To the Members
Your Directors take pleasure in presenting the 23rd Annual Report on thebusiness and operations together with audited statements of Accounts of the Company forthe financial year ended 31 March 2020.
The summarized financial results of the Company for the financial year 2019-20 aregiven hereunder.
(Rs. in lacs)
| ||2019-20 ||2018-19 |
|Sales & other income ||75350.53 ||80230.95 |
|Operating Profit ||12732.74 ||16439.44 |
|Interest ||3043.39 ||2837.97 |
|Gross Profit ||9689.35 ||13601.47 |
|Depreciation ||3170.16 ||2512.53 |
|Profit before tax ||6519.19 ||11088.94 |
|Provision for || || |
|- Current Tax ||1206.96 ||2476.08 |
|- Deferred Tax ||(1868.17) ||818.98 |
|Net Profit after tax ||7180.58 ||7793.88 |
|Other comprehensive Income (Expense) ||(12.97) ||(11.25) |
|Total comprehensive Income (Expense) for the year (Net of Income Tax) ||7167.61 ||7782.63 |
Your Directors have proposed a dividend of Rs. 2.50 per share (previous year Rs. 5.00per share of Rs. 10/-* each) on the Equity Shares of Rs. 10/- each and Re. 1.00 per share(previous year Re. 1.00 per share) on the Non-Cumulative Redeemable Preference Shares ofRs.10/- each for the financial year ended 31 March 2020 amounting to Rs. 518.16 lacs(previous year Rs. 887.67 lacs).
*As the shareholders have approved the Sub-division of each equity share having nominalvalue of Rs.10/- (Rupees Ten Only) into 10 (Ten) equity shares having nominal value of Re.1/- (Rupee One Only) each in EGM held on 10.06.2020. The face value of share will be Re.1/- (Rupee One Only) each with effect from the record date i.e. 15 July 2020.
During the year under review your Company has achieved a production of 126633 metrictonnes as against 127756 metric tonnes in the previous year. The quantitative figurefor the sale of paper was 125267 metric tonnes this year leaving 1730 metric tonnes asclosing stock as against the sale of 127390 metric tonnes in the previous year.
From the 2nd quarter onwards there had been a slowdown in the economy thoughconsidered temporary at time but the economy did not recover and the markets werechallenged by consumption and demand and fairly high effect of a liquidity crunch. Thesales realization has been impacted by about 10% after the first quarter over the previousyear. There has also been increase in the material and input costs. Despite this improvedoperational efficiencies better productivity and product quality higher volumes ofpremium quality paper products like copier and surface sized paper and enriched productmix coupled with better operating parameters have contributed to better sales as well asprofitability.
Towards the fag end of the year the performance did get impacted due to COVID-19pandemic outbreak resulting in a Nationwide lockdown and curfew imposed in the variousparts of the country during March 2020 to prevent novel coronavirus (COVID-19) fromspreading in the country. This clearly affected our chance to get past the quantitativefigures of the previous year.
The figures given in the Financial statements for the current year under review showthe following:
The company recorded a net sales turnover (net of GST) and including other income atRs. 75350.53 lacs; operating profit at Rs. 12732.74 lacs; Profit before Tax at Rs.6519.19 lacs. Net profit after tax and other comprehensive income (expense) is Rs.7167.61 lacs. The profit after tax for the year under review is higher due to the lowerincome tax culminating from the reduced tax rates announced by the Govt. in September 2019in order to offer tax stimulus to the industry. Further Section 115 BAA of theIncome Tax Act 1961 introduced by Taxation Laws (Amendment) Ordinance 2019 gave aone-time irreversible option to Domestic Companies for payment of corporate tax at reducedrates. In view of the MAT Credits the Company determined that it will continue torecognize tax expense at the existing income tax rate as applicable to the Company.Accordingly the Company had evaluated the outstanding deferred tax liability (net) as at31 March 2019 and based on current estimates re-measured the deferred taxassets/liabilities likely to be reversed at the time the Company would opt for new taxregime which had resulted in write back of deferred tax liability amounting to Rs.1956.22 lacs using the revised annual effective income tax rate.
The initiatives taken by your company in the recent years in improving productivity andoperational efficiencies have led to achieving the above operational performance despitethe odds set out in the marketplace. The company has continued to take up projects infocused areas for operational improvement and this has also led to improved operationalefficiencies productivity reduction in operational costs and sizeable increase insavings.
