elastanemoved from 515 per kg in April'16 to 540 per kg in March'17. The price of 2/100 nylon 66increased by 70 per kg compared to last year. Such escalations adversely impacted thebottom line of the Company. The employees' remuneration expenses for the year were 4.67%higher in absolute terms.

At the plant level the operational focus has been to reduce the cost of stores andspares utilities (Power and Gas) and other overheads. Stores and spares expenses reducedby 8.05% in absolute terms. Utilities Cost remained almost flat as per last year despitethe 9.05% higher knitting capacity utilisation.

Overhead expenses (total expenses of the Company excluding raw materials packingmaterials depreciation and non-operating expenses) which include all manufacturingmarketing administrative financial and legal expenses of the Company went up by 1.48%over the last year. The knitting production increased by 11.53% and knitting capacityutilisation enhanced by 9.05%. The increase in capacity utilisation with much improvedefficiency helped better absorption of overheads contributing to offset the impact of theadverse factors and cost escalations.

Profit before Tax:

The profit before tax stood at 439 lakh as compared to 448 lakh for the previous yearthe variance apart from the foreign exchange loss being also on account of non-operatingexpenses like loss on sale of fixed assets and write off of store/spares of discardedmachines during the year. The profit as a percentage of sales value stood at 18.71%compared to 19.16% for the previous year. Notwithstanding numerous unfavourable factorslike weak pound pressure on prices and escalation in raw materials prices it is reallynoteworthy for your Company to maintain the bottom line closely comparable with theprevious year. This has been achieved by adopting several cost cutting initiatives higherutilization of knitting machines capacity with improved efficiency supported by markedbenefit of economies of scale.

Your Company continues to be a preferred quality suppler of socks to top brands becauseof its strong attributes like products with internationally acclaimed quality normsintime despatches quick communication and fast adaptability to the latest fashion markettrends and innovations. One of the major strengths developed by your Company is the promptsubmission of samples which works as a seeding process to promote and generate orders.

Capital Investments:

It has been the consistent policy of your Company to plough back a substantial part ofsurplus profits every year to revamp and upgrade mainly the knitting facilities toincrease throughputs improve product-mix and reduce cost of production.

The Company installed 24 latest model imported sock knitting machines in September'16consisting of 12 very high productivity machines and 12 knitting machines which havefacilities to knit exclusive technical athletic socks for niche market. The benefit ofincreased throughput and reduction in operating cost were visible in the year just endedand the Company expects significant further improvements in the coming year.

Twelve new Technical sock knitting machines have capability to knit mainlyfootball/athletic socks for niche markets. Such socks are exclusive and difficult to copyby competitors due to the non availability of such equipment and expertise. Initial ordersof such technical football socks have been exported through approved freight agents of theCompany's UK client to existing and newer geographies of the world.

Your Company is optimistic that this niche market business will gradually accelerate infuture and finally leapfrog to bigger volumes with improved margins. Moreover it willdifferentiate your Company's product-mix from other competitors.

The total capital outlay during the year was 374.65 lakh funded from the Company's ownaccruals. Both imported and indigenous machines were purchased with zero percentexcise/custom duty because your Company is operating under EPCG (Export Promotion CapitalGoods) scheme where the obligation equivalent to six times of the duty saved is dischargedby export of socks in a maximum of six years.

In next two years ie 2017-18 and 2018-19; your Company plans for modernizing andploughing back funds to augment capacity and efficiencies with top quality machines fromoverseas in replacement of old machines within almost the same infrastructural facilitiesin the knitting department. This will increase throughput optimize cost and speed and cutdown lead time of purchase orders. The capital investments are expected to leveragesubstantial growth in the bottom line of the Company in next two years.

The comparative performance highlights for last five years are as under:

Units 2016-17 2015-16 2014-15 2013-14 2012-13
Income Statement
Total Income in lakh 2649.02 2639.24 2106.47 2251.20 2120.54
Export Sale in lakh 2021.09 2165.28 1729.78 1923.53 1838.07
Operating EBITDA in lakh 576.85 574.33 414.86 592.25 423.56
Net Profit before Tax in lakh 438.95 448.17 302.18 486.60 328.47
Net Profit after Tax in lakh 290.94 301.82 208.14 328.40 221.50
Cash Profit in lakh 420.83 424.08 312.11 423.36 306.18
Balance Sheet
Net Worth in lakh 1772.12 1481.18 1327.50 1232.36 1007.64
Capital Employed in lakh 1745.14 1475.50 1303.97 1287.68 1042.83
Significant Ratios
Operating EBITDA/Net Sale % 24.60 24.55 21.91 29.22 21.78
Return on Capital Employed
(EBIT/Avg. CE) % 27.94 32.77 24.84 44.37 34.10
Price Earning Ratio 18.28 12.58 12.09 6.00 4.00
Book Value Per Share 35.99 30.08 26.96 25.03 20.47
Current Ratio 4.29 3.29 3.13 2.28 2.09
Operations
Knitting Production Pairs in lakh 63.08 56.56 41.86 51.92 57.42
Pairs Dispatched Pairs in lakh 60.20 55.13 43.45 49.64 55.30
Sales realization per pair 38.97 42.44 43.57 40.83 35.36
Earning Per Share 5.91 6.13 4.23 6.67 4.50

There is no change in the nature of business of your Company for the year under review.

