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Kandagiri Spinning Mills Ltd.

BSE: 521242 Sector: Industrials
NSE: KANDAGIRI ISIN Code: INE292D01019
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NSE 05:30 | 01 Jan Kandagiri Spinning Mills Ltd
OPEN 19.80
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VOLUME 150
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52-Week low 19.80
P/E
Mkt Cap.(Rs cr) 8
Buy Price 0.00
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Sell Price 19.80
Sell Qty 254.00
OPEN 19.80
CLOSE 20.80
VOLUME 150
52-Week high 43.95
52-Week low 19.80
P/E
Mkt Cap.(Rs cr) 8
Buy Price 0.00
Buy Qty 0.00
Sell Price 19.80
Sell Qty 254.00

Kandagiri Spinning Mills Ltd. (KANDAGIRI) - Director Report

Company director report

DIRECTORS' REPORT

Your directors have pleasure in submitting their 42 Annual Report together with theaudited accounts for the year ended March 31 2018 (the year).

Performance Highlights 2017 - 18 2016 - 17
(Rupees in Lakhs)
Export - Direct 803
– Merchandise 519
Domestic 5136 6379
Other Operating income 302 101
Total Turnover 5438 7803
Gross profit/(Loss) (i.e. Profit before interest and depreciation) (437) (650)
Cash profit/(Loss) (i.e. Profit / before depreciation) (1242) (1898)
Profit/(Loss) before exceptional Item and tax (1613) (2610)
Exceptional Item – Profit on sale of Windmill (85) 1545
Profit/(Loss) after exceptional Item (before tax) - PBT (1698) (1065)
Profit/(Loss) after exceptional Item and tax – PAT (1161) (1065)
Earnings per share - basic and diluted Rs. (30.17) (27.67)

Dividend

In view of the loss incurred during the year no dividend is recommended by your Boardof Directors for the financial year 2017-18.

Retained Earnings

The current year loss of Rs. 1161 lakhs and other comprehensive income of (Rs. 88lakhs) had been deducted from the retained earnings surplus at the beginning of the yearof Rs 550 lakhs and at the end of the year the retained earnings works out to negative ofRs. 699 lakhs.

Financial Performance with respect to Operational Performance:

During the financial year 2017-18 due to adverse market behaviour coupled with abnormalincrease in cotton prices and lower yarn prices Company in order to minimize the lossescautiously reduced its production and was able to achieve a turnover of Rs. 5438 lakhsonly as against the turnover of Rs. 7803 lakhs of the previous year 2016-17. ConsequentlyCompany is able to reduce its loss (as of previous year) from Rs.2610 lakhs to Rs.1613lakhs.

Company could have reduced it losses further but because of non-absorption of fixedcosts ended up in incurring loss of Rs.1613 lakhs during the FY 2017-18.

The continued losses over the past two years and heavy repayment of Bank term loansresulted in severe financial crisis and to overcome the situation with the approval ofthe Shareholders Company has undertaken sale of some of its assets. During the year saleof one of the Unit - Unit III was executed at a sale consideration of Rs.2100.00 lakhsand major portion of sale proceeds were utilised towards repayment of Principal andInterest Payments to Company's Bankers.

The loss on sale of Unit-III of Rs.85 lakhs added to the incurred loss of Rs.1613lakhs and the loss (before tax) for the financial year 2017-18 is Rs.1698 lakhs. Bydeduction of income tax expense of Rs.24 lakhs and taking deferred tax credit of Rs.561lakhs the net loss (after tax) arrives to Rs.1161 lakhs.

MANAGEMENT DISCUSSION AND ANALYSIS

The core business of the company is manufacture and sale of cotton yarn. The managementdiscussion and analysis given below discusses the key issues of the cotton yarn spinningsector.

(a) Industry structure and developments:

The textile Industry is facing lots of challenges and it is under transformation onfollowing grounds:

a) Excess spindle capacity due to unplanned expansion throughout the textile sectorsfrom supply chain such as Ginning spinning weaving and till the end user stage ofgarments.

b) Soaring cotton prices coupled with increasing wage costs and power costs.

c) Fast and quick fashion changes among consumers and other market dynamics.

d) Stiff price competition.

e) Entire textile industry is facing labour shortage due to labour migration andurbanisation of labour.

f) Previous year economic challenges such as GST impact and tail end effect ofdemonetisation.

