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Mafatlal Industries Ltd.

BSE: 500264 Sector: Industrials
NSE: MAFATLAIND ISIN Code: INE270B01027
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NSE 05:30 | 01 Jan Mafatlal Industries Ltd
OPEN 74.00
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VOLUME 4
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P/E
Mkt Cap.(Rs cr) 106
Buy Price 74.30
Buy Qty 30.00
Sell Price 75.50
Sell Qty 3.00
OPEN 74.00
CLOSE 76.85
VOLUME 4
52-Week high 106.00
52-Week low 51.20
P/E
Mkt Cap.(Rs cr) 106
Buy Price 74.30
Buy Qty 30.00
Sell Price 75.50
Sell Qty 3.00

Mafatlal Industries Ltd. (MAFATLAIND) - Director Report

Company director report

To

The Members

Mafatlal Industries Limited

Your Directors present the 105th Annual Report together with the AuditedStatement of Accounts for the year ended 31st March 2019.

1. Financial Results

The Financial Results of the Company are as under:

( Rs. in Lakhs)
Particulars Current Year 2018-19 Previous Year 2017-18
Revenue from Operations 102368.09 116760.04
Other Income 3089.83 3289.59
Total Income / Revenues 105457.89 120049.63
EBIDTA -3030.72 2524.32
Less: Depreciation 3595.66 3610.59
Finance Costs 3018.86 3108.54
Loss before Exceptional Items (write off/provisions/impairment losses) -9645.24 -4194.82
Exceptional Items (Net) -8361.80 -
Loss before Taxes -18007.04 -4194.82
Tax (Expense) / Benefits - 17.00
Loss after Taxes -18007.04 -4177.82

2. Overview State of Company Affairs and Year in Retrospect

During the year under review the textile industry remained fragile with stressedworking capital cycles over capacity increased costs of raw material and a negativefinancial outlook for the industry. While in the past few years various incentives andschemes were rolled out by the Government to boost the growth of the sector for the longterm at present the Denim industry in particular is reeling under consequences of hugeovercapacity. On the International front Indian Textile industry seems to be losing outagainst Bangladesh and Vietnam in terms of the cost competitiveness.

During the year under review the Company faced strong headwinds and got severelyimpacted by the excess capacities and cost-competitiveness vis-a-vis new players whooperate with low-cost structures (especially for Denim fabric) disruptions in theMiddle-East markets affecting export of Voiles subdued retail demand for apparels andreadymade garments affecting sale of Printed fabric in the business-to-business (B2B)segment and prolonged credit cycle in general prevailing in the textile industry. Thisresulted in a fall in revenue as well as operating profitability. Total Revenue fell by12% to Rs. 105457.89 Lakhs and EBIDTA is reported negative at Rs. 3030.72 Lakhs leadingto a Net Loss for the year of Rs. 18007.04 Lakhs (including Rs. 8361.80 as an impairmentcharge) as against a Net Loss of Rs. 4177.82 Lakhs for the previous year.

For more than two years the Company has been passing through an extremely challengingbusiness situation particularly with respect to the Denim operations. The Denim Industryattracted major capacity expansions in the recent past and the installed capacity forDenim fabric manufacturing in India which was around 500 million meters in the year 2011has shot up to almost 1.4 billion meters by the end of year 2018. Since domestic demandfor the Denim fabric is not matching the pace of growth in supply the entire DenimIndustry has been struggling for growth and has been operating at sub-optimal installedcapacities and operating margins. In the light of this situation the Company took severalsteps for improving the Denim operations such as change in the management team morefocus on product development and driving cost reduction. While the performance of Denimfor the first quarter of the year 2018-19 did indicate some improvement the performancewas on a downward spiral from second quarter onwards. In order to curtail losses fromDenim operations in the backdrop of severe competition in the domestic market the Companytook the strategic decision to significantly scale down the operations based on a detailedanalysis carried out with the help of a multinational independent management consultant.The Company also substantially reduced its work force at a cost of Rs. 1827.45 Lakhswhich has been recognised as expenditure in the Profit & Loss Account for thefinancial year 2018-19.

