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Garden Silk Mills Ltd.

BSE: 500155 Sector: Industrials
NSE: GARDENSILK ISIN Code: INE526A01016
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VOLUME 2083
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OPEN 25.30
CLOSE 25.65
VOLUME 2083
52-Week high 53.60
52-Week low 22.10
P/E
Mkt Cap.(Rs cr) 106
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Garden Silk Mills Ltd. (GARDENSILK) - Director Report

Company director report

Dear Members

The Board of Directors hereby submit the report of the business and operations of yourCompany along with the audited financial statements for the year ended 31st March 2017.The Management Discussion and Analysis is also included in this Report.

Summarised Financial Results

The Company's performance during the financial year ended 31st March 2017 onstandalone basis as compared to the previous financial year is summarised below.

(Rs in crores)

2016-17 2015-16
Gross Revenue from Operations 2645.74 2567.31
Earnings before interest tax and depreciation (EBITDA) 154.35 102.82
Less: Finance Costs 174.89 177.25
Depreciation 64.48 66.82
Extra ordinary items 9.84 0.00
Profit / (Loss) before Tax (94.86) (141.25)
(Add)/Less: Provision for Tax / (Credit) 0.00 (0.64)
Profit / (Loss) after Tax (94.86) (140.61)

Review of Operations

The Company's standalone gross sales for the year 2016-17 (FY17) was higher at Rs2645.74 Crore as compared to Rs 2567.31 Crore for the previous year.

Operating EBITDA (earnings before interest tax and depreciation) for FY17 increased toRs 154.35 Crore as compared to Rs 102.82 Crore in the previous year registering a growthof 50.1%. Operating profit margins (excluding other income) improved from 3.91% in FY 2016to 5.85% in FY17 largely owing to an improved product mix in our yarn activity andslightly lower power costs. Utilization levels in our continuous polymerization divisionalso improved to the highest in 4 years resulting in improved sales and operating profits.

Our emphasis on increased product differentiation along with better operationalefficiencies improved utilisation timely exports and careful working capital managementhelped us to remain competitive and improve our profitability at operating level.

Better working capital management helped the Company to reduce the interest cost inFY17 from Rs 177.25 Crore to Rs 174.89 Crore.

With better capacity utilization the overall production of chips and polyester meltwas higher at 277714 MT during FY17 as compared to 271649 MT in FY16. Sale of chips forFY17 was higher at 142254 MT compared to 127779 MT in the previous year. In value termsalso the sale of chips for FY17 was higher at Rs 920.91 Crore as compared to Rs 845.57Crore in the previous year.

The volume of sale of polyester filament yarn (PFY) including processed yarn declinedat 148393 MT in FY17 as compared to 154111 MT in the previous year. Sale of yarn invalue terms however declined marginally at Rs 1502.84 Crore against Rs 1519.01 Crore inthe previous year. Margins improved significantly in processed yarn while margins in spunyarn remained under some pressure.

We achieved very high performance levels in our polymerization plants leading tohistorically low heating costs and highest first quality percentage on record. Despiteconstantly challenging the yarn divisions with new products to be optimized efficiency

levels were very high at all our spinning and processed yarn divisions during FY17.Cost of power and fuel reduced on account of slightly lower coal prices compared to theprevious year and improvements made to our thermic-fluid heating systems.

The Company maintained its price and product leadership in the polyester weavingdivision during FY17. Grey (woven) cloth production in FY17 was 229.17 Lac meters ascompared to 223.31 Lac meters in the previous year. We achieved higher sale of greyfabrics of Rs 73.30 Crore in FY17 as compared to Rs 69.91 Crore in the previous year.Margins remained stable during the year.

The finished fabrics segment contributed Rs 103.10 Crore in total sales for FY17 ascompared to Rs 114.42 Crore in the previous year. Sales were lower mainly on account offinancial distress faced by some of our large and prestigious customers leading to lowerpurchases on their part. The currency demonetization in November 16 also impactedretail-level sales for over 2 months. Yet margins improved in FY17.

Despite a competitive and challenging global environment we achieved higher incomefrom export at Rs 408.23 Crore in FY17 as compared to Rs 342.25 Crore in the previousyear an increase of about 19% on Y-o-Y basis.

Dividend and Reserves

Considering the loss incurred by the Company your Directors do not recommend anydividend on equity shares for the financial year 2016-17.

In absence of distributable profits / earnings it is not proposed to transfer anyamount to reserves for the financial year 2016-17.

Going Concern Status

No significant material orders has been passed during the year under review by theregulators or court or tribunal impacting the going concern status and Company'soperations in future.

Change in the Nature of Business if any

Garden Silk Mills Ltd. is one of India's leading man-made fibre-based textilecompanies. It is a vertically integrated manufacturer of a wide range of Polyester ChipsPolyester Filament Yarns (PFY) Preparatory Yarns Woven (Grey) Fabric as well as Dyed andPrinted Sarees and Dress Materials. During the year under review there was no change inthe nature of business of the Company.