Overview of the Economy:

India remains one of the fastest growing emerging market economies driven by keystructural reforms normal monsoons and reduced external vulnerabilities. The October /December'16 GDP estimates of seven percent growth indicate that key domestic risk ofdemonetization has not undermined the growth momentum and growth prospects for 2017-18.The consumer price inflation has declined from 6 percent in July 2016 to 3.81 percent inMarch 2017.

The Macroeconomic scenario looks quite bright with the Union Budget adopting a fiscalconsolidation path having achieved the fiscal deficit target of 3.5 percent of GDP in the2016-17 budget.

India's merchandise exports which started showing negative growth from January 2015for 19 months in a row entered positive territory in September 2016. There is positivegrowth of 4.71% at value of merchandise exports reaching USD 274.65 billion in the yearunder review. Exports are the main spring of fast growth of every healthy economy. Allmiracle economies in Asia with GDP growth of about 7% had export growth above 15%. Even asthe economy has made progress it has yet to show a positive impact to improve merchandiseexports accelerate the pace of manufacturing and industrial activity and moresignificantly create jobs for unemployed youth which is a big challenge to the country.

However the implementation of policy reforms announced in the Union Budget newinitiatives taken and good ground work done to improve the economy will hopefully putIndia on an accelerating growth track and improve the business out look.

During the year the Company carried out sales in the following geographical segments:(In )

Europe UAE Rest of World India Total
Revenues 136377944 53520605 12210572 32433542 234542663

Industry Structure and Development

The Indian Textile manufacturing sector including hosiery and clothing is the secondlargest in the world after China. India is amongst the few countries in the world whichhas manufacturing facilities across the entire value chain from fibre to finished productsie garments. Besides there is ample availability of cotton Nylon elastane and otherraw materials in India.

Of the total exports of textiles garments (which include socks also) constitute 35%the balance exports of textile include cotton fibre yarn fabrics both cotton andmanmade. It is only by increasing the percentage of garment production that India canattain significant benefit of value addition and support the large Indian demography.India's share in global textile export is only 5% while that of China is 39%.

The Textiles industry continues to be the second largest employer after agricultureproviding employment to 45-50 million people and indirect employment to another 55-60million people. It holds the potential to support the Indian demography making sure it'sin synchronisation with the economic growth.

Opportunities

Your Company is well poised to seize opportunities available to the sock knittingindustry on account of its state-of-the-art production facilities technical expertisegood quality culture and emphasis on product innovation and growth potential.

The socks produced by your Company are meeting the international quality norms ofcomfort ease convenience stretch sizing skin care and other parameters essential forinner wear apparel. They also meet the fashion demands in terms of design different knitsand multiple shades. The socks manufactured by your Company are sold in super marketchains and also in upper end retail stores.

Your Company has been consistently revamping and upgrading its technicalinfrastructure. During the year under review 24 new knitting machines were installed.Twelve high productivity knitting machines have enabled to improve cycle time and therebyreduce lead time. Other Twelve machines manufacture exclusive technical football sockswhich cater to niche high value luxury customers and which do not have many competitors.Importers are now looking at India as an alternative to China due to quality costcompetitiveness better adherence to compliance and political stability. The otherinherent advantages are the abundant availability of raw materials at competitive pricesand favourable Government policies. Labour cost in India is lower than most competingcountries except Bangladesh Ethiopia and Kenya.

All major overseas customers of your Company insist on social audits to be carried outin the factory every year or once in every two years by internationally acclaimed''Business Social Compliance Initiative Agencies''. Such audits cover compensation toemployees health safety environment and management practices. New customers also insiston such audits to be conducted before they start the business. The compliance of suchaudits to international standards brings healthy and ethical culture in the working andcreates goodwill of the Company among its existing clients. Your Company has successfullycomplied with many such audits and has thus ensured continuance of business with majorclients for long periods. Such audits are an integral part of the export business.

Due to its quality culture state-of the-art technical facilities the domesticbusiness of your Company has almost doubled in the last one year. This reflects thatdemand for quality socks is increasing in the domestic market also.

Your Company is maintaining a huge inventory of dyed yarn shades and types of rawmaterials like Organic cotton yarn BCI cotton yarn Mercerised yarn Marl yarn Melangeyarn and twisted yarn etc. This helps your Company to accept any order because of theready availability of raw material of different specifications.

