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Phillips Carbon Black Ltd.

BSE: 506590 Sector: Industrials
NSE: PHILIPCARB ISIN Code: INE602A01023
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OPEN 229.45
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VOLUME 38504
52-Week high 318.98
52-Week low 108.96
P/E 16.86
Mkt Cap.(Rs cr) 3,874
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 229.45
CLOSE 228.55
VOLUME 38504
52-Week high 318.98
52-Week low 108.96
P/E 16.86
Mkt Cap.(Rs cr) 3,874
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Phillips Carbon Black Ltd. (PHILIPCARB) - Director Report

Company director report

Your Directors have pleasure in presenting the fifty – sixth Annual Report onbusiness and operations of Phillips Carbon Black Limited and the Audited Accounts for thefinancial year ended 31st March 2017.

FINANCIAL HIGHLIGHTS

(Amount in Rs Crore)

Year ended 31.03.17 31.03.16
Total Revenue 2131.27 2115.47
PBDIT 305.02 217.30
Less: Finance and hedging cost 78.88 106.76
PBDT 226.14 110.54
Less: Depreciation 60.62 62.15
PBT 165.52 48.39
Tax Expense 96 31.48
PAT 69.52 16.91
Balance brought forward 652.77 640.35
Remeasurement of post- employment benefit obligation net of tax (1.55) (0.33)
Transferred from OCI (2.09) (0.01)
Profit available for Appropriation 718.65 656.92
Proposed Dividend including tax on dividend (35.26) (4.15)
Balance carried forward to Balance Sheet 683.39 652.77

The financial statements for the year ended 31st March 2017 have been prepared inaccordance with the Indian Accounting Standards (IND AS) notified under Section 133 of theCompanies Act 2013 read with Companies (Accounts) Rules 2014. The financial statementsfor the year ended 31st March 2016 have been restated in accordance with IND AS forcomparative information.

DIVIDEND

The Board of Directors at its meeting held on 1st March 2017 declared an interimdividend of 60% i.e Rs6/- per equity share. The above interim dividend has been paidduring the financial year 2016-2017.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Global economic activity is gradually picking up with recovery in investmentmanufacturing and trade. Stronger activity and expectation of improved global demandcoupled with compliance on agreed production cut on oil supply by OPEC in November 2016helped crude prices to marginally recover from their trough in early 2016. However thesustainability of the same can be doubted even as US shale exploration and productionactivities have simultaneously increased for its oil reserves at higher breakeven prices.Economic activity gained momentum for advanced economies in the second half of 2016.Continued government policy support and supply side reforms (reduction in excessIndustrial capacity) is expected to improve China's growth prospects.

As per latest IMF estimates world output grew by 3.2% in 2016 and is projected to growfurther by 3.5% in 2017. Growth marginally picked up in the United States in the secondhalf of 2016 as firms became more confident about future demand. Growth in Euro arearemained stable where consumer spending proved resilient after 2016 Brexit referendum.Economic performance across emerging markets and developing economies remained mixed.China grew by estimated 6.7% reflecting continued policy support. In otherwise fastgrowing Indian economy activity relatively slowed down in last quarter because of theimpact of the currency exchange (demonetization) initiative. Crude oil income dependentRussian economy is gradually recovering. Brazil is still going through recession.

The mature economies together with China were key to the overall 2016 automobilegrowth story with an estimated growth of 4.6% as compared to 1.5% in 2015. The majority ofglobal rise can be attributed to robust Chinese auto demand generated through tax andother sales incentives. Estimates suggest that China alone accounted for approximately 75%of the 2016 volume increase in global auto sales. U.S. auto sales did not witness muchgrowth. The new US administration economic policies regarding cross border trade and taxmight define the way forward for its stagnant auto industry. For Europe the Brexituncertainty and other political risks seems to have withered away and has no significantimpact on otherwise growing auto demand (up 5.7% YoY in 2016).

After four consecutive years the declining light vehicle sales market in Russia seemsto have finally reached its bottom with an improved outlook for 2017.

In 2016 global truck tyre demand declined by an estimated 1%. The OEM segmentwitnessed 6% growth in Asia and 1% in Europe while demand decreased by an estimated 18%in America. Replacement demand rose globally by an estimated 4% with most of the growthcoming from Europe.