Textile Industry Scenario

The Indian textile industry is a mainstay of the economy. The industry is the secondlargest employer after agriculture providing employment to over 50 million peopledirectly and 60 million people indirectly. India is a major net textile exporting nationand thus a crucial foreign exchange earner as well. The Indian domestic textile market isaround $110 billion per annum and is expected to be the fastest growing major textilemarket in the world. India is the world's second largest exporter of textiles andclothing. Including exports the total size of the textile industry is $150 billion.

Most of the company's products feed the polyester filament yarn and PFY-based textileindustry. The PFY industry has been the fastest growing textile category both worldwideand in India though India has experienced an unexpected slowdown for five years untilFY16. After adjusting for demonetisation growth was clearly in the high single digits inFY17 marking a significant turnaround in fortunes. After adjusting to GST the industry isexpected to resume a healthy growth trajectory in a few months' time. Generally risingincome levels changing consumer preferences in favour of polyester low oil and hence lowraw material and finished product prices government-directed subsidies and transfers tothe rural sectors all bode well for PFY based textiles. This is likely to supportutilisation levels and profitability in the industry.

Within the PFY-based textile industry fully drawn yarn continued to grow particularlyrapidly. While weaving industry growth was weak good growth in warp and circular knittedfabric industry more than compensated.

Overview of the economy

According to the World Economic Outlook (IMF) global GDP growth was 3.1% in 2016 muchweaker than the long-term trend rate of 3.5%. Yet with a significant broad-basedrecovery underway it is projected to match or exceed the long-term trend in both 2017 and2018.

The past half-decade has seen a vulnerable world economy with sub-par growth despitesignificant policy stimulus. Low productivity growth in advanced countries poor globalinvestment battered commodity markets weak global trade high income inequality andinward-looking politics were both contributors and symptoms of the weakness.

Fortunately the global outlook has significantly improved for developed countriesemerging markets commodity exporters and importers alike. On the back of low globalinterest rates buoyant financial markets are discounting a cyclical recovery inmanufacturing investment trade and corporate earnings among other things.

Mainly owing to a weak second half India's GDP growth slowed markedly to 7.1% in FY17compared to 8.0% in FY16. The currency demonetization exercise seems to have had asignificant impact on growth and incomes especially in the unorganized industrial andagricultural sectors as well as the labour-intensive construction sector which in turnhave adversely affected industries that depend on these sectors. The impact however isfading quickly and is widely expected to be temporary.

Political stability a strong emphasis on building India's road rail and powerinfrastructure improved ease of doing business and excellent macroeconomic conditionshave been the hallmark of the current central government which bodes well for thecountry's economy. India being heavily dependent on oil-imports gained an unexpectedlylarge bounty with international oil prices halving since the new government came to power.This has dramatically lowered inflation as well the fiscal and current account deficits.

A concern that has been highlighted by international rating agencies is the worseningoutlook for state deficits given populist tendencies exemplified by farm loan waivers.Yet increasing purchasing power in the hands of weak segments of society will increaseconsumption and is an indirect stimulus to the textile industry. The rural economy isvital to the polyester textile industry so improving rural purchasing power bodes well fortextiles.

Retail inflation is at a record low which will allow India to reduce its interest rateswhich are high by international standards. This will boost much-needed investmentespecially as abysmal capacity utilisation levels in Indian industry begin to normalise.It will also lower interest costs for borrowing individuals firms and companies thusboosting sentiment in both markets and the broader economy. Given the significant leveragein the textile industry lower interest rates would be a direct boost for our sector.

The Goods and Services Tax (GST) to be launched w.e.f. 1st July 2017 is a greatlyanticipated reform which is expected to contribute to growth in the medium term. The GSTwill replace various taxes on goods and services levied by the central government andstates by a single tax on value added. It will thus reduce tax cascading facilitate acommon national market encourage voluntary tax compliance reduced tax collection costssupport investment and generally improve India's competitiveness.

Yet it appears likely that the downstream textile trade which is still dominated bymanufacturers traders and retailers in the unorganized sector will be affected by thecompliances required by the new tax in the short-term. This will consequently impactdemand for upstream polyester chip and yarn makers as well.

Opportunities Challenges Threats Risks and Concerns

The resumption of high growth in the PFY industry is widely anticipated to continueafter the textile trade fully adjusts to GST. This presents a large opportunity for thecompany and the industry as a whole. A thriving industry improves sales and margins andalso increases risk-taking capacity allowing customers to experiment with new andinnovative yarns and fabrics which is aligned with the Company's strength in developingdifferentiated products.

New capacities in MEG and PTA in the coming year are expected to improve the rawmaterial situation and boost global competitiveness for Indian polyester companies.

Coal is the major fuel and a key cost for the company whose price has recently risenconsiderably compared to average price for FY17. This has raised power costssignificantly. While we have been able to take steps to mitigate the cost increase inheating the increase in power cost appears inevitable until coal prices start reducing inthe next few months as is anticipated but is not yet certain.

Dumping of goods from China remains a persistent challenge. In the GST regime the totalimport duty protection on imported fabric will be much less making these fabrics cheaperstill.

The Company has been working with industry associations to counter the dumping but thefinal outcome is not yet clear. A mitigating factor however is that the Company focusesprimarily on specialty products and fine deniers which face relatively less competitionfrom Chinese suppliers.