The results of cost reduction initiatives and operational efficiencies will continue tobe even more visible in the current financial year 2020-21 as your company has continuedthese initiatives to optimize capacity utilization cost reduction new productsoptimizing production of better margin products by further undertaking modification andup-gradation of the pulp mill the chemical recovery plant and a captive 20 MW power plantat a large outlay of Rs 440 crores for improving the cost effectivity process efficiencyproduct quality and betterment in operations.
Your company has also launched an extensive array of branded Specialty Papers whichhave been well received in the market. Kuantum now has amongst the largest portfolio ofpaper products available to a company in India. The company sells its products through itswide distribution network by way of dealers located and spread across the country andmaintains a strict policy over collections. The company produces entirely against orderscollected in advance which is reflected in the extremely low sometimes even nil level offinished stock inventory.
These initiatives have made your company not only one of the most cost competitivepaper mills but is also positioned competitively amongst the large paper player in thewriting and printing segment. Furthermore continuous research & development haveenabled the company to manufacture papers of distinctive prime quality and broader productmix which is competing with the premium quality of other large paper mills.
The detailed performance of Company's operations for the year ended 31 March 2020 hasbeen stated in the Management Discussion & Analysis which appears as a separatestatement in the Annual Report.
In the calendar year 2020 demand for paper and board (writing and printing or W&Ppaperboard and newsprint) is expected to be subdued on account of the Covid-19pandemic-led disruptions across the globe. In China which had almost one-third of paperdemand it is expected to fall too due to strict shutdown coupled with lower exportopportunities. The US and the EU which together account for almost 40% of global demandare also expected to witness demand contraction due to the pandemic-driven lockdown. In2020 CRISIL expects paper and board to de-grow due to moderation of global growth leadingto lower demand from end-user industries. However in 2021 CRISIL expects demand torebound to 5-6% driven by strong growth in the paper and paperboard segment.
CRISIL Research expects paper and paperboard capacity to increase to about 22-23million tonne by fiscal 2025 an increase of 1% CAGR from fiscal 2020. Key players areexpected to add an aggregate of 0.5-1.5 million tonne of capacities over the next 5 yearperiod in the paper and paperboard segment. However on account of a sudden plunge in thedemand environment CRISIL expects players to defer capacity additions until demandimproves.
The Indian paper industry accounts for about 4% of the world's production of paper. Theestimated turnover of the industry is INR 70000 crore (domestic market size of INR 80000crores) and its contribution to the exchequer is around INR 5000 crore. The industryprovides direct employment to 500000 persons and indirectly to around 1.5 million.
Most of the paper mills are in existence for a long time and hence present technologiesfall in a wide spectrum ranging from oldest to the most modern. The mills use a variety ofraw material viz. wood bamboo recycled fibre bagasse wheat straw and agro residues. Interms of share in total production approximately 25% are based on wood 58% on recycledfibre and 17% on agro-residues. The geographical spread of the industry as well as marketis mainly responsible for regional balance of production and consumption.
Consumption of paper is closely linked to the economic development of a country. InIndia though the per capita consumption of paper is low it is gradually improving witheconomic growth. Industrial production expenditure incurred on the print mediagovernment spending on education population growth and literacy levels are the keycontributing factors.
The individual segments are expected to grow as follows:
CRISIL Research expects paper and board (including newsprint) demand to de-grow infiscal 2021 because of the Covid-19 pandemic-led lockdown. The specialty segment is theonly one expected to grow 8-11% on-year driven by increased tissue demand.
CRISIL Research estimates moderation in industrial activity as well as exports to havemoderated paper demand to a muted 1-3% in fiscal 2020. Nevertheless we expect demand torecover and grow at a faster paced 5 year CAGR of 5-6% to ~22 million tonne by fiscal2025.
Demand will be led by healthy growth in paperboard volume which is expectedclock 4.5-5.5% CAGR over the next 5 years. This growth would be driven by increasedvolumes in end-user segments such as household appliances fast-moving consumer goods(FMCG) ready-made garments pharmaceuticals and e-commerce.
W&P demand is expected to increase at 4-5% CAGR on the back of increasedgovernment (on education sector) and corporate spending.
Specialty paper (majorly tissue and thermal paper) is expected to continue tolog a robust 10-12% CAGR. Players are likely to focus towards such segments where demandis expected to remain robust in the medium term.
Demand for copier paper (20% of the W & P segment) is expected to increaseat 7-8% CAGR through fiscal 2025.
Demand growth for coated paper is expected to remain moderate at 2-3% CAGR.