Passenger vehicle tyre market grew by an estimated 3% globally. China witnessed highestOEM growth by an estimated 14% followed by rest of Asia by 7% and Europe by 4%. NorthAmerica reported muted growth of 1%. Replacement demand grew highest in China by 8%followed by rest of Asia by 4%. Rest of the world replacement demand experienced mutedgrowth or de-growth.

The Demonetization initiative of Government of India impacted the otherwise fastgrowing Indian automobile industry which in FY 17 recorded rise in passenger vehicledemand by 9.2% commercial vehicle by 4.1% and two wheeler by 6.9%. Indian tyre Industryreceived boost in demand due to demonetization in last quarter of FY17 during which periodimport in Truck & Bus radial segment sharply declined by an estimated 23% YoY. Lowinterest cost environment increased infrastructural activity normal to better monsoonforecast re monetization of currency in the economy GST implementation should drive theFY18 growth across the segments.

The Global carbon black industry operated at an improved estimated capacity utilizationof 80% in FY17 against the demand supply imbalance created by huge capacity base installedin China. However exports from China declined in the International market in 2017possibly due to loosing on competitive advantage over raw material cost which it hadenjoyed during recent years and also due to government crackdown on fragmented CarbonBlack capacities to enforce stringent environment norms. In addition to high Chinese rawmaterial prices anti-dumping duty in India on Chinese carbon black import furthersupported Indian manufacturers to achieve more than 90% capacity utilization.

PERFORMANCE Carbon Black

Your Company's FY17 EBITDA rose to Rs 305.02 crore as against Rs 217.30 crore in theprevious year. This was mainly on account of higher capacity utilization improvedmanufacturing efficiency and wider specialty black portfolio. While global Carbon Blackdemand grew by 3.5 to 4% your Company also achieved better growth. PBT for the year wasRs 165.52 crore which is almost four times as that of previous year's PBT of Rs 48.39crore.

Power

The Company's power segment revenue (excluding inter segment revenue) was higher at Rs85.09 crore vis--vis Rs 75.83 crore in the last year on account of improved volume andhigher efficiency.

MANUFACTURING

Carbon Black production during FY17 rose to 383316 MT as compared to 332038 MT inthe previous year.

The improvement in capacity utilization was due to higher demand from the market andrise in consumption trend of automobile sector. With strategically located four plantsyour Company is well poised to service customers in India and overseas. The vicinity ofseaports to a couple of Company's plants should facilitate logistic costs within India andabroad.

RESEARCH AND DEVELOPMENT

The Company's Research and Development (R&D) units located at Durgapur KochiMundra and Palej continued to receive recognition as in-house Research and Developmentunits from the Department of Scientific and Industrial Research Ministry of Science andTechnology.

During the year the Company - i) developed new grades of carbon black for domestic andinternational markets ii) improved/modified product characteristics to meet specificrequirements of new/existing customers iii) continual improvement in operating conditionto improve yield and quantity iv) efficient use/exchange of heat energy in carbon blackproduction and v) modified reactor design operating conditions to improve yield.

ENVIRONMENT HEALTH SAFETY AND SOCIAL RESPONSIBILITY

Your Company's commitment to Nature and Society leads to preservation and enrichment ofenvironment by conducting all its operations in an environment-friendly manner. TheCompany is continuously acting upon the environmental health care and educationalinitiatives that would touch the lives of the people around its manufacturing units. Eachplant focuses on safe workplace initiatives which has resulted in zero fatal accident atthe Company's plants.

The Company has already redefined its business by establishing at each factory captivepower plants from the off-gas or waste products thus creating a sustainable greenmovement. Your Company is the first carbon black company in the world to be awarded CarbonCredit under Kyoto Protocol of UNFCCC.

HUMAN RESOURCE DEVELOPMENT

Your Company has already commenced a transformation journey by focusing on buildingcapabilities with emphasis on human resources.

The Learning & Development initiatives introduced across the Company include‘Nirantar Gyan Vardhan' and ‘Certified General Management Program' (CGMP).

Keeping in mind the need of communication within workplace the Company has introducedthree platforms of internal communication – ‘Mypulse' ‘Brown Bag Series'and ‘We@PCBL'.

Industrial Relations (IR) continued to be harmonious. Not a single man-day was lost inthis financial year.

On 31st March 2017 there were 890 permanent employees on the rolls of the Company.