The Company's strategic location in the heart of the textile industry of Surat andclose to Hazira port minimizes infrastructural weaknesses generally faced by the industry.Its thermal power plants keep its power costs significantly lower than grid power costs.However the subsidized power available in union territories of Silvassa-Daman remainsstill cheaper.

The Company's high debt and interest cost pose a challenge as well. It continues to beengaged with its bankers toward a debt-rework.

The Company is exposed to currency fluctuations with respect to its raw materialimports as well as its finished product exports. Our hedging policies minimize this risk.

The passing by the Government of a national goods-and-service tax (GST) will create acommon market in the country and is expected to increase economic growth in the mediumterm. These and other efforts to liberalize the economy and reduce burdensome taxes andregulations will likely help the industry in the long run. The equal tax for polyester andcotton fabric will boost the relative consumption of polyester. However in the short termimplementation challenges remain for the huge unorganized sector that still forms thebedrock for demand in the polyester textile industry for whom GST will increasecompliances and costs.

The introduction of GST appears to have brought forward the date of expiry ofarea-based CST-exemptions of suppliers in certain union territories from end-2017 to 1stJuly 2017. This will correspondingly improve marketability and price realization for yourCompany's products sold outside Gujarat.

Raw material prices fluctuate in line with international prices and will continue tohave an impact on the company's performance as raw materials constitute 70% percent of theCompany's net sales. Small variations do not have much impact and even large increasesusually get passed on to customers with a lag. Yet large variations hurt sentiment andlead to reduced demand and inventory valuation changes. Increased product differentiationas well as maintaining tight inventory has helped us reduce this risk. The presently lowoil prices also reduce the downside risk of a price crash.

The Company is exposed to risks attached to various statutes and regulations includingthe Competition Act. The Company is mitigating these risks through regular review of legalcompliances carried out through internal as well as external compliance audits.

To overcome the challenges and competition we have taken various initiatives to reducethe operational costs to develop new value added products improve the performance andquality of existing value-added products as well as to explore new markets domesticallyand globally.

Business Outlook

The outlook for industry and the Company in the near term can be viewed with cautiousoptimism.

After many years of poor rural demand the industry is widely expecting improvedpolyester demand on the back of a good monsoon and greater fiscal transfers to rural areasthis year. Resumption of high growth in the PFY industry is widely expected to continueonce the unorganized downstream trade fully adjusts to and complies with GST. This isexpected to improve utilization levels and probably margins as well at the yarn level.Regarding chips however given the significant overcapacity margins are expected toremain under pressure for some more time.

After the industry adjusts to GST over the next two years we expect businessconditions to improve for your Company owing to the generally higher utilisation levelsand better margins. Significant industry expansions in circular knitting capacities havehelped and will continue to support growth.

The Company appears well positioned in its specialty chip yarn and fabric businesses.The emphasis is on expanding our market share in differentiated products and continuing toimprove our ability to support individual customers' needs.

The Company has emerged as a leader in specialty chips for polyester film industry aswell as in cationic fine denier melange mother yarn nylon and spandex-based yarns.

After having shifted the draw warping department at Vareli to form a single departmentat Jolva we have reduced energy and overhead costs. The sizing division is also in theprocess of being shifted from Vareli to Jolva for the same reason.

The Company is in the process of identifying high-quality yarn producers who have idlecapacities which it can use to expand the market for its products say through a job-workrelationship.

The Union Ministry of Textiles which has set a target of doubling textile exports in10 years plans to enter into bilateral agreements with Africa and Australia along withworking on a new textile policy to promote value addition apart from finalizingguidelines for the revised Textile Up gradation Fund Scheme (TUFS). To promote apparelexports 12 locations have been approved by the government to set up apparel parks forexports. As per the twelfth Five Year Plan the Government plans to provide a budgetarysupport of USD 4.25 billion to textiles. Free trade with ASEAN countries and a proposedagreement with European Union will also help boost exports.

The Indian government has come up with a number of export promotion policies for thetextiles sector. It has also allowed 100 per cent FDI in the Indian textiles sector underthe automatic route.

Share Capital and disclosure

The Issued Subscribed and Paid-up equity share capital as on 31st March 2017 was Rs4208.25 Lacs. There was no public issue rights issue bonus issue or preferential issueetc. during the year. The Company has not issued shares with differential voting rightssweat equity shares nor has it granted stock options. As on 31st March 2017 none of theDirectors of the Company hold instruments convertible into equity shares of the Company.

Disclosures in respect of voting rights not directly exercised by employees

There are no shares held by trustees for the benefit of employees and hence nodisclosure under Rule 16(4) of the Companies (Share Capital and Debentures) Rules 2014has been furnished.

Material changes and commitments

No material changes and commitments affecting the financial position of your Companyhave occurred between the end of the financial year of the Company to which the financialstatements relate and on the date of this report.

