Ultramarine & Pigments Ltd.

To

Dear Members

Your Directors have the pleasure of presenting the 56th Annual Report and the auditedfinancial statement of the Company for financial year ended March 31 2017.

FINANCIAL RESULTS:

The financial performance of the Company for the year ended March 31 2017 issummarized below:

Rs . In lacs

DIVIDEND:

Your Directors have recommended a Dividend of Rs 4/- per share of the nominal value ofRs 2/- each for the year ended March 31 2017 [previous year Rs 3.50/- per share ofnominal value Rs 2/- per share]. The payment of dividend together with the tax thereonabsorbed a sum of Rs 1405.77 Lakhs. The dividend if declared by the members at theforthcoming Annual General Meeting will be paid to all the eligible members by 18thAugust 2017.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OPERATIONS AND FINANCIAL PERFORMANCE

Your Company has performed well with all divisions making significant contributionsduring the financial year. Revenues from operations improved by 16% to Rs 255.41 croresand the profit before tax by 23% to Rs 47.90 crores. This was made possible by bettercapacity utilisation of both the manufacturing plants situated at Ranipet & Ambattur.These improvements are due to a continuous upgradation of our technical capabilities witha sizeable investment in plant & machinery at both the manufacturing facilities. Themanufacturing operations have also focused this year on an optimal product mix. Overallwe saw an improvement of margins with 17% gross profit from manufacturing (15.5% inFY16) and 32.8% gross profit from ITES (24% in FY16).

Detailed analysis of segment wise performance is given below.

Pigment Division

The profitability of this division improved this year inspite of tepid volume growthin the retail market. A focus on value added products in the exports market and improvedcash flow from the domestic industrial market strengthened our financials. With a growingemphasis on R&D we expect to keep pace with the value-added market globally anddomestically. We expect this division to retain its health over the coming year.

The Pigments division achieved a net revenue of Rs 72.61crores (4907 MT) in thisfinancial year [(as compared to Rs 66.37 crores (4747 MT) in the previous financial year)]showing a 14% increase in volumes and a 10% increase in value.

Surfactants Division

With debottlenecking of the plant we were able to add 20% to our capacity which wewere able to use fully. While some raw material prices remained soft over the year othersrose rapidly. We were able to add more vendors for these raw materials and source themcompetitiv ely. We have introduced new products and now offer a wider variety ofsurfactants for the home and personal care industry.

Due to the debottlenecking and a focus on value added products the Surfactantsdivision increased its revenues by 23% to Rs 149.47 crores in this financial year ascompared to Rs 121.33 crores in FY 15-16. We were able to tap the export market this yearand maintained better margins over the previous year.

Wind Mill Generation

The Company has optimised the ratio of captive consumption to sale to State Grid. Thishas resulted in reduction of power cost and outstanding dues from State electricity board.This year the total units generated went up by 66% to 70.34 lakhs units & with theeasing of evacuation problem to State Grid revenue (including captive consumption)improved by 67%.

IT Division

During the year under review this division reported an income of Rs 31.36 croreswhile the revenue growth remained muted profit improved by 23%. This was possible due tobetter pricing increased revenue in certain segments improved margins from operationsand reduction in overhead cost.

Exports

The export earnings from manufacturing divisions went up by 21% mainly on account ofaddition of more distributors in new overseas markets. We improved our offering in valueadded products in the pigments division and were able to add efficiency to our productmatching according to customer specifications. We added new export customers insurfactants in Brazil Australia South East Asia helping improve both revenues andprofits for the division.

Earnings Per Share (EPS)

Earnings Per Share (EPS) is at Rs 11.10 (Previous Year Rs 9.37) and Cash Earnings PerShare (CEPS) is Rs 12.51 (Previous Year Rs 10.47) on the paid up value of Rs 2/- pershare.

INTERNAL FINANCIAL CONTROL

The Company maintains all its records in an ERP system tailor made to suit Companyspecific requirements. The work flow and majority of approvals are routed through thissystem.

The Company has put in place adequate systems and well drawn procedures for ensuringinternal financial controls and are being followed in the normal course of operations ofthe Company.

Internal Auditor is present at the Audit Committee meetings and the quarterly reportsobservation & the management responses are reviewed. Audit committee ensures thatappropriate actions to correct deviations if any are taken up immediately by themanagement. The Audit Committee of the Company provides reassurance to the Board on theexistence of an effective internal control system in the operations of the Company.

The Company has enlisted the services of an external firm of Chartered Accountants toevaluate the internal financial control systems and put in place the process ofidentifying risks & establishment of adequate controls.

PERSONNEL

Industrial Relations were quite harmonious through-out the year under review. Thedirectors earnestly appreciate the contributions and initiatives taken by the employees atall levels for the Company’s improved performance year after year.

RISKS AND CONCERNS

1. The domestic market for pigments continued to pose challenge both in the form ofcompetition from unorganised sector & shrinking demand for laundry and white washingapplications. With the introduction of GST this may be mitigated to some extent.