(b) Outlook

In textile industry there will be an increase in demand due to increase in populationcoupled with vast potential domestic market. In addition to existing products lot ofvalue added product is expected to go up manifold in the market. Also there will be anexponential demand on technical textile products in the area of medical textilesautomobile textiles agricultural textiles flame retardant textiles and other wide rangeof applications

(.c.) Strategies and Future plans

With gradual improvement in the market behaviour from the fourth quarter of FY2017-18 Company increased its Capacity utilisation to its fullest capacity withproduction of special yarns like Viscose Polyester and Melange Varieties. The specialyarns are well received in the market with better selling prices than Cotton yarn andyield increased profitability.

Also cost reduction measures viz. private power purchase manpower reduction wasimplemented. Through Private power there is a substantial saving in the power cost.During the year Company has sold one of its unit- Unit III some of the non-core assetsand shares of Sambandam Spinning Mills Limited and the sale proceeds were utilised towardspayment of Bank dues.

After repaying substantial portion of Bank dues from the sale proceeds of Unit-IIIstill the Company has to service the interest costs for the remaining Bank debts. As arevival Plan Company is proposes to sell part of its assets and proportionately repay theBank's Working Capital limits.

With enormous reduction in the interest cost and functioning at full capacity withproduction of special yarns Company will be able to perform satisfactorily in thefinancial year 2018-19.

(d) Risks and Concerns

Your Company has devised risk management policy which involves identification of thebusiness risks as well as the financial risks its evaluation monitoring reporting andmitigation measures. The Audit Committee and Board of Directors of the Companyperiodically review the risk management policy of the Company so that management controlsthe risk through properly defined network. Head of Departments are responsible forimplementation of the risk management system as may be applicable to their respectiveareas of functioning and report to the Board and the Audit Committee. The details of riskmanagement mechanism and key risks faced by the Company are enumerated in the riskmanagement policy. Risk management policy is uploaded in the company's websitewww.kandagirimills.com.

(e) Internal control systems

The Company has in place a well established internal control procedures coveringvarious areas such as procurement of raw materials production planning quality controlmaintenance planning marketing cost management and debt servicing. Necessary checks andbalances have been instituted for timely correction with an effective internal auditsystem.

Your company is certified ISO 9001: 2008 for Quality Management System Standards(Manufacture and supply of yarn) and ISO 14001: 2004 for Environmental Management SystemStandards (the systems). Further your company's laboratory is also certified by NABL.

(f) Human resources management

Employees are your company's most valuable resource. Your Company continues to create afavourable environment at work place.

The company also recognises the importance of training and consequently deputes itswork force to various work related courses/seminars including important areas like TotalQuality Management (TQM) Technical skills etc.. The fact that the relationship with theemployees continued to be cordial is testimony to the company's ability to retain highquality workforce.

(g) Environmental Protection Health and Safety (EHS)

EHS continues to receive the highest priority in all operational and functional areasat all locations of your Company. Systematic process safety analysis audits periodicsafety inspections are carried out by expert agencies and suitable control measuresadopted for ensuring safe operations at the site. Various processes as required forPollution Control and Environmental Protection are strictly adhered to.

(h) Corporate Social Responsibility

Board of Directors of the Company has constituted Corporate Social Responsibility (CSR)Committee and devised a CSR policy to carry out CSR initiatives in line with therequirements specified under the Companies Act 2013. Since the Company has no average netprofit there is no CSR Obligation for the FY 2017-18. However Company has spent Rs. 0.54lakhs towards Unspent CSR obligation of FY 2015-16 and the details has been given in theannexure to this report. The CSR policy has been hosted on the website of the Companywww.kandagirimills.com.

Extract of Annual Return

The extract of annual return in Form MGT – 9 has been annexed with this report andforms part of this report.

Number of Board Meetings

The details pertaining to meetings of the Board has been explained under CorporateGovernance Report annexed to the director's report and forms part of this report.