Indian Accounting Standards (IND AS) IFRS Converged Standards

The Ministry of Corporate Affairs (MCA) vide its notification in the Official Gazettedated 16th February 2015 notified the Indian Accounting Standards (Ind AS) applicable tocertain classes of Companies. Ind AS has replaced the existing Indian GAAP prescribedunder Section 133 of the Companies Act 2013 read with Rule 7 of the Companies (Accounts)Rules 2014. For your Company Ind AS is applicable from 1st April 2017 with atransition date of 1st April 2016.

Presentation of financial statements

Your Company prepares its financial statements in compliance with the requirements ofthe Companies Act 2013 and the Generally Accepted Accounting Principles (GAAP) in India.The financial statements have been prepared on historical cost basis.

The estimates and judgments relating to the financial statements are made on a prudentbasis so as to reflect in a true and fair manner the form and substance of transactionsand reasonably present the Company's state of affairs loss and cash flows for the yearended 31st March 2017. The financial statements of the Company have been disclosed as perSchedule III of the Companies Act 2013.

Subsidiary Joint Venture and Associate Companies

The Company has one wholly owned overseas subsidiary namely GAIA International FZEDubai. GAIA International FZE is a free zone establishment and is registered with theAjman Free Zone Ajman U.A.E. The Company is registered to carry out the business oftrading in textile and ready-made garments including import and export.

As per the provisions of Section 129 of the Companies Act 2013 the consolidatedfinancial statement of the Company and its subsidiary are attached in the annual report. Astatement containing brief financial details of subsidiary of the Company

for the year ended 31st March 2017 forms part of the Annual Report. The annualaccounts of subsidiary company will be made available to shareholders on request and willalso be kept for inspection by any shareholder at the Registered Office of your Company. Astatement in Form AOC-1 as Annexure F containing the salient features of the financialstatement of the Company's subsidiary forms part of this Report.

Consolidated Financial Statements

During the year the Board of Directors reviewed the affairs of its subsidiary GAIAInternational FZE. In accordance with Section 129(3) of the Companies Act 2013.

The Company has prepared Consolidated Financial Statements (CFS) in accordance with theapplicable Accounting Standards as prescribed under the Companies (Accounts) Rules 2014of the Companies Act 2013. The Consolidated Financial Results reflects the results of theCompany and its subsidiary. As required under Regulation 34 of the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 the Audited CFS together withthe Independent Auditors' Report thereon are annexed and form part of this Report.

The Business Responsibility Reporting as required by Regulation 34(2) of the SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 is not applicable toyour Company for the financial year ending 31st March 2017.

Finance

During FY17 long term export advance of Rs 445.98 Crore was repaid by availingadditional facilities from the lenders.

Your Company also repaid Rs 85.83 Crore during FY 2017 towards term loan from banks andfinancial institutions and fresh term loans were availed of Rs 24.09 Crore out of earlierterm loans sanctioned.

The consortium of banks headed by Bank of Baroda continued their support in renewingworking capital facilities and other facilities during the year. The Company is indiscussions with the lenders to work out a long-term debt rework solution.

Directors and Key Managerial Personnel

The Board of Directors offers its deep condolence for the sad demise of ShriArunchandra N. Jariwala who passed away on 21st January 2017.

Shri Jariwala was a Member (Independent Director) of the Board of Directors of theCompany since 1988. Shri Jariwala's visionary foresight and business acumen had helped tosteer the Company on the growth path. His legacy shall continue to guide the Company inthe future as well. Shri Jariwala was associated with the Company for over three decadesand the Company immensely benefited from his vision and the knowledge he shared during histenure.

On the recommendations of the Nomination and Remuneration Committee the Boardappointed Shri Ketan A. Jariwala (DIN: 02095540) as an Additional Director (IndependentDirector) w.e.f. 30th May 2017 for a period of five years not liable to retire byrotation to fill up the casual vacancy caused in terms of Section 161(4) of the CompaniesAct 2013.

In accordance with the provisions of Section 152 of the Companies Act 2013 and theCompany's Articles of Association Shri Sanjay S. Shah (DIN: 00024004) Director retiresby rotation at the forthcoming Annual General Meeting and being eligible offers himselffor re-appointment. The Board recommends his re-appointment for the consideration of theMembers of the Company at the ensuing Annual General Meeting. The Board of Directors ofthe Company also re-appointed Shri Sanjay S. Shah as a Wholetime Director designated asExecutive Director of the Company for a period of three years w.e.f. 1st July 2017

Shri Praful A. Shah Managing Director and CEO (DIN: 00218143) Shri Alok P. ShahExecutive Directors & CFO (DIN: 00218180) and Shri Kamlesh B. Vyas Company Secretaryare the Key Managerial Personnel of the Company as on the dated of this Report. During theyear under review there was no change in key managerial personnel of the Company.

All Independent Directors have furnished declarations to the Company under Section149(7) of the Act confirming that they meet the criteria of independence as laid downunder Section 149(6) of the Companies Act 2013 as well as Regulation 16(b) of SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015.

The necessary resolutions for appointment / re-appointment of Shri Ketan Jariwala andShri Sanjay S. Shah are placed for members' approval.

Managerial Remuneration

Disclosures of the ratio of the remuneration of each director to the median employee'sremuneration and other details as required pursuant to Section 197(12) of the CompaniesAct 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 are provided as Annexure C.

