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Smruthi Organics Ltd.

BSE: 540686 Sector: Health care
NSE: N.A. ISIN Code: INE172E01011
BSE 00:00 | 17 Aug 128.00 -6.00
(-4.48%)
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NSE 05:30 | 01 Jan Smruthi Organics Ltd
OPEN 127.30
PREVIOUS CLOSE 134.00
VOLUME 1131
52-Week high 147.95
52-Week low 68.40
P/E
Mkt Cap.(Rs cr) 49
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 127.30
CLOSE 134.00
VOLUME 1131
52-Week high 147.95
52-Week low 68.40
P/E
Mkt Cap.(Rs cr) 49
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Smruthi Organics Ltd. (SMRUTHIORGANIC) - Director Report

Company director report

Directors Report

Dear Members

Your Directors are pleased to present the 29th Annual Report and the Audited FinancialStatements for the

financial year ended 31st March 2018.

(Rs. in Lakhs)

Financial Results Current Year 2017-2018 Previous Year 2016-2017
Net Sales & Other Income 9755.12 8032.97
Profit before Interest & Depreciation and Tax 346.87 1093.42
Interest 408.71 437.41
Depreciation 406.58 396.60
Profit / (Loss) before tax (468.41) 259.33
Less : Provision for Tax (Net) (147.07) 100.84
DTA / (DTL)
Profit / (Loss) After Tax (321.33) 158.49
Other Comprehensive Income (Net of Tax) NA NA
Total Comprehensive Income for the year NA NA

Operational Performance/ State of Company's Affairs

During the year under review total income of the Company was Rs. 9755.12 Lakhs ascompared to Rs. 8033.97 Lakhs during previous year registering a increase of 21.43%.However inspite of achieving operational profit of Rs. 308 Lakhs. Company has posted netloss of Rs. 321.33 Lakhs on account of write off of irrecoverable net receivables of Rs794 Lakhs consequent upon cancellation of regulatory approvals of the company.

A detailed overview has been provided under Management Discussion and Analysis Report.

During the year under review there was no change in the Share Capital Structure.

Dividend

In view of losses Directors do not recommend any dividend.

Reserves

During the year under the review in view of losses no amount has been transferred toreserves.

Deposits

During the year under review your Company neither accepted nor renewed any fixeddeposits falling within the ambit under provisions of Section 73 of the Companies Act2013 and The Companies (Acceptance of Deposits) Rules 2014. Outstanding amount ofdeposits accepted by the company from it's Directors :- Mr. E. Purushotham Rs. 98 LakhsMrs. E. Vaishnavi Rs. 36 Lakhs

HUMAN RESOURCE DEVELOPMENT (HRD) & INDUSTRIAL RELATIONS:

The Company continues to have cordial and harmonious relations with its employees. YourDirectors place on record their appreciation for the commitment dedication and hard workput in by the employees of the Company during testing times.

The Company is in the process of implementing a revised HRD program for developingbetter labour relationships. The company has adopted new policies to recruit develop andretain skilled manpower. With an aim to expand product range and operations the Companyhas made several new appointments to its existing team in various departments.

Quality Safety & Environment:

The Company has appointed an experienced and accomplished professional to head theQuality Assurance function. Under his supervision the quality team is actively workingtowards starting registrations in regulatory markets. The company is taking steps in theright direction to resume its supplies to regulated markets.

An experienced veteran of ETP has been recruited to improve environmental complianceand reduce environmental load. Through his initiatives the company has investedsubstantial amounts in upgrading effluent treatment facilities in this financial year. Thecompany has substantially reduced waste water generation through efficient recycling ofwater which has not only reduced costs of treatment but also reduced energy consumptionand environmental load. In addition the company has implemented several initiatives toengage and train employees to continuously improve working practices and achieve zeroaccident level.

Research and Development (R&D)

The company made marginal investments in R&D in FY 2017-2018 primarily for processimprovement and cost reduction of existing products. However as the company's financialperformance is improving the company is increasing its R&D spends in the nextfinancial year. The company is opening a new R&D facility with an aim to develop 4 5new products every year. The focus of the R&D will be create economic value throughthe development of intellectual property.

LISTING OF SHARES:

Besides Metropolitan Stock Exchange of India Ltd the company also secured listing ofits equity shares on

BSE Limitedw.e.f August 29 2017 (Scrip Code: 540686).

CORPORATE GOVERNANCE

The Company has complied with the mandatory requirements of the code of CorporateGovernance as detailed in clause 17 to 27 of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015.