Despite taking series of initiatives there has been no improvement in Denim operationsand hence the Company is substantially scaling down the Denim operations to furthercurtail the losses. With the scaling down of operations the Company is contemplating saleof surplus assets at Navsari. The funds so raised will be utilized by the Company tosettle its liabilities towards ex-gratia payments (VRS) to employees repayment of loanscreditors and other liabilities. The sale of assets as mentioned hereinabove maytantamount to selling leasing or disposing of substantially the whole of theUndertakings at Navsari as envisaged under the provisions of Section 180 of the CompaniesAct 2013. It will exceed 20% of the value of the Undertaking/s of the Company at Navsarias per the audited financial statements of the Company for the year ended 31stMarch 2019. Accordingly as required under the provisions of Section 180(1) (a) Section110 and other applicable provisions of the Companies Act 2013 Rules made thereunder andSEBI (LODR) Regulations 2015 and other applicable provisions the special resolution withrespect thereto is being proposed for the approval of the members of the Company by way ofpostal ballot for which separate notice is given to the members of the Company.

Your Directors are of the view that this strategic decision may inflict some pain inthe short term but it will turn the Company profitable in future.

A further analysis of the financial results of the Company is given in the ManagementDiscussion and Analysis Report which forms part of this report.

3. Borrowings Loans Guarantees and Investments

During the year under review the company has repaid long term borrowings amounting toRs. 2380.39 Lakhs as per scheduled timeline and raised loan funds of Rs. 275.96 Lakhs topart finance the liabilities and payments of the Company including VRS/ex gratia paymentsto the workers of Navsari units.

The Company expresses gratitude to all the term loan and working capital lenders fortheir continuing support and faith in the company. The Company has not granted any loangiven any guarantee or made any investments as referred to in section 186 of the CompaniesAct 2013.

During the year the Company has sold 748860 equity shares of NOCIL Limited. It hasalso sold its non core investments in three private limited companies viz. Mafatlal ImpexPrivate Limited (2 equity shares) Arvi Associates Private Limited (10000 equity shares)Suremi Trading Private Limited (20 equity shares). The sale price for the said shares wereabove fair value calculated as per the Valuation Report received from an independentvaluer and the requisite details of related party transactions are mentioned in theAnnexure to this report.

4. Credit Rating/s

During the year Credit Analysis & Research Limited (CARE) has reaffirmed the creditrating of the Company "CARE BBB-(negative) for the long term facilities having tenureof more than one year and "CARE BBB- (negative)" / "CARE A3" for shortterm facilities having tenure of upto one year.

5. Dividend

In view of the Losses for the financial year ended 31st March 2019continuing since previous years the Board of Directors regret their inability torecommend any dividend for the year 2018-19 and accordingly has not recommended/proposeddeclaration of any dividend.

6. Restructuring of Promoters Shareholding & Reclassification of PromotersHolding

As approved by the shareholders at 104th AGM held on 31st July2018 and consequent approval by the BSE Limited where the Company's shares are listedcertain promoters forming a part of Shri V. P. Mafatlal and his associates concerns andentities managed by his group were reclassified as non promoters/public category. Furthercertain more trusts/entities managed by Shri V. P. Mafatlal and his associates are nowproposed for reclassification as non promoters/public shareholders for which requisiteresolution as approved by the Board of Directors of the Company as per the requirements ofthe Stock Exchange/s has been proposed at the ensuing Annual General Meeting and later onrequisite application/s will be made to the Stock Exchange for reclassification.

7. Details of changes of Directors and Key Managerial Personnel

During the year under review Shri Aniruddha P. Deshmukh Managing Director & ChiefExecutive Officer had resigned and accordingly was relieved of his services at the closeof business hours on 31st March 2019. The Board put on record its sincereappreciation of his services during his tenure with the Company. As recommended by theNomination & Remuneration Committee the Board had at their meeting held on 17thDecember 2018 appointed Shri Priyavrata H. Mafatlal a whole time director of the Company{who was designated as Executive Director} as Chief Executive Officer (CEO) w.e.f. 1stApril 2019 and also re-designated him as CEO & ED and appointed him as a whole timekey managerial person (WKMP) of the Company under the provisions of Section 203 of theCompanies Act 2013 on the same terms and conditions of the appointment letter issuedearlier on 25th October 2016 as approved by the shareholders earlier exceptthe above changes in designation and appointment. The requisite special resolution withrespect to his appointment as CEO and WKMP and the approval for payment of remunerationfor his balance term of appointment w.e.f. 1st November 2019 to 31stOctober 2021 as required under the provisions of Schedule V to the Companies Act 2013 isbeing proposed as a part of postal ballot notice issued to the shareholders separately.