Threats:

Socks exported from India to European Union countries (E.U.) attract 10.6% advoloremcustom duty whereas countries like Bangladesh Sri Lanka and Vietnam being less developedare exempted from custom duty. Turkey being the deemed member of the E.U. countriesbesides enjoying exemption from custom duty has the added advantage of reduced freightand reduced delivery time to the European markets. This has posed a threat to the Indiansock suppliers and may pressurize them to reduce prices.

The return of protectionism in advanced countries is likely to damage India's exportand its prospects of growth. The Great Britain Pound has depreciated in the aftermath ofBrexit. Also prices of all raw materials in particular that of dyed cotton yarns haveescalated during the year under review. This has eroded the profitability of the Company.The overseas customers are not ready to increase the prices to make good the margin lossesincurred by your Company.

Huge quantities of textile fabrics are exported from India to Bangladesh regularly toconvert them in to garments of top brands there and re-export to many countries of theworld. This is happening because of quota system cheap labour and duty exemptionavailable in Bangladesh which has become a big hub of the garment industry. This isdepriving many Indian youth from employment and of value addition to our country.

The skill and productivity of the workforce in India in both the private sector as wellas the Government (through labour reforms) is not yet at levels prevailing in China andother countries.

FINANCE

As on the date of Balance Sheet the Company is debt free in terms of long term loansexcepting loan on vehicles.

WORKING CAPITAL LOAN

The Company is enjoying export packing credit and foreign bill purchase facilities.

INSURANCE

The properties and insurable interests of your Company like buildings plant andmachinery stocks etc. are adequately insured by the Company.

DIVIDEND

The Board of Directors of the Company has recommended a dividend of 2.50 per share of10/- each (25%). The total dividend will absorb 12308350 excluding 2505980 (20.36%) astax on dividend. The dividend will be free of tax in the hands of the shareholders of theCompany.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Mr. Arun Sanghi resigned as the Chairman of the Board of Directors of the Company witheffect from 22.09.2016. The Board of Directors places on record their appreciation of themeritorious contribution and dynamic leadership of Mr. Arun Sanghi during his tenure ofChairmanship for five years. During these five years the profit of the Company hassubstantially improved. He was always available for support and guidance. The Board ofDirectors appointed Mr. Vijay Merchant as the Chairman of the Company in place of Mr. ArunS Sanghi with effect from 22.09.2016. The Board of Directors appreciates the longassociation and valuable contribution made by Mr. Vijay Merchant to the Company.

BOARD OF DIRECTORS

The Company has a broad based Board of Directors duly constituted with proper balanceof Executive Directors Non-Executive Directors and Independent Directors. There is oneWoman Director on the Board. The changes in the composition of the Board of Directors arecarried out in compliance with the provisions of the Act.

Policy formulations setting up of goals evaluations of performance and controlfunctions vest with the Board. The composition of the Board of Directors of the Company ason March 31 2017 was as follows;

Sr. No. Name of the Director Category
1. Mr. Vijay V. Merchant Chairman Non-Executive
2. Mr. Arun S. Sanghi Independent Director
3. Mr. Adi F. Madan Managing Director
4. Mr. Ajit P. Walwaikar Independent Director
5. Mr. Harish H. Shah Independent Director
6. Mrs. Ayesha K. DadyBurjor Whole-time Director
7. Mr. Vinay Sanghi Independent Director
8. Mr. Kaizad DadyBurjor Non-Executive Director
9. Mr. Pheroze A. Dhanbhoora Non-Executive Director

BOARD MEETINGS

Regular meetings of the Board of Directors are held to discuss and decide on variousbusiness policies strategies and other business. Due to business exigencies sometimesbusiness decisions are taken by the Board through circulation.

The Board met five (5) times during the FY 2016 - 17 on Following dates.

24/05/2016 11/08/2016 22/09/2016
10/11/2016 09/02/2017

DECLARATION FROM INDEPENDENT DIRECTORS ON ANNUAL BASIS

The Independent Directors have submitted the Declaration of Independence as requiredpursuant to section 149(7) of the Companies Act 2013 stating that they meet the criteriaof independence as provided in subsection (6).

COMPOSITION OF AUDIT COMMITEE

Mr. Arun S Sanghi resigned from the Chairmanship of the Audit Committee with effectfrom 11-11-2016 even though he will continue as a member of the Audit Committee. All theMembers of the Board and specially those of the Audit Committee highly appreciated Mr.Sanghi's intense analytical approach to go into the depth of every issue whetherfinancial commercial technical personnel and cost cutting and seek a solution of thesame. Mr. Sanghi believed in Budgetary Controls. He assigned ambitious targets to achieveand motivated the management team to fulfil the same.