Establishment of Vigil Mechanism

The Company has established a vigil mechanism for Directors and employees to reporttheir genuine concerns. The policy has been uploaded on the Company's website under theweb - link : http://www.kandagirimills.com/investors/ksml2014-wbp.pdf

Declaration by Independent Directors

Independent directors of the Company have submitted a declaration that each of themmeets the criteria of independence as provided in Sub-Section (6) of Section 149 of theAct. Further there has been no change in the circumstances which may affect their statusas Independent director during the year.

Secretarial Audit Report

Company appointed M/s B. K. Sundaram & Associates Practising Company Secretariesas Secretarial Auditors to conduct Secretarial Audit particularly with reference tocompliance with Companies Act 2013 and relevant SEBI Regulations for the financial year2017-18. The report of the Secretarial Audit for the financial year 2017-18 in FORM MR-3is annexed to this report and forms part of this report. There are no disqualificationsreservations or adverse remarks or disclaimers in Secretarial Audit report

Audit Committee

Details of Composition of Audit Committee are covered under Corporate Governance Reportannexed with this report and forms part of this report. Further during this year all therecommendations of the Audit Committee have been accepted by the Board.

Policy of Directors Appointment and Remuneration

Company's policy on Directors' appointment and remuneration including criteria fordetermining qualifications positive attributes independence of a director and othermatters provided under section 178(3) of the Act are covered under Nomination andRemuneration Policy and it is available in the web-link of the Companyhttp://www.kandagirimills.com/investors/ksml2015-nrp.pdf. Further information aboutelements of remuneration package of individual directors is provided in the extract ofAnnual Return as provided under Section 92(3) of the Act in prescribed form MGT-9 annexedwith this report and forms part of this Report.

Independent Auditors' Report

There is no qualification in the Independent Auditors' Report except IndependentAuditor has pointed out delay in repayment of Bank term loan principal and interest duesto the Bankers and non-remittance of Professional Tax deductions with the appropriateauthorities. With respect to delay in repayment of Bank term loan principal and interestdues your Directors wish to state that due to cash flow constraints there was delay inrepayment of Bank dues which has been subsequently paid off. With respect tonon-remittance of Professional Tax deductions it will be paid in due course.

With respect to ‘Emphasis of matter’ given in Independent Auditor’sReport the Management explanation is provided in note 45 of the notes to the Standalonefinancial statements and can be referred therewith.

Particulars of Employees

The information required under section 197 of the Act and rules made there-under inrespect of employees of as shown below:

(a) Employed throughout the year and in receipt of remuneration aggregating toRs.10200000 or more - Nil (b) Employed for part of the year and in receipt ofremuneration of Rs.850000 or more per month - Nil Note : Remuneration includes salaryand value of perquisites and nature of employment is contractual.

Managerial Remuneration

Statistical Disclosures pursuant to Rule 5 of Companies (Appointment and Remunerationof Managerial Personnel) Rules 2014 with subsequent amendments thereto is annexed withthis report and forms part of this report.

Related Party Transactions

Transactions entered with related parties have been explained in Form AOC -2 annexedwith this report and forms part of this report. Further Policy on dealing with RelatedParty Transactions has been uploaded on the Company's website under the web link:http://www.kandagirimills.com/investors/ksml2014-rptp.pdf

Board Evaluation

In accordance with the provisions of Companies Act 2013 and SEBI (LODR) Regulations2015 read with "Guidelines on Board Evaluation issued by SEBI vide its Circular dt.January 5 2017 In the separate meeting of the Independent directors performance ofnon-independent directors performance of the board as a whole and performance of theChairman was evaluated taking into account the views of executive directors andnon-executive directors.

The same was discussed and noted by the Board at the next Board Meeting followed themeeting of the Independent directors. Further Board carried out an annual evaluation ofits own performance Board committees and individual directors pursuant to the provisionsof Companies Act 2013 and SEBI (LODR) Regulations 2015 read with "Guidelines onBoard Evaluation issued by SEBI vide its Circular dt. January 5 2017

The performance of the Board was evaluated by the Board after seeking inputs from allthe directors on the basis of criteria such as the Board Composition and structureeffectiveness of the Board processes information and functioning etc. The performance ofthe Committees was evaluated by the Board after seeking inputs from the Committee memberson the basis of the criteria such as the composition of committees effectiveness ofcommittee meetings etc. The Independent Directors were evaluated without the presence ofthe director getting evaluated.