Pursuant to the provisions of Section 152 of the Companies Act 2013 Shri HrishikeshA. Mafatlal Chairman is liable to retire by rotation and being eligible offers himselffor reappointment and the same is proposed for approval at the ensuing Annual GeneralMeeting (AGM).

Further the Board has at their meeting held on 16th May 2019 approved andproposed for approval by the shareholders at this ensuing AGM the appointment of ShriAtul K. Srivastava as an Independent Director of the Company the re-appointments of ShriVilas R. Gupte Shri Pradip N. Kapadia Smt. Latika P. Prdhan Shri Gautam G. Chakravartiand Shri Sujal A. Shah as Independent Directors of the Company and accordingly requisiteresolutions are proposed for the approval of the shareholders at the ensuing AGM. TheBoard recommends their appointment/reappointments being in the interest of the Company.

8. Employee Stock Option Scheme 2017

The shareholders of the Company at the 103rd Annual General Meeting of theCompany held on 2nd August 2017 consented for creation of 695000 optionsemployee stock option pool under Mafatlal Employee Stock Option Plan 2017 by way of aspecial resolution. The Board of Directors of the Company has as per the recommendationof Nomination & Remuneration Committee (NRC) approved "Mafatlal Employees StockOption Plan 2017. Thereafter NRC has at their meeting held on 10th November2017 approved the grant of 138000 options to certain senior management employees. Sincethen there has been no further grant as of date and due to the resignations of theemployees (option grantees) as at 31st March 2019 72000 options remainedoutstanding (valid) out of the said 138000 while remaining options lapsed and went backto the Option Pool available for further grants in future. There has been no exercise ofvested options as of date. The further disclosures as required under SEBI Employee ShareBased Benefits Regulations 2016 are provided in Annexure III to this reportalongwith other disclosures.

9. Subsidiaries Associates and Joint Ventures

The financial position of the subsidiary company is given in the Notes to ConsolidatedFinancial Statements. The Company does not have any material subsidiary. The Policy onMaterial Subsidiary framed by the Board of Directors of the Company is available onhttps://www.mafatlals.com/wp-content/uploads/2017/08/policy_on_materiality_of_subsidiary.pdf.

The audited accounts of Mafatlal Services Limited a subsidiary of the Company for theyear ended 31st March 2019 is placed on the Company's websitewww.mafatlals.com and is also open for inspection by any member at the Registered Officeof the Company on any working day (Monday-Friday) during working hours and the Companywill make available these documents upon request by any member of the Company who may beinterested in obtaining the same.

As reported last year also Al Fahim Mafatlal Textiles LLC (UAE) remainednon-operational and since there is no foreseeable beneficial future the Board ofDirectors of the Company and the JV Partner have consented for voluntary winding up/closure of that entity. The Company has also written to the Ministry of CommerceDepartment of Economic Development Dubai that there has been no operation of the said JVCompany from the year 2016 and accordingly we have not applied for renewal of license tocontinue to operate the business there. Accordingly even the audited accounts of that JVCompany are not available and the same are not consolidated with the Accounts of theCompany for the year 2018-19.

10. Deposits

The Company does not have "Deposits" as contemplated under Chapter V of theCompanies Act 2013. Further the Company has not invited or accepted any such depositsduring the year ended 31st March 2019.

11. Internal Financial Controls

The existing internal financial controls are adequate and commensurate with the naturesize complexity of the Business and the Business Processes followed by the Company. TheCompany has well laid down the framework for ensuring adequate internal controls overfinancial reporting and such Internal Financial Controls have been reviewed by IndependentExperts to ensure its effectiveness who have confirmed that such controls are adequate andoperating effectively.