INTERNAL FINANCIAL CONTROL SYSTEM AND ITS ADEQUACY

Your Company has adequate Internal Financial Control systems in all areas of operation.Your Board has adopted policies and procedures for ensuring the orderly and efficientconduct of its business including adherence to the Company's policies safeguarding ofits assets prevention and detection of frauds and errors accuracy and completeness ofthe accounting records and timely preparation of reliable financial information. Servicesof internal and external auditors are utilized from time to time as also in–houseexpertise and resources. The Company continuously upgrades these systems in line with thebest available practices.

Reports and deviations are regularly discussed with Management Committee Members andactions taken whenever necessary.

An Independent Audit Committee of the Board reviews the adequacy of Internal FinancialControl.

OPPORTUNITIES AND THREATS

Your Company is constantly on the lookout for opportunities that may arise whilekeeping tab on the likely threats to its business.

Opportunities

• Slow but steady recovery of advanced economies and Asia market should increasethe demand for automobile and tyre and therefore increase the demand for carbon black.

• In line with the expected capacity addition in Indian Auto Industry thedomestic tyre industry is also preparing to meet the increasing demand.

Threats

• Increasing competition from low cost carbon black manufacturers such as Russiaand China continues.

• Aggressive protectionism policies if any by advanced economies might provedetrimental for Indian Carbon black manufacturers' sales in International Market as globalAuto and Tyre manufacturers might reassess their investment plans.

SEGMENT WISE PERFORMANCE

The performance of Carbon Black and Power segment has been covered in this Reportearlier.

RISKS AND CONCERN

Raw material for your Company viz. Carbon Black Feedstock (CBFS) is a residue from adistillation process and is subject to daily volatility. In the case of extreme volatilityand if the Company is unable to pass on the increase in CBFS cost then it may have smallimpact on profit.

The Company is also exposed to fluctuation of Indian Rupee vis--vis other currencieswhich is fully hedged.

MAJOR EXPANSION PLANS

The Company's carbon black capacity at Palej and Mundra in Gujarat are under expansion.

CREDIT RATINGS

During the year under review the Company had received its credit ratings from theagencies -ICRA and CARE. The Credit Rating received from ICRA on 12th May 2017 statedthat after due consideration the Rating Committee of ICRA has assigned a long termrating of [ICRA] A+ with a stable outlook to the Line of Credit for the long term loan ofRs 400 crore. Furthermore the Credit Ratings received from CARE on 30th June 2016 statedthat the rating for the Commercial Papers and other short term facilities has beenupgraded from "A1" to "A1+" thereby denoting the highest rating forthe short term facilities. Again the

Credit Rating received from CARE dated 7th June 2017 stated that the Credit Ratingsfor Long term / Short term bank facilities got upgraded to CARE A+.

AMALGAMATION

During the year under review the Board of Directors of the Company at their meetingsheld on 5th October 2016 and 18th January 2017 approved the draft Scheme of Amalgamationof Goodluck Dealcom Private Limited a wholly owned subsidiary of Phillips Carbon BlackLimited with Phillips Carbon Black Limited under Sections 230 to 232 of the Companies Act2013 subject to regulatory approvals. The Appointed date for the Scheme of Amalgamationwas 1st April 2016. The afore-mentioned Scheme has been approved by the publicshareholders of the Company through Postal Ballot and e-voting. The Kolkata Bench of theHonorable National Company Law Tribunal (NCLT) sanctioned the Scheme of Amalgamation ofGoodluck Dealcom Private Limited with the Company vide its Order dated 19th July 2017.

SUBSIDIARY COMPANIES

The Company has three subsidiaries as on date namely Phillips Carbon Black CyprusHolding Limited PCBL Netherlands Holdings B.V and Phillips Carbon Black Vietnam JointStock Company. There are no associate companies or joint venture companies within themeaning of section 2(6) of the Companies Act 2013 (‘the Act').

After taking into account the Scheme of Amalgamation of Goodluck Dealcom PrivateLimited a wholly owned subsidiary of Phillips Carbon Black Limited with Phillips CarbonBlack Limited and in accordance with the provisions of Section 129(3) of the Act theCompany has prepared a Consolidated Financial Statement of the Company and of all thesubsidiaries namely Phillips Carbon Black Cyprus Holding Limited PCBL NetherlandsHoldings B.V and Phillips Carbon Black Vietnam Joint Stock Company in the form and manneras that of its own duly audited by M/s. Price Waterhouse the auditors in compliance withthe applicable accounting standards and the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015.