Mr. Adi F Madan Managing Director proposed the name Mr. Ajit P. Walwaikar as theChairman of the Audit Committee. All the members of the Board unanimously seconded theappointment of Mr. Ajit P. Walwaikar as the new Chairman of the Audit Committee. Mr. AdiF. Madan informed the Board that Mr. Ajit P. Walwaikar has a very long association withthe Company and he is a senior Member on the Audit Committee with vast knowledge andexperience in the legal and secretarial matters. He has been providing valuable advice tothe Company as and when required. All Members of the Board expressed that the AuditCommittee will function smoothly under the Chairmanship of Mr. Ajit P. Walwaikar.

During the Board of Directors meeting held on 9th February 2017; Mr. Ajit P. Walwaikarproposed that Mr. Vijay Merchant be included as a member of the Audit Committee of theCompany. All the board members unanimously agreed with the proposal and expressed that Mr.Vijay Merchant's inclusion in the Audit Committee of the Company will be highlybeneficial keeping in view his long experience.

The Board has constituted an Audit Committee comprising of three Independent Directorsand two Directors totaling five members. The Audit Committee reviews reports includingsignificant audit observations and follow-up actions thereon. The Audit Committee alsomeets the Company's Statutory Auditors to ascertain their views on the financialstatement. The Committee members meet regularly and make their recommendations inaccordance with the terms of reference specified by the Board. Such recommendations arethoroughly discussed in Board meetings and by and large accepted for implementation.

The names of Committee members are as under;

Mr. Ajit P. Walwaikar - Chairman
Mr. Arun S. Sanghi - Member
Mr. Vijay V. Merchant - Member
Mr. Harish H. Shah - Member
Mr. Pheroze A. Dhanbhoora - Member

All the members of the Audit Committee are financially literate and bring in expertisein the fields of Finance Taxation Technical Secretarial and Legal issues.

NOMINATION AND REMUNERATION COMMITTEE

The Board has constituted a Nomination and Remuneration Committee consisting of threeIndependent Directors. The names of Committee members are as under;

Mr. Ajit P. Walwaikar - Chairman
Mr. Arun S. Sanghi - Member
Mr. Harish H. Shah - Member

The Committee has the mandate to recommend appointment / re-appointment of ExecutiveDirectors and appointment of employees from the level of Vice-President and above alongwith the remuneration to be paid to them. The remuneration is fixed keeping in mind theperson's track record his / her potential individual performance the market trends andscales prevailing in the similar industry.

STAKEHOLDERS RELATIONSHIP COMMITTEE

The Board has constituted a Stakeholder Relationship Committee consisting of threeDirectors two independent Directors and the Managing Director.

The names of Committee members are as under;

Mr. Arun S. Sanghi - Chairman
Mr. Adi F. Madan - Member
Mr. Ajit P. Walwaikar - Member

The Company Secretary is designated as the "Compliance Officer" who overseesthe redressal of the Investors' grievances.

The Committee meets to approve share transfers transmission issue of duplicate sharecertificates re-materialization of shares and all other issues pertaining to shares andalso to redress investor grievances like non-receipt of dividend warrants non-receipt ofshare certificates etc. The committee regularly reviews the movement in shareholding andownership structure. The committee also reviews the performance of the Registrar andTransfer Agents.

VIGIL MECHANISM / WHISTLE BLOWER POLICY

Fraud and corruption free work culture has been the core of the Company. In view of thepotential risk of fraud corruption and unethical behavior which could adversely impactthe Company's business operations the company has an established mechanism forDirectors/Employees to report concerns about unethical behavior actual or suspected fraudor violation of the code of conduct or ethics policy. It also provides for adequatesafeguards against victimization of Directors/employees who avail of the mechanism. Thecompany affirms that no personnel have been denied access to the audit committee. Thecompany has formulated a Policy of Vigil Mechanism and has established a mechanism thatany personnel may raise Reportable Matters within 60 days after becoming aware of thesame. All suspected violations and Reportable Matters are reported to the Chairman of theAudit Committee. The key directions/actions are informed to the Managing Director of theCompany.

DIRECTORS' RESPONSIBILITY STATEMENT

In pursuance of section 134 (5) of the Companies Act 2013 the Board of Directorshereby confirm that: (a) In the preparation of the annual accounts the applicableaccounting standards have been followed along with proper explanations relating tomaterial departures; (b) The Directors had selected such accounting policies and appliedthem consistently and made judgments and estimates that are reasonable and prudent so asto give a true and fair view of the state of affairs of the Company as on 31st March 2017and of the profit and loss of the Company for the period ended 31st March 2017; (c) TheDirectors had taken proper and sufficient care for the maintenance of adequate accountingrecords in accordance with the provisions of this Act for safeguarding the assets of thecompany and for preventing and detecting fraud and other irregularities; (d) The Directorshad prepared the annual accounts on a going concern basis; (e) The Directors had laid downinternal financial controls to be followed by the Company and that such internal financialcontrols are adequate and were operating effectively; and (f) The Directors had devisedproper systems to ensure compliance with the provisions of all applicable laws and thatsuch systems were adequate and operating effectively.