Printing and Writing segment demand is expected to grow on account of pick-up from theeducation sector with improving literacy rates and universalization of education throughlegislative steps like Right to Education government measures i.e. Sarva Shiksha Abhiyanmid-day meal schemes Girl Education Programme (GEP) growing enrolment as well asincreasing number of schools colleges and institutions rising enrolment numbers andincreased spending on education by all sections of the society is expected to lead to anincreased expenditure on textbooks notebooks.
The industry is classified into four segments Printing & Writing (P&W)Packaging Paper & Board Specialty Papers & Others and Newsprint. The Printingand Writing (P&W) paper segment forms 30% of domestic paper market Packaging Paper& Board segment accounting for 51% in India and is the largest segment in theindustry. Specialty paper & others is the smallest segment accounting for only 4% ofthe industry and the Newsprint segment comprises 15% of the Indian Paper Industry.
(a) PROJECTS AND TERM LOANS
The members were informed in the last report that the company has taken upimplementation of Capex projects for modification up-gradation of paper machines andother equipment and cost reduction initiatives at a project cost of Rs. 192.00 crores(later on revised to Rs. 200.57 crores) and is funded by Term Loans of Rs. 144.00 croresand internal accruals of Rs. 48.00 crores (revised to Rs. 56.57 crores). These projectshave been commissioned during the year under review.
The members were also informed that considering the strong fundamentals of the paperIndustry and its growth potential the company has taken up the implementation forexpansion and enhancement of the production capacity to 148500 TPA expanding its agropulp and hard wood pulp streets setting up an additional chemical recovery plant and acaptive power plant thereby sustaining competitiveness in capacity and qualityenhancement cost reduction and improving margins and profitability of the Company. Theproject cost was envisaged at Rs. 444.04 crores which was proposed to be financed by debtof Rs. 350.00 crores (now revised to Rs. 333.00 crores) and internal accruals of Rs. 94.04crores (now revised to Rs. 111.04 crores). The Term Loan of Rs. 333.00 crores weresanctioned by Banks and the disbursement is under way. The capex projects were envisagedto be completed and commissioned in June 2020 but due to Covid-19 pandemic outbreaknationwide lockdown and curfew in various states including Punjab from March 2020 to May2020 a delay in the commissioning of the capex projects is anticipated. The work at sitehas resumed after relaxations in the lockdown. As per the current assessment with thetimely equipment supplies availability of adequate workforce as also timely payment ofvendors and contractors the capex projects are now scheduled for commissioning bySeptember 2020. Further the company does not anticipate any cost over run in the projectsand time over run is also due to reasons beyond its control. With the commissioning ofthese capex projects the operational performance of the company will improvesignificantly.
(b) WORKING CAPITAL
Banks have sanctioned the enhanced working capital limits amounting to Rs. 14949 lacs(fund based Rs. 5500 lacs non-fund based Rs. 7655 lacs and LER/CEL limits of Rs. 1794lacs) during the year under review.
(c) FIXED DEPOSITS
As on 31 March 2020 your Company had Fixed Deposits of Rs. 3969.29 lacs. There wereno overdue deposits as on 31 March 2020.
The above deposits have been accepted for a period of 1 year to 3 years as per theFixed deposit Scheme duly approved by the Board in its meeting held on 29 May 2019pursuant to the compliance of the provisions of Companies Act 2013 read with theCompanies (Acceptance of Deposit) Rules 2014.
Details of Deposits:
(a) Accepted (including renewals) during the year- Rs. 2414.93 lacs
(b) Remained unpaid or unclaimed as at the end of the year- Nil
There has been no default in repayment of deposits or payment of interest thereonduring the year. EXTERNAL CREDIT RATING
During the year under review CARE Ratings Limited (CARE) has reviewed the externalcredit rating for the Long term Short term Bank facilities and Fixed Deposits of thecompany and has reaffirmed the rating. The facility wise rating is as under:
|Facilities ||Amount (Rs./Cr) ||Rating |
|Long term Bank Facilities ||634.69 ||CARE A-; Negative (A minus; Outlook: Negative) |
|Short term Bank Facilities ||94.49 ||CARE A2+ (A Two Plus) |
|Fixed Deposits ||45.00 ||CARE A-(FD); Negative (A minus (Fixed deposit); Outlook Negative) |
CHANGE IN THE NATURE OF BUSINESS
There is no change in the nature of business.
No material changes or commitments affecting the financial position of the Company haveoccurred during the year under consideration or after closure of the financial year tillthe date of this report. However the operations for the current year FY 2020-21 will beimpacted due to the closure of operation in April/May 2020 due to Covid-19 pandemicoutbreak nationwide lockdown and curfew in various states including Punjab from March2020 to May 2020. Your company will not be able to cover the production loss in thesemonths since it has already been operating at optimum capacity utilisation.