The Consolidated Financial Statements for the year 2016-17 form a part of the AnnualReport and Accounts and shall be laid before the Annual General Meeting of the Companywhile laying its financial statements under sub-section (2) of the said section. Pursuantto the provisions of Section 129(3) of the Act read with Rule 5 of the Companies(Accounts) Rules 2014 a statement containing the salient features of the financialstatements of the Company's subsidiaries in Form AOC-1 is attached to the financialstatements of the Company.

Further pursuant to the provisions of Section 136 of the Act the financial statementsof the Company consolidated financial statements along with relevant documents andseparate audited accounts in respect of subsidiaries are available on the website of theCompany.

The Company does not have any material subsidiary in the immediately precedingaccounting year. However as per revised SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 SEBI has made it mandatory for all listed companies toformulate a policy for determining ‘material' subsidiaries. Accordingly a policy on‘material' subsidiaries was formulated by the Audit Committee of the Board ofDirectors and the same is also posted on the Company's website and may be accessed at linkhttp://pcblltd.com/ investorrelations/investorrelations.php.

FUTURE OUTLOOK

Carbon Black

Demand for carbon black in India is expected to grow

@ 4-5% during the next couple of years. With its wide product portfolio basketmanufacturing units located strategically near the customer location your Company is wellpositioned to meet increased demand.

Overseas demand for carbon black is expected to grow

@ 3-4%. Your Company has established supply chain distribution network to ensure timelydelivery service to customers and thus widen its presence in the international market.This will continue to be a major thrust area for your Company in the coming years. Whilemoving up the product value chain is one of the important pillars of your company'sbusiness strategy the Manufacturing and Technology team is adding more high valueproducts to its portfolio.

STEPS IN MANUFACTURING AND PROCUREMENT

Your Company continues to focus on several initiatives to improve operationalefficiencies such as improving yield exploring new geographies for feedstock sourcing aswell as investing in technical capabilities for developing new grades for high performancerubber and non-rubber applications.

SHARE CAPITAL

Your Company's paid up Equity Share Capital as on 31st March 2017 stood at Rs 34.47crore. During the year under review the Company has not issued shares with differentialvoting rights nor granted stock options nor sweat equity. As on 31st March 2017 none ofthe Directors of the Company hold shares or convertible instruments of the Company.

EXTRACT OF ANNUAL RETURN

In accordance with Section 134(3)(a) of the Companies Act 2013 an extract of annualreturn in the prescribed format is given in ‘Annexure –A' which is annexedhereto and forms a part of the Board's Report.

CONSERVATIONOFENERGYTECHNOLOGYABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars as prescribed under sub-section (3)(m) of Section 134 of the CompaniesAct 2013 read with Rule 8(3) of the Companies (Accounts) Rules 2014 are given in the‘Annexure – B' which is annexed hereto and forms a part of the Boards' Report.

PUBLIC DEPOSITS

The Company does not have any Public Deposit Scheme and has repaid all Public Depositsthat matured and were claimed by the depositors under the earlier Public Deposit Schemes.There is no outstanding balance as on 31st March 2017.

MATERIAL CHANGES AND COMMITMENTS IF ANY AFFECTING THE FINANCIAL POSITION OF THECOMPANY

There are no material changes and commitments affecting the financial position of theCompany which have occurred between the close of the financial year ended 31st March 2017and the date of this Boards' Report.

The amalgamation of Goodluck Dealcom Private Limited an erstwhile wholly ownedsubsidiary of the Company with the Company has been given effect in the Accounts for theyear ended 31st March 2017.

DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS COURTS ANDTRIBUNALS

No significant and material order has been passed by the Regulators Courts andTribunals impacting the going concern status and company's operations in future.

PARTICULARSOFLOANSGUARANTEESORINVESTMENTS

Details of Loans Guarantees and Investments covered under the provisions of Section186 of the Companies Act 2013 are given in the notes to the financial Statements.

COMMITTEES OF THE BOARD

Currently the Board has five committees: Audit Committee Nomination and RemunerationCommittee Stakeholders' Relationship Committee Corporate Social Responsibility Committeeand the Independent Directors' Committee. A detailed note on the composition of the Boardand its committees is provided in the Corporate Governance Report Section of this Report.

CORPORATE SOCIAL RESPONSIBILITY

In accordance with Section 135 of the Act and the rules made thereunder the Companyhas formulated a Corporate Social Responsibility Policy a brief outline of which alongwith the required disclosures is given in ‘Annexure - C' which is annexed hereto andforms a part of the Board's Report.

