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Precot Meridian Ltd.

BSE: 521184 Sector: Industrials
NSE: PRECOT ISIN Code: INE283A01014
BSE 05:30 | 01 Jan Precot Meridian Ltd
NSE 00:00 | 09 Apr 22.00 1.00
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Precot Meridian Ltd. (PRECOT) - Director Report

Company director report

and Management Analysis

Dear Shareholders

Your directors hereby present the 57th Annual Report of your company alongwith the financial results for the year ended 31st March 2019.

State of affairs of the company

a. Financial results (' In lakhs)
Particulars 31.03.2019 31.03.2018
Revenue from operations 79012 70915
PBIDT 5735 2069
Less: Finance cost 4053 4079
Profit from Operations 1681 (2011)
Other Income 629 541
PBDT 2310 (1470)
Less: Depreciation and Amortisation 3137 3257
PBT (Before Exceptional item) (827) (4727)
Exceptional item - 4150
PBT (After Exceptional item) (827) (577)
Less: Tax expenses - -
MAT Credit - -
Deferred Tax - -
Profit After Tax (827) (577)
Other Comprehensive Income 44 43
Total Comprehensive Income (783) (534)
Add:Opening balance in Retained Earnings including OCI 15873 16407
Less: Transfer to General Reserve - -
Less: Provision for proposed dividend (including dividend tax) - -
Closing balance in Retained Earnings including OCI 15090 15873

b. Dividend and transfer to reserves

Your directors considering the fact that the company has incurred a loss during theyear under review have not recommended any dividend. No amount was proposed to betransferred to reserves.

Industry Overview

It was a year of two halves for the spinning industry in general. Demand for yarn wasrobust in the first half of the financial year from both domestic and export markets. Thisresulted in better price realisation and lower inventories of yarn leading to betterprofitability. However demand especially in exports waned from October resulting in anover supply position and lower prices in the domestic markets. This position continuesuntil the present with spinning mills still trying to liquidate unsold inventories.Further yarn exports have become less profitable due to the reduction of duty drawbackincentive and elimination of MEIS for yarn.

Cotton prices have been very volatile since the start of the season. Indian cottonoutput is expected to be lower than the last season due to insufficient rainfall andreduced acreage. Currently Indian cotton prices are ruling higher than global prices andimport of cotton into India has been significantly higher than the past few years. Globalcotton prices have tumbled due to the US - China standoff on tariffs. The long termeffects are still not clear as China has traditionally been the biggest buyer of US cottonand the US is the largest market for Chinese textile goods.

Review of operations

Your company had registered a turnover of Rs.790 crores during the FY 18-19 anincrease of 11.4% compared to the previous year. Profit from operations has increased toRs.16.8 Crores compared to a loss of Rs. 20.1 Crores in the prior year. During the yearunder review your company has continued to take steps to improve the productivity andproduct mix in the spinning business. Your company has reduced it's share of exports andincreased it's domestic customer base to improve price realisation. The compact yarncapacity of the company has increased further in line with our business plan and willreach 60% of total cotton spinning capacity in the current year. More stringent bankingnorms and reluctance of banks to lend to the textile sector has led to a liquidity crisisand has impacted the payment system in the entire supply chain.

The technical textiles division has completed five years of operations and is nowstarting to show positive returns. As compared to a turnover of Rs.73 Crores for the yearended 31st March 2018 this division achieved a turnover of Rs.92 crores duringthe year in review. During the year this division has consolidated it's marketingpresence in countries like the US Korea & Australia. Due to operational issues causedby an unexpected bunching of two large orders and the required production ramp up therewere delivery delays leading to additional freight and selling expenses which erodedoperational profit in the second half of the year.

Outlook for the current year

A smaller than usual Indian cotton crop and lowering of output forecasts by all Indiancotton bodies caused cotton prices to rise sharply in April. In this same period tensionsbetween US and China has caused international cotton futures markets to fall sharply.However physical cotton prices have not reacted to the same extent. All these conflictingfactors have increased uncertainty in the trade. While international buyers of garmentsare looking at the futures markets and expect a decrease in garment prices spinners areholding on to higher priced physical inventories. Polyester and Viscose yarns are alsounder pricing pressure as significant capacities have been added in China causing a crashin international prices of these fibres. All these factors point towards an uncertainoutlook for the current year from a spinner's point of view.