12. Directors' Responsibility Statement

As required under the provisions of Section 134 (5) of the Companies Act 2013 theDirectors state that:

(i) in the preparation of the annual accounts the applicable accounting standards havebeen followed along with proper explanation relating to material departures;

(ii) 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 the period under review;

(iii) the directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) the directors have prepared the annual accounts 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 were operatingeffectively.

(vi) the directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that suchsystemswereadequateandoperatingeffectively.

13. Industrial Relations

The relations between the employees and the management have remained cordial andharmonious during the year under review. There were 2377 permanent employees on the rollof the Company as on 31st March 2019 . During the year Company had taken thepainful decision of severance of its workforce including some management and nonmanagement staff at its Denim operations at Navsari in tandem with the scaling down of theoperations. While this was part of strategic decision for the long term future theCompany always believes in people being the key enabler to bring the turnaround growthand good practices.

14. Insurance

The properties and insurable interests of your Company like buildings plant andmachinery stocks etc. are adequately insured by the Company. Further disclosure on RiskManagement of the Company has been made under the Corporate Governance Report which formsa part of this report.

15. Corporate Social Responsibility (CSR)

Mafatlal Industries Ltd. a part of Arvind Mafatlal Group has been fulfilling itscorporate social responsibilities for over 50 years much before CSR has been prescribedstatutorily. The focus area of our working has been in the field of poverty alleviationhealth care education for young children and women's upliftment in rural India.

In conformity with the provisions of Section 135 of the Companies Act 2013 read withthe Companies (Corporate Social Responsibility Policy) Rules 2014 the Company has a CSRCommittee which presently comprises of Shri H. A. Mafatlal who is the Chairman of thesaid Committee Shri A. K Srivastava and Shri Sujal Shah (Independent Director) are theother members of the Committee.

Based on the recommendations of the CSR Committee the Board of Directors haveformulated a CSR Policy encompassing the Group's and the Company's philosophy fordescribing its responsibility as a corporate citizen and laid down the guidelines andmechanisms for undertaking socially relevant programs in conformity with the statutoryprovisions which is posted on the website of the Company and available on web linkhttps://www.mafatlals.com/wp-content/uploads/2017/08/corporate_social_responsibility_policy.pdf.

As per the provisions of section 135 read with the Section 198 of the Companies Act2013 the Company do not have CSR Obligation for the year 2018-19. Accordingly there hasbeen no meeting of CSR Committee held during the year. The statutory disclosures withrespect to CSR is annexed hereto forming a part of this report.

16. Related Party Transactions

There are no materially significant related party transactions made by the Companyduring the year. Related Party Transaction Policy is posted on the website of the Companyand is available at https://www.mafatlals.com/wp-content/uploads/2019/06/Related_Party_Policy.pdf. The details of all the transactions with the related parties are disclosed inthe Notes forming part of the financial statements for the year 2018-19 and furtherannexed to this report in AOC 2.

All the Related Party Transactions entered into by the Company are in ordinary courseof business and on an arm's length basis for which requisite approvals from the AuditCommittee and the Board of Directors were obtained. None of the related party transactionsrequired approval from shareholders.

17. Management Discussion and Analysis Report & Corporate Governance

As required under Schedule V (B) and (C) of the SEBI (Listing Obligations &Disclosure Requirements) Regulations 2015 "Management Discussion and AnalysisReport" as well as "Corporate Governance Report" are attached herewith andmarked as Annexure I & II respectively and the same forms part of thisDirectors' Report.

Further during the year under review the Company has complied with all the mandatoryrequirements of the Corporate Governance. A certificate from the statutory auditors of theCompany regarding compliance of conditions of Corporate Governance as stipulated underSEBI (Listing Obligations & Disclosure Requirements) Regulations 2015 as amended isannexed to the Report on Corporate Governance.

18. Other Statutory Disclosures

The Company has complied with the provisions relating to the constitution of InternalComplaints Committee under the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013. No complaints were reported during the year underthe said Act.

There has been no instance of fraud at the Company nor any fraud reported by theauditors of the Company during the year.

It is pertinent to note here that there has been no change in nature of business duringthe year under review and no Order has been passed by any Regulator or Court or Tribunalwhich can impact the going concern status of the Company and its Operations in the future.Further there has been no issue of equity shares with differential rights as to dividend voting or otherwise and there was no buy back of shares. The Managing Director and Wholetime Director of the Company have not received any remuneration from the Subsidiary of theCompany.