HOLDING/ SUBSIDIARIES/ JOINT VENTURES/ ASSOCIATES COMPANIES
Your Company does not have any subsidiary/joint ventures or associate company withinthe meaning of the Companies Act 2013. Kapedome Enterprises Limited is the holdingcompany having 66.51% equity capital of the company.
CORPORATE SOCIAL RESPONSIBILITY
Pursuant to Section 135 of the Companies Act 2013 and the relevant rules the Boardof Directors of your Company has an existent constituted CSR Committee. The CSR Policy hasbeen framed by the Company which is placed on its website.
In pursuance of the Companies Act 2013 and in alignment with its vision the Companythrough its CSR initiatives will continue to enhance value creation in the society and inthe community in which it operates through its services conduct and initiatives so asto promote sustained growth for the society and community.
During the year under review the company has spent an amount of Rs. 96.42 lacs on theprojects covered under CSR activities. The CSR expense required under the relevantprovisions up to 31 March 2020 was Rs. 290.00 lacs including Rs. 87.87 lacs from theprevious year. The work on several projects is already underway and the balance amountwill be spent in the current year. Disclosures as per Rule 9 of the Companies (CorporateSocial Responsibility Policy) Rules 2014 are given in the Annual Report on CSR activitiesat 'Annexure- A'.
Section 177(9) of the Companies Act 2013 and Regulation 22 of the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 Inter alia provides for amandatory requirement for all listed companies to establish a mechanism called the'Whistle Blower Policy' for Directors and employees to report concerns of unethicalbehavior actual or suspected fraud or violation or the Company's code of conduct orethics policy. In line with this requirement the Company has framed a WhistleBlower Policy which is placed on the Company's website.
RISK MANAGEMENT COMMITTEE
In line with the new regulatory requirements the company has framed a 'Risk ManagementPolicy' to identify and assess the key risk areas monitor and report compliance andeffectiveness of the policy and procedure. A Risk Management Committee has also beenconstituted to oversee this process.
The Company manages monitors and reports on the principal risks and uncertainties thatcan impact its ability to achieve its strategic objectives. The Company's risk managementsystems and programs comprises of various processes structures and guidelines whichassist the Company to identify assess monitor and manages its risks including anymaterial changes to its risk profile. To achieve this the Company has clearly defined theresponsibility and authority of the Company's Management and the Risk Management Committeeto oversee and manage these Programs. The company has taken Industrial All Risk Policy toinsure its fixed assets and inputs that cover known and unknown risk including fire.Details of the various risks which can affect the Company's business and the management'sperception are more elaborately given in the 'Management Discussion & Analysis'attached to this Report.
INTERNAL FINANCIAL CONTROL SYSTEM
Effective and strong internal control systems are developed in the Company for all themajor processes to ensure reliability of financial reporting safeguarding of assets andeconomical and efficient use of resources as also the compliance of laws regulationspolicies and procedures.
The Company's internal control systems are reviewed by M/s A. Gandhi and Associatesinternal auditors an independent firm of Chartered Accountants. The Internal Auditorindependently evaluates the adequacy of internal controls through periodic reviews thatcover all the functions and processes through reviewing major transactions. The InternalAuditors reports directly to the Audit Committee to ensure complete independence.
RELATED PARTY TRANSACTIONS
All related party transactions are entered at arm's length basis and are as per theapplicable provisions of the Companies Act Indian Accounting Standards and the ListingRegulations. The company has entered into transactions towards material procurement withits holding company amounting to Rs. 4160.74 lacs (inclusive of GST) and with anothercompany amounting to Rs. 1655.44 lacs (inclusive of GST) [Refer Note 40 'C to theFinancial Statements] which are at arm's length. No materially significant related partytransactions have been entered by the Company with Promoters Directors or Key ManagerialPersonnel which had potential conflict with the interest of the Company at large. Astatement of all related party transactions is presented before the Audit Committee on aquarterly basis duly certified by the CEO and CFO. The Related Party Transactions Policyas approved by the Board is placed on the Company's website.
The details of the related party disclosures and transactions as prescribed in FormAOC-2 are given in the Note No. 40 of the notes on Financial Statements. All the relatedparty transactions are done at arm's length and pertain to the FY 2019-20.
SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS
There are no significant and material orders passed by the Regulators Courts orTribunals which would impact the going concern status of the Company and its operationsin future.