The technical textiles division has got a good foothold now in the US market. Ourmarket base has also grown due to development of new markets such as Korea Australia andSouth Africa. Considering the orders in hand and improved utilisation of capacities weare confident of achieving sales of over Rs.120 crores for FY 2020 with an estimatedprofit of 15% at PBDIT level.

Personnel

The company has been able to continue maintaining cordial relations with its labourforce in all its units. The company has 994 permanent employees on the roll as on31-Mar-2019.

Internal control systems & Risk Management

The company has adequate internal control systems to monitor business processesfinancial reporting and compliance with applicable regulations. The systems areperiodically reviewed by the Audit Committee of the Board for identification ofdeficiencies and necessary timely actions are taken to improve the controls at all levels.The committee also reviews the statutory auditors' report key issues significantprocesses and accounting policies.

Risk Management is an integral part of the business process. The company hasconstituted a Risk Management Committee and adopted a policy on risk management foridentifying and managing risk. The Audit Committee of the Board reviews the riskmanagement policy periodically. The details about composition of the risk managementcommittee policy and its terms of reference have been provided in the CorporateGovernance Report attached to this report.

Number of meetings of the Board

Details of number of meetings of the Board and committees thereof and the attendanceparticulars of the directors in such meetings are provided under the Corporate GovernanceReport attached to this report.

Declaration by Independent Directors

The independent directors have submitted their disclosures to the Board stating thatthey fulfill the requirements enumerated under section 149(6) of the Companies Act 2013(hereinafter "the Act") and Regulation 25 of Securities Exchange Board of India(Listing Obligations and Disclosure Requirements) Regulations2015.

Directors and Key Managerial Personnel (KMP) Appointments

Mr A P Ramkumar and Ms Kavitha were appointed as Chief Financial Officer and CompanySecretary of the company respectively and as KMP with effect from 1.06.2018.

Reappointments

The term of office of Mr Sumanth Ramamurthi Dr Jairam Varadaraj Mr C N Srivatsan andMs R Bhuvaneshwari Independent Directors of the company comes to an end on 31-May-2019.

The members at the 56lh Annual General Meeting (hereinafter called AGM) heldon 07-Sep-2018 appointed Mr Sumanth Ramamurthi and Dr Jairam Varadaraj as IndependentDirectors for a second term of 4 (four) consecutive years on the Board of the Company from01-Jun-2019 to 31-May-2023 and Mr C N Srivatsan and Ms R Bhuvaneshwari as IndependentDirectors for a second term of 5 (five) consecutive years on the Board of the Company from01-Jun-2019 to 31-May-2024. They are not liable to retire by rotation.

Retirements and Resignations

Mr Suresh Jagannathan Independent director retired from the company on 31-May-2018 oncompletion of his tenure. Mr M R Siva Shankar Chief Financial Officer retired fromservice on 31-May-2018 and Mr R Nithya Prabhu Company Secretary resigned from service on22-May-2018. There are no other retirements resignations or reappointment of directorsduring the year under review.

The following are the whole-time key managerial personnel of the company as per section203 of the Act as on 31-Mar-2019

(i) Mr Ashwin Chandran Chairman and Managing Director

(ii) Mr A P Ramkumar Chief Financial Officer & (iii) Mrs S Kavitha CompanySecretary.

Performance Evaluation

The Board of Directors at their meeting held on 22-Mar-2019 had carried out an annualevaluation of its own performance Board committees and individual directors pursuant tothe provisions of the Act and the corporate governance requirements as prescribed bySecurities and Exchange Board of India (Listing Obligations and Disclosure Requirements)Regulations 2015 (hereinafter "Listing Regulations").

The performance of the Board was evaluated by the Board of Directors after seekinginputs from all the directors on the basis of the criteria such as Board composition andstructure effectiveness of Board process etc.