The Company along with other companies of the Group has set up RP- Sanjiv Goenka GroupCSR Trust to carry out CSR activities.

The detail of the CSR Policy is also posted on Company's website and may be accessed atlink-http://pcblltd.com/ investorrelations/investorrelations.php.

VIGIL MECHANISM WHISTLE BLOWER POLICY

In compliance with provisions of Section 177(9) of the Companies Act 2013 and SEBI(Listing Obligations and Disclosure Requirements) Regulation 2015 the Company hasframed a Whistle Blower Policy / Vigil Mechanism for directors employees andstakeholders for reporting genuine concerns about any instance of any irregularityunethical practice and/or misconduct. The details of the Vigil Mechanism/ Whistle BlowerPolicy are also posted on the Company's website and may be accessed at link-http://pcblltd.com/investorrelations/investorrelations.php.

BOARD EVALUATION

Pursuant to the provisions of the Companies Act 2013 and SEBI (Listing Obligations andDisclosure Requirements) 2015 the Board has carried out an annual performance evaluationof its own performance the directors individually as well as the evaluation of theworking of its Audit Nomination and Remuneration and other Committees. The manner inwhich the evaluation has been carried out has been explained in the Corporate GovernanceReport.

At a separate meeting of Independent directors performance of non-independentdirectors performance of the board as a whole and performance of the Chairman wasevaluated taking into account the views of executive directors and non- executivedirectors. The same was also discussed in the Board Meeting. Performance evaluation ofindependent directors was done by the entire Board excluding the independent directorbeing evaluated.

REMUNERATION POLICY

The Board has on the recommendation of the NominationandRemunerationCommitteeframedapolicyforselection and appointment of Directors SeniorManagement and their remuneration. The Remuneration Policy and the details pertaining tothe remuneration paid during the year are furnished in the Corporate Governance Section ofthe Annual Report.

RELATED PARTY TRANSACTIONS

All Related Party Transactions that were entered into during the financial year were onan arm's length basis and were in the ordinary course of business. Hence the provisionsof Section 188 of the Companies Act 2013 are not attracted. Thus disclosure in FormAOC-2 is not required. Further there are no materially significant Related PartyTransactions during the year under review made by the Company with Promoters DirectorsKey Managerial Personnel or other designated persons which may have a potential conflictwith the interest of the Company at large.

All Related Party Transactions are placed before the Audit Committee for approval.

The policy on Related Party Transactions as approved by the Board is posted on theCompany's website and may be accessed at link http://pcblltd.com/investorrelations/investorrelations.php.

RISK MANAGEMENT

Risk Management is the process of identification assessment and prioritization ofrisks followed by coordinated efforts to minimize monitor and mitigate/ control theprobability and/or impact of unfortunate events or to maximize the realisation ofopportunities. The Company has laid a comprehensive Risk Assessment and MinimisationProcedure which is reviewed by the Audit Committee and approved by the Board from time totime. These procedures are reviewed to ensure that executive management controls riskthrough means of a properly defined framework.

PARTICULARS OF EMPLOYEES

As required under provisions of Section 197 of the Companies Act 2013 and Rule 5(2)and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 particulars of the employees concerned forms a part of the Boards' Report. Havingregard to the provisions of Section 136 of the Companies Act 2013 the Annual Report andAccounts excluding the aforesaid information are being sent to the members of theCompany. Any member interested in obtaining such particulars may write to the CompanySecretary of the Company. The said information is also available for inspection at theRegistered Office during normal business hours (10.00 am to 6.00 pm) on all working daysup to the date of Annual General Meeting and shall also be available at the venue of theAnnual General Meeting of the Company.

KEY MANAGERIAL PERSONNEL

During the year there was no change in the Key

Managerial Personnel of the Company.

DETAILS RELATING TO REMUNERATION OF DIRECTORS KEY MANAGERIAL PERSONNEL AND EMPLOYEES

Disclosure pertaining to remuneration and other details as required under Section197(12) of the Companies Act 2013 read with Rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 is marked as ‘Annexure –D'which is annexed hereto and forms a part of the Boards' Report.

LISTING

The equity shares of the Company continue to be listed on the National Stock Exchange(NSE) Bombay Stock Exchange (BSE) and Calcutta Stock Exchange (CSE). The Company has paidthe requisite listing fees to all the Stock Exchanges for the financial year 2017-18.

CORPORATE GOVERNANCE

A separate Report on Corporate Governance as prescribed under the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 together with a certificatefrom the Company's Auditors confirming compliance is set out in the Annexure forming partof this Annual Report.