Corporate Governance Report is enclosed as a part of the Annual Report along with thecertificate from the Statutory Auditors M/s. N. R. Waghchaure & Associates CharteredAccountants Solapur confirming compliance of the code of Corporate Governance asstipulated Para E of schedule V of the Securities and Exchange Board of India (Listingobligations and Disclosure requirements) Regulations 2015.

Management Discussion and Analysis

Business of the Company and Future Outlook:

The company posted great growth in top line in FY 17 18 over the previous financialyear owing to the operational strategies initiated in the previous year. This wasprimarily driven by our efforts to add more customers for our existing products thusincreasing volume. 3 of our key products have grown by over 70% in volume year on yearcontribution to majority of the growth in top line.

Although low operating margins have been reported on account of a one-time write offof bad debts of receivables of year FY 12-13 amounting to Rs. 7.97 crore. Adjusting forthe same the company has generated healthy EBITDA margins for FY 2017 18. Despitecompetitive pressure on finished product prices and rise in input prices the company hasbeen able to improve its operational margins due to various cost cutting and productivityimprovement measures undertaken during the year.

The company has repaid its entire term loan of Axis Bank & portion of other longterm loan in FY 2017 18. Efficient capital management has reduced the financial cost tothe company in FY 2017 18 compared to the previous financial year.

In FY 2018 - 19 the company has secured several long term supply contracts withcustomers which are contributing to top line growth and capacity utilization. Goingforward in addition to pursuing volume growth of existing products the company islaunching 2 3 new high margin products in FY 2018 19 which will build a platform forfuture growth. Our API R&D expansion undertaken in FY 2018 19 will ensure deliveryof 4 5 new API every year while generating valuable intellectual property. The company isalso working on developing a formulations marketing business in FY 2018 19. The focus willbe on creating intellectual property of novel formulations and build a niche market forthem subsequently. Our efforts are aimed at making the company a vertically integratedpharmaceutical company driven by innovation.

Risk Management Opportunities & Threats

Raw Material Supply Risk

The Indian API industry is currently facing a threat of reliable and low cost supply ofraw materials from China due to initiatives taken by the Chinese Government to tacklepollution amongst others. The pressure of rising raw material prices is continuing inaddition to sudden supply shocks. The company is also facing this situation and isintegrating backward by developing in house raw material manufacturing capability ordeveloping manufacturing processes involving alternative raw materials.

However this is a great opportunity for Indian API companies to regain market sharelost to Chinese API manufacturers by going for backward integration. In addition theindustry can develop capabilities for manufacturing various raw materials domesticallyreducing dependency on China. The company is evaluating products for R&D developmentwhich will leverage the opportunity created by the supply uncertainty of Chinese products.

Industry & Competition Risk

The API industry is a highly competitive industry with downward pressure on prices. Thecompany has approached the risk of slowing growth and reduced margins by focusing on threethings:

1. Cost Reduction: The company continuously works on reducing manufacturing and othercosts through various employee led initiatives. In addition the management focuses onoptimizing capacity utilization to get optimum cost structure.

2. New Product Development: Launch of newer higher margin products ensures the companycan manage product portfolio in favor of optimizing margins. Our increased R&D effortsare aimed at achieving a consistent flow of new products.

3. Vertical Integration: The management envisions the company being a niche player inthe business of complex formulations. Our initiatives of launching the formulationsbusiness will not only add significantly to revenue and margin growth but also reduce thedependency on API business.

Foreign Exchange Risk

Being a net exporter and net earner of foreign exchange (forex) we do not seesignificant risk from foreign exchange fluctuations. Any downward pressure on Indian rupeewill be beneficial for the company with very little downside in case of a potentiallystronger rupee.

Internal Control Systems:

The Company has adequate internal control procedures commensurate with the size of thecompany and the nature of its business with regard to purchases of inventory fixed assetsand with regard to the sale of goods. However to improve these systems the company isplanning to implement a suitable ERP system in FY 2018-2019.

Cautionary Statement:

Certain statements estimates and expectations stated in this Management Discussion andAnalysis are based on the current perceptions data and information available with theCompany and may be 'forward - looking statements' within the meaning of applicablesecurities laws and regulations.

They reflect the company's current views of future events which are subject to risksand uncertainties Important factors such as change in the competition scenario in theCompany's areas of operations economic conditions affecting demand/supply and pricessituation in the domestic and international market changes in government regulations taxlaws and other incidental factors may cause actual results to be materially different. Thecompany assumes no responsibility to publicly amend modify or revise any forward lookingstatements on the basis of any subsequent development information or events.

Directors:

Company's applications for waiver of excess remuneration paid to Mr. E PurushothamManaging Director for the financial years from 2010-2011 to 2013-2014 are still pendingwith the Central Government.