The details of remuneration paid to the Directors including Executive Directors of theCompany are given in Form MGT-9 forming part of the Directors Report.

Report on Corporate Governance

Your Company is committed to adopting and adhering to established corporate governancepractices. Your Company always places major thrust on managing its affairs with diligencetransparency responsibility and accountability.

The compliance report on corporate governance and a certificate from M/s NatvarlalVepari & Co. Chartered Accountants Statutory Auditors of the Company regardingcompliance of the conditions of corporate governance as stipulated in Regulation 34(3)read with Schedule V(c) of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 is attached herewith as Annexure H to this report. The auditorscertificate for the year 2016-17 does not contain any qualification reservation oradverse remark.

All Board members and Senior Management personnel have affirmed compliance with theCode of Conduct for the year 2016-17. A declaration to this effect signed by the ManagingDirector (CEO) of the Company is contained in this Annual Report. The Managing Directorand CFO have certified to the Board with regard to the financial statements and othermatters as required under regulation 17(8) of the SEBI Listing Regulations 2015.

Audit Committee

The Audit Committee of Directors comprises of Shri Yatish Parekh (Chairman of theCommittee) Shri Sunil Sheth and Shri Deepak N. Shah. During the year under review ShriDeepak N. Shah was inducted as the Member of the Audit Committee consequent to the vacancycaused due to death of Shri Arunchandra N. Jariwala. The terms of reference and otherdetails of the Audit Committee are available in the Corporate Governance Report formingpart of this annual report.

The Board during the year under review had accepted all recommendations made to it bythe Audit Committee.

Risk Management

Your Company recognizes that the risk is an integral part of business and is committedto managing the risks in proactive and efficient manner. Your Company periodicallyassesses the risks in the internal and external environment along with treating the risksand incorporates risk management plans in its strategy business and operational plans.

The business plan for the future are devised and approved by the Board keeping in mindthe risk factors which can significantly impact the performance of the particularbusiness. All major capital expenditures commitments are subject to scrutiny by the Boardand investments are permitted only on being satisfied about its returns or utility to theCompany. There are no risks which in the opinion of the Board threaten the existence ofthe Company.

Insurance

The Company has taken all the necessary steps to insure its properties and insurableinterests as deemed appropriate and also as required under the various legislativeenactments.

Statutory Auditors & Audit Report

Messrs. Natvarlal Vepari & Co. Chartered Accountants were appointed Auditors fora period of 3 (three) years from the conclusion of the 35th Annual General Meeting (AGM)till the conclusion of the 38th AGM. As such Messrs. Natvarlal Vepari & Co. retire atthe conclusion of the 38th AGM.

Under Section 139 of the Companies Act 2013 and the Rules made thereunder it ismandatory to rotate the statutory auditors on completion of the maximum term permittedunder the said Section. The audit committee of the Company has proposed and on 30th May2017 the Board of Directors of the Company has recommended the appointment of Sharp &

Tannan Associates Chartered Accountants (Firm registration number 109983W) as thestatutory auditors of the Company. Sharp & Tannan Associates will hold office for aperiod of 5 (five) consecutive years from the conclusion of the 38th Annual GeneralMeeting of the Company scheduled to be held on 20th September 2017 till the conclusionof the 43rd Annual General Meeting to be held in the year 2022 subject to the approval ofthe shareholders of the Company.

The comments on statement of accounts referred to in the report of the Auditors areself explanatory. The Auditors' Report does not contain any qualification reservation oradverse remark.

Cost Auditors

Pursuant to the provisions of Section 148 of the Companies Act 2013 read with theCompanies (Cost Records and Audit) Rules

2014 as amended by notifications / circulars issued by the Ministry of CorporateAffairs from time to time and on recommendation of the Audit Committee the Board ofDirectors appointed M/s Manubhai & Associates Cost Accountants (Firm RegistrationNumber 100756) as Cost Auditors to audit the cost accounts of the Company for theFinancial Year 2017-18.

The Cost Auditor have given a Certificate to the effect that the appointment if madewill be within the prescribed limits specified under Section 141 of the Companies Act2013. The Audit Committee has obtained a certificate from the Cost Auditor certifyingtheir independence and arm's length relationship with the Company.

As required under the Companies Act 2013 the remuneration payable to the Cost Auditoris required to be placed before the members in a general meeting for their ratification.Accordingly a resolution seeking member's approval for the remuneration payable to theCost Auditor forming part of the Notice convening the Annual General Meeting for theirratification.

Secretarial Auditor & Secretarial Audit Report

Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Board hasappointed Shri Kunjal Dalal of K. Dalal & Co. Practicing Company Secretaries (CPNo.3863) Surat as secretarial auditor of the Company for the year 2017-18.

The Secretarial Auditors' Report for the year 2016-17 does not contain anyqualification reservation or adverse remark. The Secretarial Auditors' Report is enclosedas Annexure E to the Board's report in this Annual Report.

Internal Auditors

Pursuant to the provisions of Section 138 of the Companies Act 2013 the Board ofDirectors of the Company have appointed Shri Piyush Patel Chartered Accountant (ICAIMembership No. 116769) as Internal Auditors of the Company for the financial year2017-18. The audit committee of the Board of Directors in consultation with the InternalAuditor formulates the scope functioning periodicity and methodology for conducting theinternal audit.