2. Availability of Alpha Olefin a key imported raw-material of Surfactants divisioncontinues to be erratic plagued by artificial shortages and delays in shipment. This willaffect the capacity utilisation .

PROSPECTS & OUTLOOK

Product mix and capacity utilization are the two key factors that drive our revenue andprofitability. We continue to explore newer markets with more value addedproducts.Asstatedinourearlier reports emphasis on new products in Pigments division like violetyellow etc. yielded a good result and going forward we will encash this opportunity to ouradvantage.

CAUTIONARY STATEMENT

The statements made in the report describe the Company’s objectives projectionsestimates expectations and predictions which may be "forward lookingstatements" within the meaning of the applicable securities laws and regulations. Theannual results can differ materially from those expressed or implied depending on theeconomic conditions Government Policies and other incidental factors and developments.

SHARE CAPITAL

The paid up equity share capital as on 31st March 2017 was Rs 5.84 crores. During theyear under review the Company has not issued shares with differential voting rights norgranted stock options nor sweat equity.

DIRECTORS

(i) As per the provisions of Companies Act 2013 Mrs. Indira Sundararajan(DIN.00092203) retires by rotation at the ensuing Annual General Meeting and beingeligible offered herself for re-appointment.

(ii) Mr. S. Sridhar (DIN.00091424) ceased to be Director with effect from 08.08.2016.

(iii) Mr. S. Santhanam (DIN.00092016) ceased to be Director with effect from08.08.2016.

(iv) Mr. R. Senthilkumar (DIN. 0007506297) appointed as Whole-time Director of theCompany for a period of 3 years with effect from 01.08.2016.

[ii iii iv: considered /approved by the shareholders through e-voting and pollconducted for the Annual General Meeting held on 08.08.2016]

DECLARATIONBY INDEPENDENT DIRECTORS

All the Independent Directors had furnished to the

Company a declaration under section 149 (7) of the Companies Act 2013 stating thatthey meet criteria of independence as provided under section 149(6) of the Companies Act2013 and SEBI Listing Regulations.

MEETINGS

During the year five Board meetings and five Audit Committee meetings were convenedand held. The details are given in the Corporate Governance Report.

The intervening gap between the meetings was within the period prescribed underCompanies Act 2013.

BOARD EVALUATION

Pursuant to the provisions of Companies Act 2013 and Regulation 17 of SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 an annual performanceevaluation of the performance of the Board the Directors individually as well as theevaluation of Board Committees was carried out.

The performance of Chairman of the Board was reviewed by the Independent Directorstaking into account the views of the Executive Directors. The parameters considered wereleadership ability adherence to corporate governance practices etc.

The performance evaluation of the Non Independent Directors was carried out by theentire Board of Directors (excluding the Director being evaluated).

The parameters considered were compliance to regulation and statutes with due emphasison corporate governance technical competence contribution to discussion on strategy /performance motivating and reviewing key employees etc.

The Independent Directors have assessed the quality quantity and timeliness of flow ofinformation between the Company management and the Board.

The evaluation of Independent Directors was done by the entire Board of Directors(excluding the Independent Director being evaluated). They are evaluated on variousparameters viz. participation in Board and Committee meetings value addition todiscussions on strategy objectivity and independence of views suggesting in bestpractices and new perspectives from their experience. etc. The evaluation process wasconducted through a format of questionnaire with provision for rating on a scale from 1 to5 (5 being the highest and 1 being the lowest).

POLICIES

SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 mandated theformulation of certain policies for all listed companies. In compliance with the same theCompany has formulated the policies. The corporate governance policies viz. Policy onRelated Party Transactions Corporate Social Responsibility

Policy Policy on Board Diversity Policy on Disclosure of Material Event /Information Code of Fair Disclosure under SEBI (Prohibition of Insider Trading)Regulations 2015 Whistle Blower Policy etc. are available on our Company’s website:www.ultramarinepigments.net.

POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION

The policy of the Company on director’s appointment and including criteria fordetermining positive attributes independence of a director and other matters providedunder sub section (3) of Section 178 of the Companies Act 2013 was framed on therecommendation of Nomination and Remuneration Committee and approved by the Board. The keyobjective of this policy is selection appointment of and remuneration to Key ManagerialPersonnel Directors and Senior Management Personnel. The said policy is given as Annexure1 to the Director’s Report.

RISK MANAGEMENT POLICY

A Risk Management Policy was framed and approved by the Board. The objective of thispolicy is to minimize the adverse impact of various risks on business goals and objectivesand enhancement of the value of stakeholders. The Board has constituted a risk managementcommittee and during the year the Committee met once to review the risk managementframework comprising of various risks and the mitiga tion plan.

VIGIL MECHANISM (Whistle blower policy)

The vigil mechanism of the Company incorporates a whistle blower policy in terms oflisting agreement (now SEBI Listing Regulations) with Stock Exchange. Through this policyit aims to provide an avenue for employees to raise their concerns on any violation oflegal or regulatory requirements fraud misfeasance misrepresentation of financialstatements and reports.

DISCLOSUREUNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION PROHIBITIONAND REDRESSAL) ACT 2013

The Company has in place an Anti-Sexual Harassment Policy in line with the requirementsof The Sexual Harassment of Women at the Workplace (Prevention Prohibition &Redressal) Act 2013.

Internal Complaints Committee (ICC) has been set up to redress complaints receivedregarding sexual harassment. All employees (permanent contractual temporary trainees)are covered under this policy.

The following is a summary of sexual harassment complaints received and disposed offduring the year 2016-17. No. of complaints received: Nil No. of complaints disposed off:NA

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the provisions of Sec. 134 (5) of the Companies Act 2013 the Directorsconfirm that.

i] in the preparation of the annual accounts for the year ended March 31 2017 theapplicable accounting standards have been followed along with proper explanation relatingto material departures.

ii] appropriate accounting policies have been selected and applied and such judgmentand estimates have been made that are reasonable and prudent so as to give true and fairview of the state of affairs of the Company as at March 31 2017 and of the profit of theCompany for the year ended that date.

iii] proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities. iv]the annual accounts have been prepared on a "going concern "basis.

v] that proper internal financial controls are laid down and are adequate and operatingeffectively.

vi] that proper systems to ensure compliance with the provisions of all applicable lawshave been devised and such systems are adequate and operating effectively.

PARTICULARS OF LOANS GUARANTEE OR INVESTMENTS

Particulars of loans and investments are provided in the financial statements (Pleaserefer Note 3.9 3.10 and 3.11 to the financial statement).

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 entered into by the Company withPromoters Directors

Key Managerial Personnel or other designated persons which may have a potentialconflict with the interest of the Company at large.

Prior omnibus approval of the Audit Committee was obtained for the transactions whichwere foreseen and repetitive in nature. The transactions for which omnibus approval wasrequired were placed before the Audit Committee and Board for their review and approval. Apolicy on Related Party Transactions was framed approved by the Board and posted on theCompany’s website www.ultramarinepigments.net.

The disclosure of Related Party Transactions as required under Section 134(3)(h) of theCompanies Act 2013 in Form AOC - 2 is not applicable.

STATEMENT PURSUANT TO SEBI LISTING REGULATIONS

The Company’s shares are listed with Bombay Stock Exchange Ltd. Your Company haspaid the respective annual listing fees and there are no arrears.

REPORT ON CORPORATE GOVERNANCE

A report on Corporate Governance is annexed herewith. As required by Schedule V of theSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 theAuditor’s Certificate on Corporate Governance is enclosed to the Board’s Report.

AUDITORS

Pursuant to the provision of Section 139 of the Companies Act 2013 read with Companies(Audit and Auditors) Rule 2014 the appointment of auditors shall be placed for at everyAnnual General Meeting. Accordingly the appointment of M/s. Brahmayya & Co.Chartered Accountants Chennai as statutory auditors is placed for ratification by the

Shareholders. In this regard the Company has received a certificate from the Auditorsto the effect that if they are re-appointed it would be in accordance with the provisionsof section 141 of the Companies Act 2013.

COST AUDIT

The Company is covered under the audit of cost accounting records relating to theproducts of the Company. Mr. G. Sundaresan Cost Accountant has been appointed as Costauditor for the financial year 2016-17.

SECRETARIAL AUDIT

Pursuant to the provisions of Section 204 of the Companies Act 2013 and Companies(Appointment and Remuneration of Managerial Personnel) Rule 2014 the Company hasappointed M/s. R.M. Mimani & Associates LLP a firm of Company Secretaries in practiceas Secretarial Auditor to undertake the secretarial audit of the Company. The Secretarialaudit report in Form MR- 3 is given in Annexure -2 to this report.

EXTRACT OF ANNUAL RETURN

The details forming part of the extract of Annual Return in Form MGT- 9 are given inAnnexure 3 to this report.

PARTICULARS OF EMPLOYEES

The required under section 197 of the Companies Act 2013 read with Rule 5(1)(2) &(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 inrespect of employees of the Company are given in Annexure 4 & 5 to this report.

CONSERVATION OF ENERGY TECHNOLOGY AbSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO:

The particulars required to be included in terms of section 134(3)(m) of the CompaniesAct 2013 with regard to Conservation of Energy Technology absorption Foreign Exchangeearnings and outgo are given in Annexure 6 to this report.

REPORT ON CORPORATE SOCIAL RESPONSIBILITY (CSR) INITIATIVES OF THE COMPANY:

A report on CSR initiatives of the Company and CSR policy are given in Annexure 7 tothis report.

ACkNOWLEDGEMENT

Your Directors thank the various Central and State Government DepartmentsOrganisations and Agencies for their help and co-operation extended by them. The

Directors also gratefully acknowledge all stakeholders of the Company viz.shareholders customers dealers vendors banks for their support. The Directors place onrecord their sincere appreciation of all employees of the Company for their commitment andcontinued contribution to the Company.