NUMBER OF MEETINGS OF BOARD OF DIRECTORS

The details of the number of meetings of the Board of Directors held during thefinancial year 2016-17 form a part of the Corporate Governance Report.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 134(3) (c) of the Companies Act 2013 the Directors to the bestof their knowledge and belief confirm that:

i) in the preparation of the annual accounts for the financial year ended 31st March2017 the applicable accounting standards have been followed and there are no materialdepartures:

ii) appropriate accounting policies have been selected and applied consistently andmade judgments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company at the end of financial year and of the profitand loss of the Company for the period;

iii) proper and sufficient care have 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) internal financial controls laid down by the Directors have been followed by theCompany and such internal financial controls are adequate and were operating effectively.

vi) proper systems to ensure compliance with the provisions of all applicable laws werein place and were adequate and operating effectively.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received necessary declaration from each Independent Director underSetion 149(7) of the Companies Act 2013 that he/she meets the criteria of independencelaid down in Section 149(6) of the Companies Act2013 and Regulations 16(b) and 25 of SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015.

AUDITORS

Pursuant to the provisions of Section 139 of the Companies Act 2013 and the Companies(Audit and Auditors) Rules 2014 and pursuant to the recommendation made by the AuditCommittee of the Board Messers S R Batliboi & Co. LLP having Registration No.301003E/E300005 allotted by The Institute of Chartered Accountants of India (ICAI) be andare hereby appointed as the Statutory Auditors of the Company in place of the retiringAuditors Messers Price Waterhouse Chartered Accountants having registration No. 301112Eallotted by ICAI who shall hold office from the conclusion of this 56th Annual GeneralMeeting for a term of five consecutive years till conclusion of the 61st Annual GeneralMeeting to be held in the year 2022 subject to ratification of their appointment by theMembers at every Annual General Meeting held after this Annual General Meeting till the61st Annual General Meeting at such remuneration as may be mutually agreed between theBoard of Directors of the Company and the Statutory Auditors. Accordingly a Resolutionseeking the approval of the Members and ratification thereafter is included at Item No. 4of the Notice convening the Annual General Meeting.

COST AUDIT

Pursuant to Section 148 of the Companies act 2013 read with the Companies (CostRecords and Audit) Amendment Rules 2014 the Cost Audit records maintained by the Companyrelating to manufacture of Carbon Black and generation and transmission of electricity atthe plants located at Durgapur Kochi Mundra and Palej is required to be audited. YourDirectors had on the recommendation of the Audit Committee appointed Messrs Shome &Banerjee to audit the cost accounts for the financial year 2017 -2018 on a remunerationof Rs 450000/- (Rupees Four lacs fifty thousand only). As required under the CompaniesAct 2013 the remuneration payable to the Cost Auditors is required to be placed beforethe members in a General Meeting for their ratification. Accordingly a Resolution seekingMembers ratification for the remuneration payable to Messers Shome & Banerjee CostAuditors is included at Item no. 6 of the Notice convening the Annual General Meeting.

The Company submits its Cost Audit Report with the Ministry of Corporate Affairs withinthe stipulated time period.

SECRETARIAL AUDIT

Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hasappointed Anjan Kumar Roy & Co. Company Secretaries (Membership No. FCS 5684) toundertake the Secretarial Audit of the Company. The Secretarial Audit Report for theFinancial Year ended 31st March 2017 is marked as ‘Annexure –E' which isannexed hereto and forms a part of the Board's Report.

QUALIFICATION RESERVATION OR ADVERSE REMARK IN THE AUDIT REPORTS

There is no qualification reservation or adverse remark made by the Statutory or Costor Secretarial Auditors in their Audit Reports issued by them.

DIRECTORS

Mr. Shashwat Goenka retires by rotation at the forthcoming Annual General Meeting andbeing eligible offers himself for re-appointment.

There have been 2 changes in the composition of the Board of Directors of the Companyduring the financial year ended 31st March 2017. Mr. Paras K Chowdharya Non-ExecutiveDirector of the Company was appointed as an Independent Director of the Company and theapproval of the shareholders was obtained in the Annual General Meeting of the Companyheld on 22nd July 2016.

In addition to the above Mr. Pradip Roy was inducted in the Audit Committee of theBoard of Directors of the Company at its Board Meeting held on 13th May 2016.