Committees of the Board

Pursuant to requirement under Companies Act 2013 and SEBI (Listing Obligations andDisclosure Requirements) Regulations

2015 the Board of Directors has constituted various Committees of Board such as AuditCommittee Nomination and Remuneration Committee Stakeholders Relationship Committee andCorporate Social Responsibility Committee. The details of composition and terms ofreference of these committees are mentioned in the Corporate Governance Report.

Directors' Responsibility Statement

The Board of Directors acknowledge the responsibility for ensuring compliance with theprovisions of Section 134(3)(c) read with Section 134(5) of the Companies Act 2013 in thepreparation of the annual accounts for the year ended on 31st March 2017 and state that:

a) in the preparation of the annual accounts applicable accounting standards read withrequirements set out under Schedule III to the Act have been followed along with properexplanation relating to material departures;

b) the directors 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 ofthe loss of the Company for that period;

c) the directors have taken proper and sufficient care towards 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 have prepared the annual accounts on a going concern basis;

e) the directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively; and

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

Number of meetings of the Board

During the year 6 Board Meetings were convened and held. The intervening gap betweenthe meetings was within the period prescribed under the Companies Act 2013 and SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015. The Directorsactively participated in the meetings and contributed valuable inputs on the mattersbrought before the Board of Directors from time to time. The details of all Board /Committee meetings held are given in the Corporate Governance Report.

Board evaluation

Pursuant to the provisions of the Companies Act 2013 the Board has devised a policyon evaluation of performance of Board of Directors Committees and Individual directors.The policy is also in compliance to Regulation 19 read with Schedule II Part D of theSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

The Nomination and Remuneration Committee has defined the evaluation criteria for thePerformance Evaluation of the Board its Committees and individual Directors.

Pursuant to the provisions of the Companies Act 2013 and SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 the Board has carried out a formal annualevaluation of its performance and that of its Committees and individual Directors. Theevaluation of each of the directors was done inter-alia on the basis of their advisoryrole and contribution in the decision making. Further the evaluation of the Board as awhole and all the Committees of the Directors was done inter-alia on the basis of theoverall directions and guidance provided to the senior executives and supervision overtheir performance.

Separate Meeting of Independent Directors

In compliance with the requirements of Schedule IV of the Companies Act 2013 andRegulation 25(3) of SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 a separate meeting of the Independent Directors was held on 14th February 2017without the participation of the Executive Directors or management personnel.

The Independent Directors carried out performance evaluation of Non-IndependentDirectors and the Board of Directors as a whole performance of Chairman of the Companythe quality contents and timelines of flow of information between the Management andBoard based on the performance evaluation framework of the Company. The criteria forperformance evaluation have been detailed in the Corporate Governance Report forming partof this report.

Declaration of Independent Directors

All Independent Directors have given declarations that they meet the criteria ofindependence as laid down under Section 149(6) of the Companies Act 2013 and Regulation16(1)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015and there is no change in their status of independence. As required under Section 149(7)of the Companies Act 2013 the said declaration was placed in the Board Meeting held on30th May 2017.

Familiarisation Programme to Independent Directors

The Company provides suitable familiarisation programme to Independent Directors so asto associate themselves with the nature of the industry in which the Company operates.

Directors are periodically advised about the changes effected in the Corporate LawsListing Regulations with regard to their roles rights and responsibilities as Director ofthe Company. The details of the familiarisation programme have been disclosed and updatedfrom time to time on the Company's website.

Corporate Social Responsibility (CSR) Initiatives

As required under Section 135 of the Companies Act 2013 the CSR committee comprisingShri Yatish Parekh Independent Director as the Chairman of the Committee Shri Sunil S.Sheth Independent Director and Shri Suhail P. Shah Whole-time Director as its members.

The CSR committee has laid down the policy which includes the activities covered underthe Companies (Corporate Social Responsibility Policy) Rules 2014.

The Company has been contributing in the development of the surrounding areas of itsplant and office. The Company supports and contributes in activities relating to promotionof education sports medical and healthcare vocational skill development and livelihoodenhancement and programmes and activities relating to environment sustainability etc. Thedetails of amount spent on CSR activity undertaken during the year by the Company aregiven in the Annexure B to this Report. The CSR policy of the Company is also hosted onthe website of the Company www.gardenvareli.com.

Adequacy of Internal Financial Control

The Company has in place adequate internal financial controls with reference tofinancial statements. Periodic audits are undertaken on continuous basis covering all themajor operations. Reports of internal auditors are reviewed by management from time totime and desired actions are initiated to strengthen the control and effectiveness of thesystem. During the year such controls were tested and no reportable material weaknessesin the design or operation were observed.

The Company uses Oracle E business suite R12 to process financial transactions andmaintain its books of accounts. The ERP system has been setup to ensure adequacy offinancial transactions and integrity and reliability of financial reporting.

The Internal Financial Control with reference to financial statements as designed andimplemented by the Company are adequate. During the year under review no material orserious observation has been received from the Internal Auditors of the Company forinefficiency of such controls.