Mr. E. Purushotham Managing Director of the Company was re- appointed for a period of5 (Five) years with effect from 1st April 2017 at AGM held on 04th September 2017.

Mr. E. Swapnil Executive Director and Chief Financial Officer (CFO) of the Company wasre- appointed for a period of 5 (Five) years with effect from 1st June 2017 at AGM heldon 04th September 2017.

Mr. E. Swapnil is retiring by rotation and being eligible offers himself forreappointment. You are requested to appoint him.

As required under the SEBI Regulations particulars of Directors seeking reappointmentat the ensuing

Annual General Meeting have been given under Corporate Governance Report.

None of the Directors are disqualified from being appointed as Directors as specifiedin Section 164 of the Companies Act 2013.

All Independent Directors have given declarations that they meet the criteria ofindependence as laid down under Section 149 (6) of the Companies Act 2013 and theirconfirmation to adherence to Code of Conduct .

Board Evaluation:

Pursuant to the provisions of the Companies Act 2013 the Board has carried out annualperformance evaluation of its own performance and of other Committees on the basis ofparticipation of directors quality of information available quality of discussionscontributions and decision making etc. The overall performance of the members of the Boardwas found satisfactory. The performance evaluation of Independent Directors was done bythe entire Board of Directors and Directors subject to evaluation had not participated inthe same. The Independent Directors evaluated performance of non independent Directors andboard as a whole.

Nomination and Remuneration policy and evaluation criteria of Independent Directors:

The Board has on the recommendation of the Nomination & Remuneration Committeeframed a policy for selection and appointment of Directors Key Managerial PersonnelSenior Management and their remuneration and evaluation criteria for performanceevaluation of Independent Directors. The Nomination and Remuneration Policy and evaluationcriteria of Independent Directors have been provided under Corporate Governance Report.

Audit Committee:

Composition of Audit Committee and terms of reference are given in the CorporateGovernance Report.

Details in Respect of Adequacy of Internal Financial Controls with reference to theFinancial Statements:

The Company has an Internal Control System commensurate with the size scale andcomplexity of its operations. To maintain its objectivity and independence the InternalAuditor reports to the Chairman of the Audit Committee of the Board.

Directors' Responsibility Statement:

Pursuant to the requirement under Section 134 (5) of the Companies Act 2013 (the"Act") with respect to

Directors' Responsibility Statement it is hereby confirmed that:

(a) in the preparation of the annual accounts for the financial year ended 31st March2018 the applicable accounting standards have been followed along with proper explanationrelating to material departures;

(b) 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 ended31st March 2018 and of the loss of the company for the year ended on that date;

(c) the Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the company and for preventing and detecting fraud and other irregularities;

(d) the Directors have prepared the annual accounts on a going concern basis; and

(e) the Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively.

(f) the Directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems are adequate and operating effectively.

Meeting of Board and Committees of Directors

During the year 6 Board Meetings and 6 Audit Committee Meetings were convened and held.The details of the same along with other Committee's of Board are given in the CorporateGovernance Report. The intervening gap between the Meetings was within the periodprescribed under the Companies Act 2013.

Auditors

In the 28th Annual General Meeting held on 04th September 2017 M/s. N. R. Waghchaure& Associates. Chartered Accountants Solapur (Reg.No.: 114999W) have been appointedStatutory Auditors of the Company for a period of 5 years .

Although under Companies (Amendment) Act 2017 ratification of the members has beendispensed with company has obtained confirmation from the said Auditors about theireligibility to continue to hold the office during the current financial year.

Auditors' Report

There are no adverse remarks/ modified opinions in the Auditors Report.

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 Mr. H. R. Thakur Practicing Company Secretary Mumbai to undertake theSecretarial Audit of the Company. The Report of the Secretarial Audit is annexed herewithas "Annexure I". The findings of Secretarial Audit were satisfactory.

Cost Audit

For Financial Year 2017-2018 the Company had re-appointed M/s. Shrinivas Diddi andAssociates Cost

Accountants Solapur for conducting cost audit.

Members are requested to confirm the appointment and remuneration of the Cost Auditorfor the Financial

Year 2018-19.

Particulars of Employees:

The information required pursuant to Section 197 read with Rule 5 (1) of The Companies(Appointment and

Remuneration of Managerial Personnel) Rules 2014 in respect of employees of theCompany is given below.