SUBSIDIARIES

As the Company has no subsidiaries Section 129(3) of the Companies Act 2013 does notapply.

EXTRACT OF ANNUAL RETURN

Pursuant to sub-section 3(a) of section 134 and sub-section (3) of section 92 of theCompanies Act 2013 read with Rule 12 of the Companies (Management and Administration)Rules 2014 the extracts of the Annual Return as at March 31 2017 forms part of thisreport as Annexure I.

AUDITORS

In terms of the Resolution passed at the 24th Annual General Meeting of the CompanyM/S. Deloitte Haskins & Sells Chartered Accountants (Firm registration No.- 117364W)were appointed as the Statutory Auditors of the Company for the period of three years2014-15 2015-16 and 2016-17. They were to hold the office from the conclusion of the 24thAnnual General Meeting until the conclusion of the 27th Annual General Meeting. Thisbecame necessary due to rotational clause pursuant to the provision of Section 139 andother applicable provision if any of the Companies Act 2013.

The Board places on record its appreciation for the contribution of M/S. DeloitteHaskins & Sells Chartered Accountants during their tenure as the Statutory Auditorsof your Company.

The Company is proposing to appoint M/s. B. K. Khare & Co Chartered Accountants(Firm Registration No. 105102W) as Statutory Auditors for a period of 5 years commencingfrom the conclusion of the 27th Annual general meeting till the conclusion of the 32ndAnnual General meeting. M/s. B. K. Khare & Co Chartered Accountants have consented tothe said appointment and confirmed that their appointment if made would be within thelimits mentioned under Section 141(3)(g) of the Companies Act 2013 and the Companies(Audit and Auditors) Rules 2014.

The Auditors' Report to the Shareholders for the year under review does not contain anyqualification.

SECRETARIAL AUDITOR AND SECRETARIAL AUDIT REPORT

Mr. A. J. Gandhi practicing Company Secretary was appointed as a Secretarial Auditorunder the provision of section 204 of the Companies Act 2013 for the financial year 2016 -17 during the Board Meeting held on 24th May 2016. The report of the secretarial auditorfor the F.Y. 2016 - 17 is annexed to this report as Annexure - II. The report doesnot contain any qualification.

CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS ANDOUTGOING

Additional information on conservation of energy technology absorption foreignexchange earnings and outgo as required to be disclosed in terms of Section 134(3)(m) ofthe Companies Act 2013 read with the Companies (Accounts) Rules 2014 for the F.Y.2016-17 is annexed and forms part of this Report as Annexure - III.

DETAILS RELATING TO DEPOSITS

The Company has not accepted any deposit during the year nor has any deposit remainedunpaid or unclaimed as at the end of the year.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS

No significant and material orders were passed by the regulators or Courts or Tribunalsduring the year which would adversely impact the Company's operation in future.

INTERNAL FINANCIAL CONTROL SYSTEM AND THEIR ADEQUACY

The existing internal financial controls are commensurate with the nature sizecomplexity and business processes followed by the Company. They have been reviewed andfound generally satisfactory on the following key control matrices. a) Entity LevelControl b) Financial Control c) Operational Control which included authority andorganization matrix risk management practices compliance framework within theorigination ethics and fraud risk management management Information system selfassessment of control point business continuity and disaster recovery planning budgetarysystem etc.

Section 134(5)(e) of the Companies Act 2013 requires the submission of a report by theBoard of Directors of a listed Company which includes a statement ensuring that theCompany has laid down Internal Financial Controls to be followed by the Company and thatsuch Internal Financial Controls are adequate and operating effectively.

During the year the Company prepared Policy Documents with regard to InternalFinancial Control along with Risk Control Matrix. The same have been tested by internalauditors and statutory auditors.

PARTICULARS OF LOANS GUARANTEES AND INVESTMENTS

Your Company has not-

• given any loan to any person or other body corporate

• given any guarantee and provided any security in connection with a loan to anyother body corporate or any person.

• acquired by way of subscription purchase or otherwise the securities of anyother body corporate otherwise than in accordance with the law.

TRANSFER OF UNCLAIMED DIVIDEND

In the F.Y. 2009-10 the Company declared Final dividend of 8% ( 0.80 per share of 10each) in September 2010 by the shareholders in Annual General Meeting.

Since seven years have elapsed the unclaimed dividend of 147061 of the F.Y. 2009-10is to be transferred to the Investor Education and Protection Fund established by theCentral Government in compliance with sections 124 and 125 of the Companies Act 2013(corresponding to section 205A and 205C of the Companies Act 1956).

RISK MANAGEMENT:

A documented risk management policy is in place as per section 134(3)(n) of theCompanies Act 2013. Your Company is exposed to risk from fluctuation of foreign exchangerates market Economic slow down or decline in demand in the country of buyers of yourCompany's products prices of raw materials and finished goods compliances risk andpeople risk.