The policy on Directors' appointment and remuneration including the criteria fordetermining the qualifications and positive attributes forms a part of the CorporateGovernance Section of the Annual Report.

CHANGE IN THE NATURE OF BUSINESS

During the year under review there was no change in the nature of the business of theCompany.

GREEN INITIATIVES

As in the previous years this year too we are publishing only the statutorydisclosures in the print version of the

Annual Report. Physical copies of the Notice convening the 56th Annual General Meeting(AGM) have been sent to all the Members of the Company. Besides the electronic copies ofthe Notice have also been sent to all the Members whose email IDs are registered with theCompany's Registrar and Share Transfer Agent / Depository Participants for communicationpurposes. The electronic copies of the Annual Report 2016-17 are being sent to all Memberswhose email IDs are registered with the Company's Registrar and Share Transfer Agent

/ Depository Participants. For Members who have not registered their email addressesphysical copies of Annual Report are being sent in the permitted mode.

To support the ‘Green Initiative' Members who have not registered their e-mailaddresses are requested to register the same with the Company's Registrar and ShareTransfer Agent/Depositories for receiving all communication including Annual ReportNotices Circulars etc. electronically.

FORWARD LOOKING STATEMENT

This Report contains forward–looking statements that involve risks anduncertainties. Actual results performance or achievements could differ materially fromthose expressed or implied in such forward–looking statements. Significant factorsthat could make a difference to the Company's operations include domestic andinternational economic conditions affecting demand-supply and price conditions foreignexchange fluctuations changes in government regulations tax regimes and other statutes.

ACKNOWLEDGEMENT

Your Directors record their grateful appreciation for the encouragement assistance andco-operation received from members government authorities banks and customers. They alsothank them for the trust reposed in the Management and wish to thank all employees fortheir commitment and contribution.

For and on behalf of the Board
Sanjiv Goenka
Kolkata Chairman
10th August 2017 (DIN: 00074796)

Annexure B to the Boards' Report

(Statement in accordance with Section 134(3)(m) of the Companies Act2013 read withRule 8 of the Companies (Accounts ) Rules 2014 and forming part of the Boards' Report forthe year ended 31st March 2017)

1.A. CONSERVATION OF ENERGY

(a) Energy conservation measures taken:

The process of manufacture of Carbon Black results in generation of lean gases whichhave both sensible heat and calorific value. This heat energy is utilized in generation ofpower in extremely specialised and state of the art

- 30 MW Co- generation Power Plant at Durgapur

- 24 MW Co- generation Power Plant at Mundra

- 12 MW Co - generation Power Plant at Palej and

- 10 MW Co- generation Power Plant at Kochi

The entire lean gas is used to generate power for meeting the entire internal processreqirements for production of Carbon Black as well as to sell the surplus.

Excess heat generated during production is transferred in various heat exchangers likeWaste Heat Boiler (WHB) for steam generation in Air Pre-Heater (APH) and OilPre-Heater(OPH) for heating atmospheric air and Oil Feed stock which are used as input tocarbon black manufacturing process and thereby improving the process efficiency.

(b) Additional investments and proposals if any being implemented forreduction of consumption of energy:

(c) Impact of measures (a) and (b) above for reduction of energy consumption andconsequent impact on the cost of production of goods:

Reflected in the improved financial performance of the Company.

(d) Total energy consumption and energy consumption per unit of production:

As per Form-A of the Annexure to the Rules in respect of Industries specified in theSchedule thereto:

Form - A

Form for disclosure of particulars with respect to Conservation of Energy

A. POWER AND FUEL CONSUMPTION

Current year 31.03.2017 Previous Year 31.03.2016
A. Power and Fuel consumption
1. Electricity
Purchased units(KWH) 5366242 13460483
(a) Total amount(Rs in lakhs) 1021 1431
Rate per unit(Rs) 19.02 10.63
(b) Own generation
(i) Through diesel generators units (KWH) - -
Units per ltr. of diesel oil (KWH) - -
Cost per unit (Rs) - -
(ii) Through steam/turbine generators units (KWH) - -
Units per ltr. of fuel/gas oil (KWH) - -
Cost per unit (Rs) - -
(iii) Through co-gen power plants
(off-gas burning) units (KWH) 178505423 145796799
Units per ltr. of fuel oil (KWH) 721 1159
Cost per unit (Rs) 0.05 0.08
2. Coal(specify quality and where used) - -
Quantity(tonnes) - -
Total Cost(Rs in lakhs) - -
Average rate(Rs) - -
3. Furnace Oil - -
Quantity(K.ltr) - -
Total Cost (Rs in lakhs) - -
Average rate(Rs) - -
4. Others/internal generation(process steam) - -
Quantity(MT) 2188401 1720262
Total Cost (Rs in lakhs) 201.49 129.34
Average rate(Rs) 9.21 7.52
5. Consumption per unit of production
CARBON BLACK: i) Electricity (KWH/MT) 336 325
ii) Furnace Oil (Ltr./MT) - -
iii) Coal - -
iv) Others-process steam (MT/MT) 5.71 5.18