The other statutory disclosures pursuant to Sections 134 135 188 197 and otherapplicable provisions of the Companies Act 2013 read with related rules are attachedherewith and marked as Annexure III.

19. Statutory Audit

Pursuant to the provisions of Section 139 and other applicable provisions if any ofthe Companies Act 2013 and the Rules made thereunder M/s. Price Waterhouse CharteredAccountants LLP (Firm registration No. 012754N/N500016) were appointed as statutoryauditors of the Company for a period of five years by the members of the Company at 103rdAnnual General Meeting (AGM) to hold office from the conclusion of 103rd AGMtill the conclusion of 108th AGM. Thereafter at 104th AGM themembers have approved the continuation of their appointment for balance term till theconclusion of 108th AGM. It may be noted that pursuant to the amendedprovisions of section 139 (as amended by the Companies Amendment Act 2017) ratificationof statutory auditors appointment is not required at every Annual General Meeting.Accordingly resolution for yearly ratification of appointment has not beenproposed/required.

The specific notes forming part of the Accounts referred to in the Auditor's Reportread with the notes to financial statements as referred to therein are self-explanatoryand give complete information and addresses the observations if any. The Auditor's Reportdoes not have any qualification or reservations or adverse comments. Further theobservation/s made therein read with concerned Notes to financial statements providesufficient information and are self clarificatory. So no further explanations or commentsis required/provided in this report with respect thereto.

20. Secretarial Audit

The Board of Directors of the Company has in compliance with the provisions of Section204(1) of the Companies Act 2013 and Rules made in this behalf appointed Shri Umesh VedCompany Secretary in practice to carry out Secretarial Audit of the Company for thefinancial year 2018-19. The Report of the Secretarial Auditor is annexed to this Report asAnnexure IV. The Audit report does not have any qualification or reservations. TheCompany has filed certain forms/ intimations with some delay due to inadvertencetechnical & other issues with additional fees as applicable and accordingly compliedwith the requisite requirements. Besides the observations made in audit report providesufficient information and are self clarificatory. So no further explanations or commentsis required/given in this report with respect thereto. The Company has complied with theprovisions of the Secretarial Standards (SS) issued by ICSI as applicable.

21. Cost Audit

Pursuant to the provisions of Section 148 of the Companies Act 2013 read with relevantRules made thereunder maintenance of Cost Records for the Company's "Textiles"products are required and accordingly such accounts and records are maintained by theCompany. The cost audit for the year 2017-18 was timely carried out and the Cost AuditReport with requisite data for the year 2017-18 in the prescribed form CRA 4 has alreadybeen filed with Ministry of Corporate Affairs (MCA).

Further in accordance with the said applicable provisions the audit of the CostRecords of the Company for the year 2018-19 relating to the "Textiles" productsmanufactured and marketed by the Company is being carried out by Cost Auditors ShriBhalchandra. C. Desai Cost Accountants. The Cost Audit Report will be filed on or beforedue date with the Ministry of Corporate Affairs in due course of time after the same isapproved by the Board of Directors of the Company within the permissible timeline.

The Board has at their Meeting held on 16th May 2019 re-appointed Shri B.C. Desai as Cost Auditor to audit cost records in respect of "Textiles" productsmanufactured and marketed by the Company for the Financial Year 2019-20 and theremuneration payable to the Cost Auditor has been proposed for the approval by the Membersof the Company at the ensuing Annual General Meeting.

22. Internal Auditor

M/s. Aneja Associates a reputed firm of Chartered Accountants are Internal Auditorsof the Company. The Audit Committee of the Board of Directors in consultation with theInternal Auditors formulate the scope functioning periodicity and methodology forconducting the internal audit.

23. Appreciation

The Directors wish to place on record their appreciation of the devoted services of theworkers staff and the officers for their continued contribution to your Company.

For and on behalf of the Board
Mafatlal Industries Limited
H.A. MAFATLAL
Chairman
Place: Mumbai (DIN: 00009872)
Date: 16th May 2019

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