Foreign Exchange Risk:

During year under review the Company endeavoured to further mitigate the riskassociated with the exchange fluctuations by entering into Forward Contracts with theCompany's Bankers on very conservative and risk-averse basis.

Commodity Prices Risk:

Your Company proactively manages the risk of purchasing raw materials through forwardbooking vendor development practices and inventory management. The Company's strongreputation for quality and services with overseas clients to some extent mitigates theimpact of price risk on finished goods.

Compliance Risk:

Your company has to follow various statutes and regulations including the CompaniesAct. The company is mitigating these risks through regular review of legal compliancescarried out through internal as well as external compliance audits.

People Risk:

Your Company nurtures and grooms the talented and key personnel for future businessleadership and looks after them judiciously so that they stay with the Company.

CORPORATE SOCIAL RESPONSIBILITY

Section 135(1) of the Companies Act 2013 is not applicable to your Company becausethe net worth turnover and net profit of your Company during the year is less than therequired limits.

RELATED PARTY TRANSACTIONS

All related party transactions that were entered during the financial year were in theordinary course of the business of your Company and were on arm's length basis. There wereno materially significant related party transactions entered by your Company withPromoters Directors Key Managerial Personnel or other persons which may have a potentialconflict with the interest of your Company. The details are given in Annexure - IV formingpart of this report.

FORMAL ANNUAL EVALUATION

During the year the Board adopted a formal mechanism for evaluating its performanceand as well as that of its Committees and individual Directors including the Chairman ofthe Board. The exercise was carried out through a structured evaluation process coveringvarious aspects of the Board functioning such as composition of the Board and Committeesexperience and competencies performance of specific duties and obligations governanceissues etc. Separate exercise was carried out to evaluate the performance of individualDirectors including the Board Chairman who were evaluated on parameters such asattendance contribution at the meetings and otherwise independent judgment safeguardingof minority shareholders interest etc.

MEETING OF INDEPENDENT DIRECTORS

All the five independent Directors of the Company held a meeting on 09th February 2017and reviewed the performance of non-independent Directors and the Board as a whole. Theyalso assessed the quality quantity and timeliness of flow of information between theCompany management and the Board.

They expressed their satisfaction at the performance of non-independent Directors andappreciated the flow of information from the Company management.

COST AUDITORS

The Companies (Cost Records and Audit) Rules 2014 does not require textile industry tohave cost audit records. Moreover in terms of Rule 7 where the revenue of a company fromexports in foreign exchange exceeds seventy five percent of its total revenue the saidcompany is also exempted from maintaining cost audit records. The above rules werenotified on 30.06.2014. In view of the above the Company is exempted from maintainingCost Audit records and appointment of Cost Auditor for the financial year 2016-17.

RATIO OF REMUNERATION TO EACH DIRECTOR

The ratio of the remuneration of each director to the median employee's remunerationand other details in terms of sub-section 12 of section 197 of the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 are forming a part of this Reportas Annexure V of this report.

LISTING FEES

Your Company has paid the listing fees up to 31st March 2018 to the Bombay StockExchange on 11th April 2017.

CORPORATE GOVERNANCE AND SHAREHOLDERS INFORMATION

Your Company shall not be mandatorily required to submit Corporate Governance Report asthe equity share capital and net worth of the Company is less than required limits as onthe last date of the previous financial year. Provided that where the provision of the Actbecomes applicable to the Company at a later date the Company shall comply with therequirement within six month from the date on which the provisions become applicable tothe Company.

ANTI SEXUAL HARASSMENT POLICY

The Company has in place an Anti Sexual Harassment Policy in line with the requirementsof 'The Sexual Harassment of Women at the Workplace (Prevention Prohibition &Redressal) Act 2013. Internal Complaints Committee (ICC) has been set up to redresscomplaints received regarding Sexual Harassment. All employees (permanent contractualtemporary trainees) are covered under this policy. The Lady NGO representative is themember of the said Internal Complaints Committee and regularly attends the meetings whichare minuted. The following is a summary of Sexual Harassment complaints received anddisposed of during the year 2016-17: No. of complaints received: Nil No. of complaintsdisposed of: Not applicable

PARTICULARS OF EMPLOYEES

As per provision of Section 197 of the Companies Act 2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 particulars of theemployees are required to be annexed in respect of the employees of the Company who werein receipt of total remuneration of 60.00 Lac per annum or 5.00 Lac per month. During thefinancial year 2016 - 17 there is no employee drawing remuneration as above.

ACKNOWLEDGMENT

Your Directors wish to place on record their sincere appreciation for the co-operationand support extended to the Company by the Government of India the Gujarat StateGovernment and by the relevant Government Authorities Central State and Local theCompany's Bankers and the Business Associates.

Your Directors also thank all the employees at every level who through theirdedication co-operation and support have enabled the Company to achieve sustainedgrowth.