None of the Independent directors are due for reappointment.

Familiarisation Programme of the Independent Directors

Periodic presentations are made by Senior Management Statutory and Internal Auditorsat the Board / Committee meetings on business and performance updates of the Companyglobal business environment business risks and its mitigation strategy impact ofregulatory changes on strategy etc. Updates on relevant statutory changes encompassingimportant laws are regularly intimated to the Independent directors.

Deposits

The following are the details of deposits covered under Chapter V of the Act

.i. Deposits at the beginning of the year on 01 April 2017: Rs. 64.55 lakhs

ii. Deposits Accepted from shareholders during the year (2017 - 18): Rs. 5.00 lakhs

iii. Deposits repaid during the year (2017-18): Rs. 5.55 lakhs

iv. Deposits outstanding at the end of the financial year on 31 April 2018: Rs. 64.00lakhs

v. Remained unpaid or unclaimed as at the end of the year : NIL

vi. Any default in repayment of deposits or payment of interest thereon during theyear: NIL

Company has duly complied with the provisions of section 73 of the Companies Act 2013read with relevant rules with respect to fixed deposits.

Cost Audit Report

Cost Audit Report for the FY 2016-17 in XBRL format was filed with MCA on 19.08.2017vide SRN G50826718. CMA K.M. Krishnamurthy Cost Accountants were appointed as CostAuditors of the Company for the FY 2017-18 and the Cost Audit report for the year 2017-18in XBRL format will be filed with MCA well within the due date.

Though the turnover of the Company for the financial years 2016-17 & 2017-18 isbelow Rs. 100 Cr in accordance with the clarifications issued by Institute of CostAccountants of India vide Frequently Asked Questions (FAQs) dt. 19.03.2015 onapplicability of Maintenance of Cost Accounting Records and Cost Audit under CompaniesAct 2013 by the Companies on continuous basis on the recommendation of the AuditCommittee Board of Directors decided to continue the Cost Audit for the FY 2018-19.Accordingly on the recommendation of the Audit Committee Board has appointed CMA K.M.Krishnamurthy Cost Accountants as Cost Auditor for the FY 2018-19. Board places beforethe members the resolution for ratification of remuneration payable to the Cost Auditorfor the FY 2018-19.

Directors

During the year Chairman and Managing Director Sri R. Selvarajan resigned from theposition of Chairman of the Company and continues as Managing Director with effect from01.06.2017. Board of Directors at their meeting held on 06.05.2017 has elected Non-Executive Director Sri S. Devarajan as Chairman of the Company with effect from01.06.2017.

Independent Directors Sri S. Gnanasekharan and Sri Kameshwar M. Bhat were appointed atthe 38 AGM of the Company held on 28.09.2014 for a term of five consecutive years andshall hold office upto the conclusion of the 43 AGM of the Company. Further AdditionalDirectors (Non- Executive Independent) Dr. V. Sekar Dr. R. Ramarathnam and Sri D.Balasundaram appointed by the Board were appointed as Non-Executive

Independent Directors of the Company (not liable to retire by rotation) by the membersat the 41 AGM of the Company held on 12.08.2017 to hold office upto the conclusion of the45 AGM of the Company.

At the 41 AGM of the Company held on 12.08.2017 Non-Executive Director Sri M. Rajamanigot retired and Sri S. Sivakumar was appointed by the members as Non-Executive Directorliable to retire by rotation. Dr. (Mrs.) A. Sarayu Non-Executive Director retires byrotation this year and being eligible offers herself for reappointment.

The present term of Managing Director Sri R. Selvarajan expires on 30 September 2018.Nomination and Remuneration Committee at its meeting held on 27.05.2018 has recommendedthe reappointment of MD for a period of three years. Board of Directors has included theresolution for reappointment of MD in the notice of the ensuing 41 AGM for the approval ofthe members.