B. TECHNOLOGY ABSORPTION:

(a) Efforts made in technology absorption as per Form-B of the Annexure is givenhereto:

Form - B

Form for disclosure of particulars with respect to absorption:

RESEARCH & DEVELOPMENT R&D

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

- Development of more new grades of specialty black for international and domesticmarkets

- Improvement of product characteristics to meet more stringent customer specifications

- Joint development projects with Strategic Business Partners for New Carbon Blackgrade development

- NABL accreditation (Certificate no. TC-5367) to QC and Central R&D Laboratory ofPalej for Chemical and Mechanical Testing

2. Technical Services (TS)

- Capturing Specific Requirements of new Customers and new requirements of existingCustomers and guiding Plant Manufacturing team to meet this requiement by modification ofproduct characteristics and process parameters

- Continual recasting of Standard Operating Procedures for manufacturing efficiencyimprovement

- Technical support to customer at various levels of product development and inprocessing

- Aligning the Manufacturing processes with International Safety Health andEnvironmental requirements

3. Process Technology(PT)

- Reactor design and operating conditions suitably modified to match internationalbenchmarks

- Reactor design optimisation using state of the art software modules

- Computerized Fluid Dynamic(CFD)simulations were carried out for optimizing design andoperating parameters of existing and new process equipment.

- Unique Oil(Feedstock) homogenization system designed developed and installed inPalej Kochi and Mundra units.

- Developing processes to reduce defects and to reduce the cost of poor quality.

3. Benefits derived as a result of the above R&D TS and PT:

- Improved sales in domestic and international market and entry into niche markets.

- Higher price realisation in markets

- Customised grade development aligned with strategic partner's R&D projects formore business share

- Improved equipment life and reliability.

- Quality consistency and improvement.

- Improved manufacturing efficiency and reduced costs.

- Gaining trust and confidence of Customers on PCBL

4. Future Plan of Action:

- Development of more specialised rubber grades for specific applications in nichemarket.

- Improvement of product portfolio by developing new grades for non rubber applications

- Further improvement in processes for higher yield and better quality.

- More focus on customised grade developmentaligningstrategicbusinesspartners'manufacturing and product requirements

- Enhancement of R&D laboratory facilities for new product and customer development

- Debottlenecking of various processes and equipments

- Increased technical expertise to support customers and market development

- Leveraging external R & D resources for Basic Research

- Patent application for new product / process technologies

5. Expenditure on R & D :

Amount in Rs Lakhs

Current year Previous Year
(a) Capital - -
(b) Recurring 480.26 393.64
(c) Total 480.26 393.64
(d) Total R&D Expenditure as a percentage of total expenditure 0.24 0.21

Technology absorption adaptation & innovation:

1. Efforts in brief towards technology absorption adaptation & innovation:

- The revision in Standard Operating Procedures resulted in improved yields.

2. Benefits derived as a result of the above efforts: - Improved quality of the product

3. Particulars of Imported Technology in the last 5 years:

(a) Technology Imported :

Not applicable

(b) Year of Import :

Not applicable

(c) Has the technology been fully absorbed?: Not applicable

(d) If not fully absorbed areas where this has not taken place reasons thereof andfuture plans of action:

Not applicable

C. FOREIGN EXCHANGE EARNINGS AND OUTGO:

(a) Activities relating to exports initiatives taken to increase exportsdevelopment of new export markets for products and services and export plans:

Various initiatives relating to improvement in quality and service developing newmarkets etc. have resulted in exports of Rs45330.59 lakhs.

(b) Total foreign exchange used and earned:

Amount in Rs Lakhs

Current year Previous Year
Foreign Exchange used 105668.03 92195.52
Foreign Exchange earned 45330.59 43674.56

For and on behalf of the Board

Sanjiv Goenka Kolkata Chairman 10th August 2017 (DIN 00074796)