Disclosures required with respect to Section 197(12) of the Companies Act 2013:-

The ratio of the remuneration of each director to the median employee's remuneration(MRE) and such other details in terms of Section 197(12) read with Rule 5 (1) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014.

a. The ratio of the remuneration of each director to the median remuneration of theemployees of the

Company for the financial year:

Name of the Directors Ratio to median remuneration
Non- exective Directors
Mrs. E. Vaishnavi Nil
Mr. J.H. Ranade Nil
Dr. K. Ramaswamy Nil
Mr. Kashinath Revappa Dhole Nil
Exective Directors
Mr. E. Purushotham 57.11
Mr. E. Swapnil 38.07

*Sitting fees paid to Non Executive Directors not considered as remuneration.

b. The percentage increase in remuneration of each director chief executive officerchief financial

officer company secretary in the financial year:

Directors Chief Executive officer Chif Financial Officer & Company Secretary % Increase in remuneration in Financial Year
Mr. E. Purushotham
Mr. E. Swapnil 55.55%

c. The percentage increase in the median remuneration of employees in the financialyear: 13.31%

d. The number of permanent employees on the rolls of Company: 152

e. Average percentile increase already made in the salaries of employees other than themanagerial personnel in the last financial year and its comparison with the percentileincrease in the managerial remuneration and justification thereof and point out if thereare any exceptional circumstances for increase in the managerial remuneration: NA

f. Affirmation that the remuneration is as per the remuneration policy of the Company:The Company affirms remuneration is as per the remuneration policy of the Company.

The information required pursuant to Section 197 read with Rule 5 (2) and 5 (3) of TheCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 is notapplicable as the Company had no employees who were in receipt of remuneration of not lessthan Rs. 10200000/- per annum if employed for full year or not less than Rs.850000/- per month during any part of the Financial Year .

Corporate Social Responsibility (CSR)

The Company has adopted CSR Policy upon recommendations of CSR Committee as perprovisions of the Act. In view of past losses Company was not required to spend on CSRduring the financial year 2015 2016 2016-2017 and 2017-2018.

The Annual Report on CSR activities forming part of this Board's report is annexedherewith as "Annexure-

II"

Highlights of the CSR Policy:

Company will operate CSR Policy in the areas of education healthcare sanitation andhygiene. Arising from this the focus areas that have emerged are Education Health careSustainable livelihood and espousing social causes projects shall be identified andadopted as per the activities included and amended from time to time in Schedule VII ofthe Companies Act 2013.

Code of Ethics / Vigil Mechanism / Whistle Blower Policy

The Company has a vigil mechanism named Whistle Blower Policy to deal with instances offraud and mismanagement if any. The objective of the Policy is to explain and encouragethe directors and employees to raise any concern about the Company's operations andworking environment including possible breaches of Company's policies and standards orvalues or any laws within the country or elsewhere without fear of adverse managerialaction being taken against such employees.

Particulars of Loans Guarantees or Investments

Company did not give any loans guarantees and make any Investment covered under theprovisions of Section 186 of the Companies Act 2013.

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. There were nomaterially significant related party transactions made by the Company during the financialyear with Promoters Directors Key Managerial Personnel or other designated persons whichmay have a potential conflict with the interest of the Company at large.

All Related Party Transactions are placed before the Audit Committee as also the Boardfor approval.

The policy on related party transactions as approved by the Board is uploaded on theCompany's website www.smruthiorganics.com.

Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo

As required by the Companies (Accounts) Rules 2014 the relevant informationpertaining to conservation of energy technology absorption foreign exchange earnings andoutgoings respectively is given in the "Annexure III" to this report.

Risk Management Policy

The Company is aware of the risks associated with the business. It regularly analysesand takes corrective actions for managing / mitigating the same. Your Company's Riskmanagement framework ensures compliance with the provisions of Regulation 21 of Securitiesand Exchange board of India (Listing obligations and disclosure requirements) Regulations2015.

Corporate Governance

A detailed Report on Corporate Governance is given as a part of Annual Report. TheCompany is in full compliance with the requirements and disclosures that have to be madein this regard. The Certificate of the compliance with Corporate Governance requirementsby the Company issued by the Statutory Auditors attached to the Report on CorporateGovernance.

Extract of the Annual Return

Pursuant to Section 92(3) of the Companies Act 2013 the extract of the Annual Returnin Form No. MGT-9 forms part of this Board's Report and is enclosed as "AnnexureIV".

Significant and Material Orders passed by the Regulators/ Courts if any

No significant or material orders were passed by the regulators or courts which impactthe going concern status of the Company's operations in future.

Acknowledgment

The Board wishes to place on record its appreciation of sincere efforts put in by theemployees of the Company in helping it reach its current growth levels. Your Directorsplace on record their appreciation for the support and assistance received from theinvestors customers vendors bankers financial institutions business associatesregulatory and governmental authorities.

For & on behalf of the Board
Place : Solapur (E. Purushotham)
Date : 19th May 2018 Chairman & Managing Director