CHANGE IN THE DIRECTORSHIPS
Shri Yashovardhan Saboo has resigned from the directorship of the Company during theyear w.e.f. 07.08.2019. The Directors place on record their appreciation of the valuableadvice and guidance given by him during his tenure.
Further in accordance with the provisions of the Companies Act 2013 and Articles ofAssociation of the Company Shri Jagesh Kumar Khaitan shall retire by rotation at theforthcoming Annual General Meeting and is eligible for re-appointment.
DECLARATION BY INDEPENDENT DIRECTORS
The Independent Directors have submitted their disclosures to the Board that theyfulfill all the requirements as stipulated in Section 149(6) of the Companies Act 2013and the applicable provisions of SEBI (Listing Obligation and Disclosure Requirements)Regulations 2015 so as to qualify themselves to act as Independent Director under theprovisions of the Companies Act 2013 and SEBI (Listing Obligation and DisclosureRequirements) Regulations 2015 and the relevant rules.
INDUCTIONS & TRAINING OF BOARD MEMBERS
In terms of Regulation 25(7) of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 the Company familiarized the Independent Directors in thefollowing areas:
(a) Nature of the industry in which the entity operates;
(b) Business model of the entity;
(c) Roles rights responsibilities of independent directors.
The Independent Directors have visited the Company's Plant during the year to enablethemselves to be conversant with manufacturing operations and processes.
Presentations are made to the Board/Committees of the Board on regular intervals whichinter alia cover business strategies & reviews operations Industry developmentsmanagement structure quarterly and year to date financial results budgets/businessplans review of Internal Audit and risk management framework.
Further as per Regulation 46(2) (i) of SEBI (Listing Obligations & DisclosureRequirements) 2015 the required details are as follows:
|Details of familiarization programmes imparted to independent directors ||FY 2019-20 ||Cumulative till date |
|Number of programmes attended by independent directors ||4 ||25 |
|Number of hours spent by independent directors in such programmes ||6 ||38 |
PERFORMANCE EVALUATION OF THE DIRECTORS AND MEETING OF INDEPENDENT DIRECTORS
Nomination Remuneration and Evaluation policy has been framed by the Nomination andRemuneration Committee. This Committee has laid down the criteria for performanceevaluation of the individual Directors as well as the Board. The framework of performanceevaluation of the Directors captures the following points:
(a) Performance of the directors and key attributes of the Directors that justifyhis/her extension/continuation on the Board of the Company.
(b) Participation of the Directors in the Board proceedings and their effectiveness.
(c) Fulfillment of the independence criteria and their independence from the managementas specified in SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015(including any statutory modification(s) or enactment thereof for the time being in force)in case of Independent Directors.
The Board adopted a formal mechanism for evaluating its performance as well as of itsCommittees and individual Directors including the Chairman of the Board. The exercise wascarried out through a structured evaluation process covering various aspects of theBoard's functioning such as composition of the Board and Committees experience andcompetencies performance of specific duties and obligation governance issuesparticipation and effectiveness.
During the year under review a meeting of Independent Directors could not be held dueto Covid 19 pandemic outbreak Nationwide lock down and imposition of curfew. Theperformance of the Non Independent Directors and the Board as a whole vis-a-vis theperformance of the Chairman of the Company was reviewed by the Independent Directors.
DISCLOSURES ON BOARD EVALUATION:
i. Observations of Board Evaluation carried out for the year:
In conformity with the evaluation policy and laid down parameters the overallcontribution of each Director was assessed as satisfactory and appreciable. Thesuggestions participation involvement and constant efforts of each director in the lightof improving business operations and overall growth and development of the Company wasreally significant.
ii. Previous year's observations and actions taken:
There was no observation of the Board with regard to the previous year. However it hasbeen the endeavor of the Board of Directors of the Company to attain the highest level oftransparency accountability and integrity as well as utmost applicable legal and ethicalstandards in the functioning of the Company with a view to create value that can besustained continuously for the benefit of its stakeholders.
iii. Proposed actions envisaged:
The Company proposes to hold more trainings presentations and interactions enablingthe Directors to uphold highest standards of integrity & probity and strict adherenceof the Companies Act SEBI (Listing Obligations and Disclosure Requirements) Regulationsand other rules and regulations besides Company's Code of Conduct as also to strive forconstructive effective and value-added deliberations at the meetings as also toconsistently strive to implement best corporate governance practices reflecting its strongvalue system and ethical business conduct.