The performance evaluation of each director was done by the entire Board of Directorsexcluding the director being evaluated taking into consideration inputs received from theother directors covering various aspects of the Board's functioning such as activeparticipation and contribution during discussions effective deployment of knowledge andexpertise towards the growth and betterment of the company impact and influence on thegrowth of the company and performance of specific duties obligations and governance.

The performance of the committees were evaluated by the Board after seeking inputs fromthe committee members on the basis of the criteria such as the composition of thecommittees effectiveness of committee meetings etc.

In a separate meeting of independent directors dated 22-Mar- 2019 performance ofnon-independent directors performance of the Board as a whole and performance of thechairman were evaluated taking into account the views of executive directors andnon-executive directors.

The Board also carried out evaluation of Independent Directors performance andfulfillment of the independence criteria as specified under listing regulations and theirindependence from the management. This evaluation of independent directors was done by theentire Board excluding the independent director being evaluated.

Policy on director's appointment and remuneration and other details

The company's policy on director's appointment and remuneration and other mattersprovided in section 178(3) of the Act has been disclosed in the Corporate GovernanceReport which forms part of this report.

Auditors' report and secretarial auditors' report

The auditors' report and secretarial auditors' report does not contain anyqualifications or adverse remarks.

During the year under review neither the Statutory auditors nor the SecretarialAuditor have reported to the Audit Committee any instances of fraud committed against thecompany by its officers or employees.

The report of the secretarial auditor is furnished as Annexure A and forms partof this report.

Receipt of any commission by Whole Time Directors from the company or receipt ofcommission/remuneration from subsidiary company.

Whole Time Directors have not received any commission from company or any commission/remuneration from subsidiaries during the year under review.

Annual Return

The extract of the annual return pursuant to section 92 read with rule 12 of theCompanies (Management and Administration) Rules 2014 in Form MGT-9 is furnished as AnnexureB to this report.

Secretarial Standards

The Company complies with all the applicable mandatory secretarial standards issued bythe Institute of Company Secretaries of India.

Particulars of Employees

The particulars as required under rule 5 of Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 is in Annexure C.

Consolidation of Accounts

The company has control of "Suprem Associates" a partnership firm by holdingmajority of its share in the firm. The accounts of the said firm is consolidated as perthe requirement of Indian Accounting Standards (IndAS).

Maintenance of Cost Records

The Company is maintaining the cost records as specified under section 148(1) of theCompanies Act 2013 and accordingly such accounts and records are made and maintained.

Audit Committee

The company has constituted an audit committee as per section 177 of the Act andListing regulations.

The details pertaining to vigil mechanism composition and meetings of the auditcommittee are included in the Corporate Governance Report which forms part of thisreport.

Energy Conservation Technology Absorption and Foreign Exchange Earnings and Outgo

The details as required under section 134(3)(m) of the Act read with rule 8 of theCompanies (Accounts) Rules 2014 is in Annexure D.

Corporate Governance

A report on corporate governance is furnished as Annexure E and forms part ofthis report. This includes other disclosures as required under the provisions of the Act.The company has complied with the conditions relating to corporate governance asstipulated in regulation 34 of the Listing Regulations.

Corporate Social Responsibility (CSR)

The CSR committee comprises of 1. Mr Ashwin Chandran 2. Mr Prashanth Chandran and 3.Mr Sumanth Ramamurthi. This committee takes care of CSR policy execution to ensure thatthe CSR objectives of the company are met. The CSR policy deals with allocation of fundsactivities identification of programmes approval implementation monitoring andreporting. CSR report pursuant to rule 8 of Companies (Corporate Social ResponsibilityPolicy) Rules 2014 is in Annexure F.

For the financial year 2018-19 the company was not required to spend on CSR activitiesowing to the average net loss for the immediately preceding three financial years ascomputed under the provisions of the Act.

The CSR policy is available on the company's websitehttp://www.precot.com/investor-relations/

Particulars of Loan Guarantees or Investments

Details as per the provisions of section 186 of the Act is given under notes tofinancial statements.

Related Party Transactions

None of the transactions with related parties falls under the scope of section 188(1)of the Act. Information on transactions with related parties pursuant to section 134(3)(h)of the Act read with rule 8(2) of the Companies (Accounts) Rules 2014 are given in AnnexureG in Form AOC-2 and the same forms part of this report.