Related Party Transactions

All transactions entered by the Company with Related Parties were in the OrdinaryCourse of Business and at Arm's Length pricing basis. There are no materially significantrelated party transactions made by the Company with Promoters Directors Key ManagerialPersonnel or other designated persons which may have a conflict with the interest of theCompany at large.

During the year 2016-17 pursuant to section 177 of the Companies At 2013 andregulation 23 of SEBI Listing Regulations 2015 all Related Party Transactions wereplaced before the Audit Committee for its approval.

Pursuant to section 134 of the Companies Act 2013 and Rules made thereunderparticulars of transactions with related parties as required under section 188(1) of theCompanies Act 2013 read with Rule 8(2) of Companies (Accounts) Rules 2014 is annexedwith this Report in Form AOC-2 as Annexure E.

During the year under review the Board of Directors have revised the existing RelatedParty Transaction policy in line with the recently introduced SEBI (LODR) Regulations2015 and Companies (Meetings of Board and its Powers) Second Amendment Rules 2015.

The policy on related party transactions as approved by the Board is uploaded on theCompany's website. The Company's management ensures total adherence to the approved Policyon Related Party Transactions to establish Arm's Length Basis without any compromise.

Suitable disclosures as required under AS-18 have been made in Note 33 of the Notes tothe financial statements.

Particulars of Employees and Related disclosure

The information required under Section 197(12) of the Companies Act 2013 read withRule 5(2) and (3) of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 forms part of this report. However pursuant to first proviso to Section 136(1)of the Companies Act 2013 this Report is being sent to the Shareholders excluding theaforesaid information. Any shareholder interested in obtaining said information may writeto the Company Secretary at the Registered Office of the Company and the said informationis available for inspection at the Registered Office of the Company.

Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo

Particulars required pursuant to the provisions of Section 134(3)(m) of the CompaniesAct 2013 read with Rule 8(3) of the Companies (Accounts) Rules 2014 in respect ofConservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo are setout in the Annexure A forming part of this Report.

Vigil Mechanism / Whistle Blower Policy

Your Company believes in promoting a fair transparent ethical and professional workenvironment. The Board of Directors of the Company pursuant to the provisions of Section177 of the Companies Act 2013 and SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 has framed Rs Whistle Blower Policy' for Directors and employees of theCompany for reporting the genuine concerns or grievances or cases of actual or suspectedfraud or violation of the Company's code of conduct and ethics policy. The Whistle BlowerPolicy of the Company has been posted on the website of the Company.

Nomination and Remuneration Policy

On recommendation of Nomination and Remuneration Committee the Board of Directors haveapproved a Nomination and Remuneration Policy for the appointment and remuneration of thedirector key managerial personnel (KMP) and other employees.

The key objectives of the Policy are to lay down the criteria for appointment andremuneration of Directors Key Managerial Personnel and Executives at Senior Managementlevel and recommend to the Board their appointment and also to formulate criteria forevaluation of performance of Independent Directors and the Board and to devise a policy onBoard diversity.

The Policy inter-alia includes criteria for determining qualifications positiveattributes independence of a director and expertise and experience required forappointment of Directors KMP and Senior Management.

As per the Policy the remuneration / compensation to the Whole-time Directors shall berecommended by the Nomination and Remuneration Committee to the Board for its approval.However the remuneration compensation to Whole-time Directors shall be subject to theapproval of the shareholders of the Company and Central Government wherever required.Further the NonExecutive Directors shall be entitled to the fees for attending meetingsof Board and Committees within the limits prescribed in the Companies Act 2013. TheNomination and Remuneration Policy is available on the company's website.

Particulars of the Company's Remuneration Policy and information required under Rule5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rule 2014 asset out in Annexure D forming part of this Report.

Deposits

During the year the Company has not accepted any deposits within the meaning ofSection 73 of the Companies Act 2013 read with the Companies (Acceptance of Deposits)Rules 2014 and as such there are no outstanding deposits in terms of the Companies(Acceptance of Deposits) Rules 2014.

Extract of Annual Return and other disclosures

Pursuant to the provisions of Section 134(3)(a) of the Companies Act 2013 read withRule 8 of Companies (Accounts) Rules 2014 and Rule 12 of Companies (Management andAdministration) Rules 2014 Extract of Annual Return in Form MGT-9 for the financialyear ended 31st March 2017 made under the provisions of Section 92(3) of the Act isattached as Annexure G which forms part of this Report.

Particulars of Loans Guarantees and Investments

During the year under review your Company has not directly or indirectly -

a) Given any loan to any person or other body corporate other than usual advancesenvisaged in a contract of supply of materials if any;

b) Given any guarantee or provided security in connection with a loan to any other bodycorporate or person; and

c) Acquired by way of subscription purchase or otherwise the securities of any otherbody corporate.

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.

The Company has zero tolerance on Sexual Harassment at workplace. No complaint wasreceived from any employee during the financial year 2016-17 and hence no complaint isoutstanding as on 31st March 2017 for redressal. Your Company has laid down Anti SexualHarassment policy and it is made available on the website of the Company.