NOMINATION REMUNERATION AND EVALUATION POLICY
The Board has on the recommendation of the Nomination and Remuneration Committeeapproved a policy for selection appointment remuneration and evaluation of DirectorsSenior Management and Key Managerial Personnel. Details of the Nomination and RemunerationCommittee are given in the Corporate Governance Report. The Nomination Remuneration andEvaluation Policy as approved by the Board is placed on the Company's website
PREVENTION OF SEXUAL HARASSMENT POLICY
The Company has in place a 'Prevention of Sexual Harassment Policy' pursuant to theSexual Harassment of Women at workplace (Prevention Prohibition and Redressal) Act 2013.Internal Complaints Committee has been set up to redress complaints received regardingsexual harassment. All employees (Permanent contractual temporary trainees) are coveredunder this policy. No complaint has been received during the year under review.
NUMBER OF MEETINGS OF THE BOARD
During the year 5 (Five) Board meetings were convened and held. Details of number ofmeetings of Board of Directors and committees thereof and the attendance of the Directorsin such meetings are provided under the Corporate Governance Report. The intervening gapbetween the meetings was within the period prescribed under the Companies Act 2013.
COMPOSITION OF AUDIT COMMITTEE
The Audit Committee constituted by the Board comprised of three Independent Directorsand one Executive Directors as at 31 March 2020.
During the year 4 (four) Audit Committee meetings were convened and held. The detailsof the Audit Committee meetings attendance of the members and terms of reference areprovided in the Corporate Governance Report. The intervening gap between the meetings waswithin the period prescribed under the Companies Act 2013.
STATUTORY AUDITORS & AUDITOR'S REPORT
As per the provisions of section 139 of The Companies Act 2013 other relevant rulesand as per resolution passed by the shareholders the term of office of M/s BSR & Co.LLP Chartered Accountants (ICAI Firm Registration No. 101248W/W-100022) StatutoryAuditors of the Company who were reappointed for a period of five years at the 18thAnnual General Meeting of the company expires with the conclusion of ensuing AnnualGeneral meeting.
As M/s BSR & Co. LLP (ICAI Firm Registration No. 101248W/W-100022); can not act asa statutory auditor of the Company after the completion of their second term which is uptothe conclusion of 23rd AGM as per the provisions of Companies Act 2013 the company hasreceived offer from M/s O P Bagla & Co. LLP Chartered Accountants (ICAI FirmRegistration No. 000018N/N500091) for appointment of Statutory auditors of the company fora period of five years from the conclusion of 23rd Annual General Meeting till theconclusion of 28th Annual General Meeting. The Company has received a letter from them tothe effect that their appointment if made would be within the prescribed limits undersection 139 of the Companies Act 2013 and that they are not disqualified for suchappointment within the meaning of section 141 of the Companies Act 2013.
STATUTORY AUDITOR'S REMARKS
(i) The Auditor's Report to the Members on the Audited Financial Statements of theCompany for the year ended 31 March 2020 contains the following qualification (s):
We draw attention to the fact that the Company has during the period January - March2020 given advances amounting to Rs. 1522.30 lakhs to its holding company which ishaving two directors of the Company holding more than 25% shares of the holding companyapart from also being its directors for supplies of certain raw materials to the Companyas advance for supply of goods. The amount outstanding on 31 March 2020 of Rs.1840.30 lakhs have been received back subsequent to the year-end. In addition theCompany has also issued a corporate guarantee of Rs. 1679.00 lakhs in relation to a loantaken by its holding company. We have not been able to obtain sufficient and appropriateaudit evidence to verify the nature and business rationale of the aforesaid advance givenby the Company and also the end use of the loan by the holding Company in relation towhich the aforesaid corporate guarantee was provided. Accordingly we are unable tocomment on whether these transactions with the holding company comply with applicable lawsand regulations including section 177(4) 185 186(7) of Companies Act 2013 andRegulation 23 of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015as amended ('Listing Regulations') and the consequential impact if any on the annualfinancial results for the year ended and as at 31 March 2020.
In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects of the matter described in the Basis for QualifiedOpinion section of our report the aforesaid financial statements give the informationrequired by the Companies Act 2013 (Act) in the manner so required and give atrue and fair view in conformity with the accounting principles generally accepted inIndia of the state of affairs of the Company as at 31 March 2020 its profit and othercomprehensive income changes in equity and its cash flows for the year ended on thatdate.
STATUTORY AUDITOR'S REMARKS ON THE INTERNAL FINANCIAL CONTROLS RELATING TO THE ABOVEMATTER
(i) According to the information and explanations given to us and based on our auditthe following material weakness has been identified as at 31 March 2020:
a) The Company did not have appropriate internal control for advances and guaranteesprovided to its holding company which could potentially result in non-compliance withapplicable provisions of the Companies Act 2013 and SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 as amended and in potential materialmisstatements in the Company's financial statements.