The Board has approved a policy for related party transactions which is available onthe company's website http://www.precot.com/investor-relations/

Directors' responsibility statement

The directors confirm that:

a) The applicable accounting standards have been followed and proper explanationsprovided relating to material departures if any

b) The company has adopted prudent and consistent accounting policies so as to give atrue and fair view of the state of affairs of the company

c) Proper and sufficient care has been taken for maintenance of adequate accountingrecords under the provisions of the Companies Act for safeguarding the assets of thecompany and for preventing and detecting fraud and other irregularities

d) The annual accounts of the company have been prepared on a going concern basis

e) The internal financial controls are adequate and are operating effectively and

f) A proper system for ensuring compliance of all the applicable laws are put in placeand are operating effectively.

Statutory Auditors

The auditors of the company M/s VKS Aiyer & Co. Chartered Accountants (FirmRegistration No. 000066S) pursuant to the provisions of section 139 of the Act wereappointed as the statutory auditors of the company from the conclusion of the 56th AGMtill the conclusion of the 61st AGM to be held in the year 2023.

Cost Auditor

Pursuant to section 148 of the Act read with the Companies (Cost Records and Audit)Rules 2014 the Board of Directors on the recommendation of the audit committeeappointed Mr R Krishnan Cost Accountant as the cost auditor of the company for thefinancial year 2019-20.

Accordingly a resolution seeking member's ratification for the remuneration payable toMr R Krishnan Cost Auditor is included as Item No. 4 of the AGM notice.

Secretarial Auditor

Pursuant to Section 204 of the Act the Board of Directors appointed BGSMISHRA andAssociates Company Secretaries LLP Chennai as the secretarial auditors of the Companyfor the financial year 2019-20.

Insider Trading Regulations

Based on the requirements under SEBI (Prohibition of Insider Trading) Regulations2015 the 'Insider Trading Code' to regulate monitor and report trading by insiders andthe 'Code of Practices and Procedures for fair disclosure of Unpublished Price SensitiveInformation' are in force.

Change in nature of business

There was no change in the nature of the business of the company during the year underreview.

Deposits from public

The company has not accepted any deposits from public and as such no amount on accountof principal or interest on deposits from public was outstanding as on the date of thebalance sheet.

Material Changes

No material changes or commitments affecting the financial position of the companyoccurred between the end of the financial year (i.e. 31-Mar-2019) and the date of thisreport.

Vigil Mechanism/ Whistle Blower Policy

The company has formulated and published a Whistle Blower Policy to provide VigilMechanism for employees including directors of the company to report genuine concerns andto ensure strict compliance with ethical and legal standards across the company. Theprovisions of this policy are in line with the provisions of the section 177(9) of the Actand Listing Regulations are available on the website of the company at http://www.precot.com/investor-relations/. The details of Whistle Blower Policy forms part of the Corporate Governance Reportannexed with this report.

Disclosure under the Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013

The company has constituted an internal complaints committee to address the complaintsregarding sexual harassment. All employees are covered under this policy. The company hasnot received any complaints during the year under review. The details relating toComplaints forms part of the Corporate Governance report annexed with this report.

Unclaimed Shares

In accordance with the requirement of Regulation 34(3) and Schedule V Part F of ListingRegulations the details in respect of equity shares lying in the suspense account is asfollows.

Particulars Number of share holders Number of Equity Shares
Aggregate number of shareholders and the outstanding shares in the suspense account as on 01-Apr- 2018 296 55050
Number of shareholders approached the company for transfer of shares from suspense account during the year 23 3550
Number of shareholders to whom shares were transferred from suspense account during the year 23 3550
Aggregate number of shareholders and outstanding shares in the suspense account as on 31-Mar- 2019. 273 51500

The voting rights on the shares outstanding in the suspense account as on 31-Mar-2019shall remain frozen till the rightful owner of such shares claims the shares.

Acknowledgment

Your directors thank the shareholders customers suppliers and bankers for theircontinued support during the year. Your directors also place on record their appreciationof the contributions made by employees at all levels towards the growth of the company.

By order of the Board
Coimbatore Ashwin Chandran
22-May-2019 Chairman and Managing Director