And to you our shareholders we are deeply grateful for the confidence and faith thatyou have always reposed in us.

For and on behalf of the Board of Directors
Place: Mumbai Vijay V. Merchant
Date : 04th May 2017. Chairman

ANNEXURE - III CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGEEARNINGS AND OUTGOING

Disclosure of particulars with respect to Conservation of Energy Technology Absorptionand Foreign Exchange earnings and outgoings as required under the Companies (Disclosure ofParticulars in the Board of Directors' Report) Section 134(3)(m) are given below:

(A) CONSERVATION OF ENERGY:

Energy Conservation Measures Taken:

Electricity: i) Maintained the power factor to 0.999 throughout the year and gotrebate of 203778/- on this account in electricity bills. ii) Started installation of LEDtube lights and LED street lights for saving of electricity power of factory lighting.iii) We installed this year one GA-75 VSD Air Compressor to cater to the additional plantrequirement of compressed air. We are getting saving of 150 kwh/day (ie 52740 kwh/year).iv) We installed kwh meter at every section of the factory to monitor daily kwh unitsconsumption of every section and take necessary action if and when there is increase inpower consumption. v) We stopped air leakages from the air regulators PU tubes fittingsetc. of knitting machines contributing to energy saving.

As the result of above changes the power consumption per pair of sock productiondecreased from 0.420 kwh in the previous year to 0.378 kwh registering reduction of10.00%.

Natural Gas: i) Reduced steam leakages from boiler house to plant level andmaintained the same throughout the year. ii) We installed pressure reducing valve at theinlet of the steam dryer chamber to maintain the steam dryer pressure 1 to 1.5 bar at 100degree Celsius of dryer chamber resulting in 20 SCM Natural Gas saving per day of fuelconsumption. iii) We removed old insulation from the steam lines and installed newinsulation to reduce the heat transfer and condensation losses.

The Natural Gas consumption per pair of socks of boarding machine remained flat at0.0124 scm/ pair as per last year.

(B) TECHNOLOGY ABSORPTION:

Efforts made in Technology Absorption are as per Form annexed.

(C) FOREIGN EXCHANGE EARNINGS AND OUTGO:

Activities relating to Exports Initiatives to Increase Exports Development of NewExport Markets for Products and Services and Export Plan:

Ours is an export unit operating under Export Promotion Capital Goods (EPCG) Scheme.The Company has been exporting goods mainly to the European and Gulf Markets. All effortsare directed towards increasing exports. In the year under review about 86.24% of totalrevenues were derived from the export.

Total Foreign Exchange Used and Earned: (in Lac)
a. i. Total foreign exchange earned 2021.09
ii. Other 15.59
SUB-TOTAL (a) 2036.68
b. Total foreign exchange used
i. For import of Plant and Machinery 273.78
ii. For Spares etc. 23.41
iii. Raw Materials
iv. For Dividend remitted 12.30
v. Others 11.69
SUB-TOTAL (b) 321.18
% of Import to Export 15.77%

PARTICULARS WITH RESPECT TO ABSORPTION

Research and Development (R&D)

1. Specific areas in which R & D is carried out by the Company:

A. Development of new products

i) Knitted highly sophisticated socks for international brand on contract manufacturingbasis with great success and are getting repeat orders.

ii) Purchased latest model imported sock knitting machines this year having capabilityto knit technical Athletic / Football socks which cater to niche high value luxurymarkets.

iii) Purchased new machines this year having capability to knit "ThreeDimensional" socks

. iv) Knitted sock has been developed to use as a bag for festival gift socks of oneclient.

v) Development of "invisible" socks both for export and domestic markets.

B. Repairing of imported parts

i) The technicians at factory have developed the technique to repair motor drives(IRT) PCB and other electronic parts of the knitting machines.

ii) We have also developed an indigenous source to repair the broken cylinders of ourknitting machines.

2. Benefits derived as a result of the above R & D: i) New business indomestic market from other domestic brands besides export with higher profit margins. ii)Reduction in the Cost of electronic parts.

3. Future plan of action: To be planned
4. Expenditure on R & D: Not ascertainable
(a) Capital
(b) Recurring
(c) Total

(d) Total R & D expenditure as a percentage of total turnover. –

Technology absorption adaptation and innovation:

1. Efforts in brief made towards technology absorption adaptation and innovation:

The Company has not imported any technology. It has imported major plant and machinery.