A 'material weakness' is a deficiency or a combination of deficiencies in internalfinancial control over financial reporting such that there is a reasonable possibilitythat a material misstatement of the company's annual or interim financial statements willnot be prevented or detected on a timely basis.
In our opinion because of the effects/possible effects of the material weaknessdescribed above on the achievement of the objectives of the control criteria the Companyhas not maintained adequate internal financial controls with reference to financialstatements and such internal financial controls were not operating effectively as at 31March 2020 based on the internal financial controls with reference to financialstatements criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting issued by the Institute of Chartered Accountants of India.
We have considered the material weakness identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the 31 March 2020financial statements of the Company and the material weakness has affected our opinion onthe financial statements of the Company and we have issued a qualified opinion on thefinancial statements.
The company placed orders for purchasing certain goods and materials required for itsmanufacturing operations but due to the overall slowdown in the economic activity in theinstant period Covid-19 pandemic outbreak curfew in the state of Punjab followed bynationwide lockdown in March 2020 and subsequent months the envisaged supplies could notbe completed by the Holding company. The holding company has supplied goods and materialamounting to Rs. 4160.74 lakhs during the period under review leaving an advance againstsupplies outstanding of Rs. 1840.30 Lakhs as at 31 March 2020. However such advanceagainst supplies remaining outstanding has been received back completely.
The company has furnished corporate guarantee after taking the due approval from theBanks in terms of financial loan covenants and shareholders of the company for a loan ofRs. 1679.00 lakhs taken by the Holding Company from a Bank for acquiring premises for itsbusiness purposes in Delhi. The company acquired the assets and the payment was directlyreleased by the Bank to the seller and the asset is appearing in the audited financialstatements of the holding company for the year ended 31 March 2019 under the HeadNon-Current Assets- (Fixed Assets-Investment property). The end use of theloan is for the purpose for it was sanctioned and disbursed by the Bank. Further as perthe relevant applicable laws the depreciation has been availed on the asset.
Based on the above the management clearly believes that the Company's internalfinancial controls in its entirety including in respect of these transactions wereoperating effectively and there is no material weakness in such controls and procedures.
The Notes on Accounts referred to in the Annexure to the Auditor's Report areself-explanatory and do not call for any comments.
M/s R.J. Goel & Co. Delhi were appointed as Cost Auditors for conducting the costaudit of the Company for the year ended 31 March 2020. The Company's Cost Audit Report forthe year ended 31 March 2019 was filed on 22.08.2019 (Due date 30.09.2019). The said firmhas been appointed as cost auditors of the Company for the financial year 2020-21 as well.
M/s S.K. Sikka & Associates Company Secretaries had been appointed as SecretarialAuditors to conduct Secretarial Audit of the Company and have submitted the SecretarialAudit Report for the year ending 31 March 2020 which is annexed to this Board's Report asAnnexure-2.
As per amended SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015in addition to the above mentioned Secretarial Audit Report listed company is alsorequired to obtain an Annual Secretarial Compliance Report from a practicing CompanySecretary w.r.t. the compliances of all applicable SEBI Regulations amendments circularsor guidelines etc. by the Company. Accordingly the same has been obtained and filed withthe concerned Stock Exchanges.
Further pursuant to SEBI (Listing Obligations and Disclosures Requirements)Regulations 2015 read with Securities and Exchange Board of India (Listing Obligationsand Disclosures Requirements) (Amendment) Regulations 2018 the Company is required toobtain a certificate from Practicing Company Secretary that none of the directors on theboard of the company have been debarred or disqualified from being appointed or continuingas directors of companies by the Board/Ministry of Corporate Affairs or any such statutoryauthority. The declaration in this regard has been obtained from all the Directors andaccordingly the said Certificate has been obtained from the M/s S.K. Sikka &Associates Company Secretaries which is annexed to this Board's Report as Annexure-3.
Pursuant to Section 204 of the Companies Act 2013 M/s S.K. Sikka & AssociatesCompany Secretaries have been appointed as Secretarial Auditors to conduct SecretarialAudit of the Company for the financial year ending 31 March 2021.
During the year under review the Company has not issued any equity shares withdifferential rights sweat equity shares or employee stock option.
The shareholders have approved the Sub-division of each equity share having nominalvalue of Rs.10/- (Rupees Ten Only) into 10 (Ten) equity shares having nominal value of Re.1/- (Rupee One Only) each in the extraordinary general meeting held on 10.06.2020 theface value of shares would be Re. 1/- (Rupee One Only) from the record date i.e. 15 July2020.