Green Initiative

Your Directors would like to draw your attention to Section 20 of the Companies Act2013 read with the Companies (Management and Administration) Rules 2014 as may beamended from time to time which permits paperless compliances and also service of notice /documents (including annual report) through electronic mode to its members. To supportthis green initiative we hereby once again appeal to all those members who have notregistered their e-mail addresses so far are requested to register their e-mail address inrespect of electronic holding with their concerned Depository Participants and/ or withthe Company.

Internal Control System and their Adequacy

The Internal Control System provides for well documented policies / guidelinesauthorizations and approval procedures. Considering the nature of its business and size ofoperations your Company through its Internal Auditors carries out periodic audit based onthe plan approved by the Audit Committee.

The summary of the Internal Audit observations and status of implementation aresubmitted to the Audit Committee. The status of implementation of the recommendations isreviewed by the Audit Committee on a regular basis and desired actions are initiated tostrengthen the control and effectiveness of the system. Concerns if any are reported tothe Board.

Financial Performance

Discussion on financial performance with preference to operational performance has beendealt with in this Report in the relevant para which should be treated as forming part ofthe Management Discussion and Analysis Report.

Health safety and environment

Your Company recognizes protection and management of environment as one of its highestpriority and every effort is made to conserve and protect the environment. During theyear your Company continued its focus in creating an aesthetic environment-friendlyindustrial habitat in its factory units mobilizing support and generating interest amongstaff and labour for maintaining hygienic and green surrounding.

The Company obtained necessary approvals from concerned Government Department /Pollution Control Board and all required environment clearances / safety clearances /stipulations are complied with at Plant facilities of the Company. The Company continuesto focus on maintenance and performance improvement of related pollution control facilityat its manufacturing locations.

Industrial Relations / Human Resources

Your Company maintained healthy cordial and harmonious industrial relations at alllevels during the year under review.

The Company continuously works to nurture this environment to keep its employees highlymotivated result oriented and adaptable to changing business environment. Your Company'svalue proposition is based on providing value to our customer through innovation and byconsistently improving efficiency at all levels.

Your Directors wish to place on record their appreciation for the dedicated andcommendable services rendered by the employees of the Company.

Reward Recognition & Quality Systems Certification

The Company's CP Division is certified OSHAS 18001:2007 by Bureau Veritas. Our qualityhealth and safety processes are now continuously monitored assessed and improved to meetinternationally recognized standards. Each raw-material and product is tested extensivelyand all manufacturing processes are continually optimized with a strong commitment toenergy efficiency occupational health environmental responsibility and safety.

Your Company continues to enjoy the status of "Trading House" awarded by theOffice of Joint Director General of Foreign Trade Ministry of Commerce & IndustryGovernment of India on achieving the required Export targets.

The Company's Vareli Plant enjoys the unique distinction of being the first inpolyester weaving industry to achieve ISO 9002:1994 certification by Bureau VeritasQuality International (BVQI). The processes certified are Draw-Warping and TexturizingTwisting Sizing Warping and Weaving. The scope of audit includes "Manufacture ofWoven Greige Fabrics and Processed Yarns".

The manufacturing of Texturized Flat Polyester Filament Polyester Partially OrientedYarn (POY) and Fully Drawn Yarn (FDY) at Jolva are also ISO 9001:2000 certified by BVQI.

Unclaimed and Unpaid Dividends

As on 31st March 2017 an aggregate amounts of Rs 27.02 Lacs is lying in the unpaidequity dividend account of the Company in respect of the dividend for the financial year2009-2010 and 2010-2011. Members who have not yet received / claimed their dividendentitlements are requested to contact the Company or the Registrar and Transfer Agents ofthe Company.

Investor Education and Protection Fund

During the year under review the Company has credited an amount of Rs 10.71 Lacswhich pertains to the dividend for the financial year 2008-09 and remained unpaid orunclaimed for a period of 7 years from the date of declaration to the Investor Education& Protection Fund (IEPF).

Cautionary Statement

Statements in this Directors' Report & Management Discussion and Analysisdescribing the Company's objectives projections estimates expectations or predictionsmay be Rs forward-looking statements' within the meaning of applicable securities laws andregulations. Since these are based on certain assumptions and expectations of futureevents the Company cannot guarantee that these are accurate or will be realised. Actualresults could differ materially from those express or implied. Important factors thatcould make difference to the Company's operations include raw material availability andits prices cyclical demand and pricing in the Company's principle markets changes inGovernment regulations tax regimes and disputes economic developments within India andthe countries in which the Company conducts business and other ancillary factors. TheCompany assumes no responsibility to publicly amend modify or revise any such statementson the basis of subsequent developments information or events. The Company disclaims anyobligation to update these forward-looking statements except as may be required by law.

Appreciation

Your Directors wish to acknowledge the co-operation and assistance extended to theCompany by the Company's Bankers and State & Central Government agencies. YourDirectors also acknowledge with gratitude the support of the shareholders otherinvestors customers dealers agents and suppliers for their continued faith and supportin the Company and its management.

For and on behalf of the Board of Director
Praful A. Shah
Chairman & Managing Director
Surat 30th May 2017 DIN:00218143