Company's Code of Conduct applicable to the board has been adopted by the board and alldirectors of the company have confirmed compliance with the Code of Conduct

Key Managerial Personnel

Members at the AGM held on 27.09.2015 approved the revision in the remuneration packageof Managing Director Sri R. Selvarajan and Chief Financial Officer and Non –Executive director Sri S. Vijay Shankar. Sri S. Vijay Shankar receives remuneration onlyin his capacity as Chief Financial Officer and do not receive any sitting fees etc. inhis capacity as non-executive director. In view of the unsatisfactory financialperformance of the Company MD and CFO had forgone their increase in salary as a gesture.Further CMD and CFO had waived their salary during the major part of this financial year.

Auditors

The auditors M/s R. Sundararajan & Associates Chartered Accountants retire atthe ensuing annual general meeting and have confirmed their eligibility and willingness toaccept office if reappointed. On the recommendation of the Audit Committee yourCompany's Board is placing the resolution u/s 139(2) of the Company's Act 2013 forreappointing them as statutory Auditors of the Company from the financial year 2018-2019to 2021-2022.

Particulars of Loans Guarantees or Investments under Section 186 of the Companies Act2013

Details of loans guarantees and investments covered under the provisions of Section186 of the Companies Act 2013 are given in note 43 to the notes to the financialstatements.

Disclosure as per Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013

The Company has zero tolerance for sexual harassment at workplace and has adopted apolicy on prevention prohibition and redressal of sexual harassment at workplace in linewith the provisions of Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013 and the rules framed thereunder. The Company has set up aCommittee for addressing issues related to women and during the financial year 2017-18there were no complaints received on sexual harassment.

Performance of Associate Company

Your Company has an associate M/s SPMM Healthcare Services Private Limited within themeaning specified under Section 2 (6) of Companies Act 2013. M/s SPMM Healthcare servicesprivate Limited has recorded a total revenue of Rs.437.73 lakhs during the year 2017-18 asagainst Rs.374.39 lakhs in the previous year and profit after tax of Rs.20.88 lakhs duringthe year 2017-18 as against Rs.17.97 lakhs in the previous year. A separate statementcontaining the salient features of the financial statement of the associate in FORM AOC -1has also been annexed with this report as per the requirements of provisions of section129 of the Companies Act 2013 and forms part of this report.

Significant And Material Orders Passed By The Courts Or Tribunals Impacting The Company: NIL

Material Changes and Commitments during the year if any

There were no material changes and commitments between the end of the period underreview and the date of this report which could have an impact on the Company's operationin the future or its status as a "going concern".

Annexures to this Report

The following are the annexures to this report

1. Director's Responsibility Statement in Annexure - 1

2. Conservation of energy technology absorption Research and development and foreignexchange earnings and outgo in Annexure - 2

3. Statement containing salient features of the financial statement of associatecompany (Form AOC – 1) in Annexure - 3

4. Form AOC - 2 in Annexure - 4

5. Extract of Annual Report (Form MGT-9) in Annexure - 5

6. Secretarial Audit Report (Form MR-3) in Annexure-6

7. Details of CSR Expenditure in Annexure - 7

8. Particulars of Remuneration in Annexure - 8

9. CEO/CFO Certification in Annexure - 9

10. Corporate Governance Report in Annexure - 10

Cautionary Note

Statements in the Directors' report and the management discussion and analysisdescribing the Company's objectives expectations or predictions may be forward lookingwithin the meaning of applicable securities laws and regulations. Actual results mightdiffer materially from those either expressed or implied in the statement. Importantfactors that could influence the Company's operations include global and domestic demandand supply conditions affecting selling prices of finished goods input availability andprices changes in government regulations tax laws economic developments within thecountry and other related factors such as litigation and industrial relations.

Acknowledgement

Directors of your Company record their sincere appreciation of the dedication andcommitment of all employees in achieving and sustaining excellence in all areas of thebusiness. Your directors thank the Shareholders Customers Suppliers Bankers and otherstakeholders for their continued support during the year. Your Company's consistentperformance has been made possible by the hard work solidarity cooperation and supportof the management team. The directors of your company thank State Bank of India KarnatakaBank Limited and Axis Bank Limited Central/State Governments and other governmentagencies for their support and look forward to their continued support in future.

For and on behalf of the Board
Salem S. Devarajan
May 27 2018 Chairman