Provision of money by Company for purchase of its own shares by employees or bytrustees for the benefit of employees is not applicable to the Company.
There is no change in the Equity and Preference share capital during the year underreview.
During the year the Company has redeemed 300 unlisted Secured Non-ConvertibleRedeemable Debentures (NCDs) at a face value of Rs. 1000000/- (Rupees ten lakhs only)each aggregating to Rs. 300000000/- (Rupees Thirty crores only) which were issued toUTI Structured Debt Opportunities Fund I on 20 December 2018 and were redeemable on 19December 2025 but have been redeemed before the due date of redemption on 29 June 2019.
Details pertaining to the shares in 'Unclaimed suspense account' in Compliance with theterms of SEBI (LODR) Regulations 2015 are given in the Report on Corporate Governanceannexed with this report.
The Company has not conducted any Postal Ballot during the year under review.
A Report on Corporate Governance along with a Certificate from the Practicing CompanySecretary regarding compliance of the conditions of Corporate Governance pursuant to SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 is annexed and formspart of the Annual Report.
EXTRACT OF THE ANNUAL RETURN
The extract of annual return in form no. MGT-9 would be available at the website of theCompany at http://www.kuantumpapers.com
CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO
The information relating to conservation of energy technology absorption and foreignexchange earnings & outgo as required under Section 134(3)(m) of the Companies Act2013 read with Rule 8(3) of the Companies (Accounts) Rules 2014 is given in Annexure-1which forms part of this Report. No foreign technology has been availed by the Company.
Relationship with the employees remained cordial throughout the year in the Company.The Directors express their appreciation for the contribution made by the employees at alllevels to the operations and in establishing operational efficiencies of the Companyduring the year under review.
PARTICULARS OF EMPLOYEES
The information required under section 197(12) of the Companies Act 2013 read withRule 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules2014 is given in the statement annexed herewith as Annexure-4.
The information required pursuant to the provisions of Rule 5(2) & (3) of theCompanies (Appointment & Remuneration of Managerial Personnel) Rules 2014 requiringparticulars of the employees in receipt of remuneration in excess of Rs. 102 lacs perannum if employed throughout the year and Rs. 8.50 lacs if employed for part of the yearis given in the statement annexed herewith as Annexure-4.
PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS UNDER SECTION 186 OF THE COMPANIES ACT2013
The Company has extended corporate guarantee amounting to Rs. 1679 lacs under Section185 of the Companies Act 2013 for a loan taken by the holding company the disclosure ofwhich is given at Note No. 40 C forming part of the financial statements.
DIRECTORS' RESPONSIBILITY STATEMENT
As required under section 134(3) (c) read with Section 134(5) of the Companies Act2013 and SEBI (LODR) Regulations 2015 your Directors state that:
(i) in the preparation of the annual accounts for the year ended 31 March 2020 theapplicable accounting standards read with requirements set out under Schedule III to theAct have been followed and there are no material departures;
(ii) such accounting policies have been selected and applied consistently and judgmentsand estimates have been made that are reasonable and prudent so as to give a true and fairview of the state of affairs of the company as at 31 March 2020 and of the profit of thecompany for the year ended on that date;
(iii) proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;
(iv) the annual accounts have been prepared on a going concern basis;
(v) 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
(vi) the Directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems are adequate and operating effectively.
BUSINESS RESPONSIBILITY REPORT
The Securities and Exchange Board of India (SEBI) as per the (Listing Obligations andDisclosure Requirements) Regulations 2015 has mandated the inclusion of a BusinessResponsibility Report (BRR) as a part of Company's Annual Report for top 1000 listedentities based on market capitalization (as on March 31 of every financial year) by thestock exchanges. As your company is amongst the top 1000 listed entities based on marketcapitalization as on March 312020 the 'Business Responsibility Report' for the year2019-20 forms part of the Annual Report.
Your Directors convey sincere thanks to the various agencies of the Central and StateGovernments Banks and other concerned agencies for all the assistance and cooperationextended to the Company for their continued support. The Directors also deeply appreciateand acknowledge the trust and confidence the vendors suppliers dealers customersshareholders and investors reposed in the Company. Your Directors also place on recordtheir appreciation for the dedicated services rendered by the workers staff and officersof the Company.
| ||For and on behalf of the Board |
|Place : Chandigarh ||Jagesh Kumar Khaitan |
|Dated : 03 July 2020 ||Chairman |