2. Benefits derived as a result of the above efforts e.g. product improvement costreduction product development import substitution etc.: Not Applicable

3. In case of imported technology (imported during the last 5 years reckoned from thebeginning of the financial year) following information may be furnished:

(a) Technology imported
(b) Year of Import
(c) Has technology been fully absorbed

ANNEXURE - IV

FORM NO. AOC - 2

Form for disclosure of particulars of contracts/arrangements entered into by thecompany with related parties referred to in sub-section (1) of section 188 of theCompanies Act 2013 including certain arms length transactions under third proviso thereto(Pursuant to clause (h) of sub-section (3) of section 134 of the Act and Rule 8(2) of theCompanies (Accounts) Rules 2014)

1. Details of contracts or arrangements or transactions not at arm's lengthbasis

Not Applicable

2. Details of material contracts or arrangement or transactions at arm's lengthbasis :

(a) Name(s) of the related party and nature of relationship Armayesh Embroideries Pvt. Ltd.
- Promoters Group Company
(b) Nature of contracts/arrangements/ transactions Lease Agreement
(c) Duration of the contracts/ arrangements/transactions Renewable every Year
(d) Salient terms of the contracts or arrangements or transactions including the value if any 10% increase in lease rent every year
(e) Justification for entering into such contracts or arrangements or transactions Lease rent is comparatively lower than the prevailing market rates.
(f) Date(s) of approval by the Board 4th May 2017
(g) Amount paid as advances if any: Nil
(h) Date on which the Special Resolution was passed in General Meeting as required under first proviso to section 188 : Not Applicable

ANNEXURE - V

The ratio of the remuneration of each director to the median employee's remunerationand other details in terms of sub-section 12 of Section 197 of the Companies Act 2013read with Rule 5(1) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014:

Requirements Disclosure Ratio
(i) The ratio of the remuneration of each Director to the median remuneration of the employees of the Company for the financial year; Remuneration:
Executive Directors:
Mr. Adi F. Madan 16.15
Managing Director
Mrs. Ayesha K. DadyBurjor 7.70
Whole-time Director
Sitting fees:
Independent Directors:
Mr. Arun S. Sanghi - Chairman 1.09
Up to 22.09.2016 continue as a Director
Mr. Ajit P. Walwaikar - Director 1.26
Mr. Harish H. Shah - Director 1.26
Mr. Vinay V. Sanghi - Director 0.76
Non-Independent Directors:
Mr. Vijay V. Merchant - Chairman 0.93
w.e.f. 22.09.2016
Mr. Kaizad R. DadyBurjor - Director 0.50
Mr. Pheroze A. Dhanbhoora - Director 0.84
(ii) The percentage increase in remuneration of each Director Managing Director 14.29%
Whole-time Director Nil
Chief Financial Officer Chief Executive Company Secretary 12.52%
Officer Company Secretary or Chief Financial Officer 13.87%
Manager if any in the financial year;
(iii) The percentage increase in the median remuneration of employees in the financial year; The median remuneration of the employees in the financial year increased by 4.88%. The calculation of % Increase in Median Remuneration is done based on comparable employees. For this we have excluded employees who were not eligible for any increment.
(iv) The number of permanent employees on the rolls of the Company; There were 166 employees as on March 31 2017.

 

(v) The explanation on the relationship between average increase in remuneration and Company performance; ( in Lac)
Details 2016-17 2015-16
Total Income 2649.02 2639.20
PBT 438.95 448.17
PBT % of Total Income 16.57 16.98

 

Average increase of 12.42% in the remuneration of employees is in line with the current year's performance market dynamic and as a measure to motivate the employees for better future performance to achieve organisation's growth expectations.
(vi) Comparison of the remuneration of the Key Managerial Personnel against the performance of the Company; For the FY 2016-17 KMPs were paid approx 14.27% of the net profit before tax for the year.
(vii) Variations in the market capitalisation of the Company price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the Company in comparison to the rate at which the Company came out with the last public offer in case of listed Companies and in case of unlisted Companies the variations in the net worth of the company as at the close of the current financial year and previous financial year; The Market capitalization of the Company has increased from 3795.90 lacs as of March 31 2016 to 5317.21 lacs as of March 31 2017. Over the same period the price to earnings ratio moved from 12.58 to 18.28. The Virat Industries Limited stock price as at March 31 2017 has increased by 40.08% and by 30.90 over the last financial year.
During the year the Company did not come out with any public offer.
(viii) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration; During the year the non-managerial remuneration increased by 13.77% being the rise in minimum wages as declared by government of Gujarat.
Rise in managerial remuneration is 6.82%.
(ix) Comparison of remuneration of each of the Key Managerial Personnel against the performance of the Company The comparison of remuneration of each of the Key Managerial Personnel against the performance of the Company is as under :

 

Particulars % of Net Profit for FY 2016-17
Managing Director 8.50%
Whole-time Director 3.58%
Chief Financial Officer 1.30%
Company Secretary 0.88%

 

(x) The key parameters for any variable component of remuneration availed by the Directors; 1% commission of net profit of the Company if applicable as per section 197 and 198 of the Companies Act 2013 and if decided by the Board.
(xi) The ratio of the remuneration of the highest paid Director to that of the employees who are not Directors but receive remuneration in excess of the highest paid Director during the year; None
(xii) Affirmation that the remuneration is as per the remuneration policy of the Company. Yes