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Kandagiri Spinning Mills Ltd.

BSE: 521242 | NSE: KANDAGIRI | Series: NA | ISIN: INE292D01019 | SECTOR: Textiles - Spinning - Cotton Blended

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Annual Report

For Year :
2017 2015 2014 2013 2012 2011 2010 2009 2008

Director’s Report

The directors have pleasure in submitting their 41st Annual Report together with the audited accounts for the year ended March 31, 2017 (the year).

Performance Highlights

2016 - 17

2015 - 16

(Rupees in Lakhs)

Export - Direct



- Merchandise






Other Operating Income



Total Turnover



Gross profit/(Loss) (i.e., Profit before interest and depreciation)



Cash profit/(Loss) (i.e., Profit / before depreciation)



Profit/(Loss) before exceptional Item and tax



Exceptional Item - Profit on sale of Windmill



Profit/(Loss) after exceptional Item (before tax) - PBT



Profit/(Loss) after exceptional Item and tax - PAT



Earnings per share - basic and diluted Rs.




In view of the loss incurred during the year, no dividend could be recommended by your Board of Directors for the financial year 2016-17.

Reserves and Surplus

The current year loss of Rs. 1116 lakhs has been added to the deficit at the beginning of the year of Rs. 1258.62 lakhs and the deficit aggregates to Rs. 2374.51 lakhs at the end of the year.

Financial Performance with respect to Operational Performance:

During the financial year 2016-17, your Company was not able to run all the units at fullest capacity. The capacity utilization of all the units got reduced resulting in lower production of 32.90 lakh kgs and the Company was able to achieve only a turnover of Rs. 7803 lakhs as against the turnover of Rs. 14478 lakhs of the previous year 2015-16.

The cash loss incurred by the Company during the previous year 2015-16 and the continued adverse market behavior and abnormal increase in cotton prices and lower yarn prices, resulted in losses during the current year also. Despite aforesaid adverse factors, the Company made repayment of term loans (nearly Rs. 20 crore) which has affected the entire working capital. The financial crunch affected the timely repayment of term loans and creditors payments. In view of the delayed payments to creditors, the procurement of raw material was also affected.

As a consequence of the above and also due to non-recovery of fixed costs since the Company had not run at the fullest capacity during the year, your Company incurred loss of Rs. 2661 lakhs as against previous year 2015-16 loss of Rs. 1134 lakhs

To overcome this situation and to ease off the financial crisis, strategic decision of selling windmill assets and Unit -III of the Company was taken. The proceeds from the sale of windmill assets were utilized for bank repayments and certain creditor payments. Sale of Unit-III is under progress and the proceeds will be utilized for remaining payment obligations of the Company and also for the working capital needs to run the business.

The above said loss of Rs. 2661 lakhs got reduced by the profit on sale of Windmill assets of Rs. 1545 lakhs resulting in net loss of Rs. 1116 lakhs for the financial year 2016-17


The core business of the company is manufacture and sale of cotton yarn. The management discussion and analysis given below discusses the key issues of the cotton yarn spinning sector.

(a) Industry structure and developments:

The FY 2016-17 witnessed high volatility and abnormal increase in cotton prices and sluggish demand for yarn products both in domestic and international markets. Cotton prices were uneconomical in relation to market price of yarn. Surplus production, uneconomical exports and reduced demand for medium quality yarn in the domestic market are some of the reasons for the lower performance of the industry. These circumstances have created challenges of shifting towards new value added products, selling at higher price or premium price for the better quality of yarn, better productivity and enhancing marketing strategies for evolution of new markets. Decision to reduce exports at the present juncture due to the uneconomical prices also aggravated situation due to competition from other developing countries like Indonesia, Vietnam, Bangladesh, Philippines etc.

(b) Outlook

The industry expects an improvement during the current year. Further, there is an increasing demand for value added yarns and also other cellulosic fibres in both domestic and international markets. In view of these factors, Company''s performance is expected to improve substantially during the year 2017-18.

(c) Strategies and Future plans

By using the sale proceeds of Unit-III asset, your company propose to repay a substantial portion of term loans and other payment obligations and propose to utilize the balance sale proceeds towards working capital requirements. Further for betterment in the operations of the Company, in addition to cotton yarn, your directors have planned to produce value added products viz., “Viscose, Polyester and Melange varieties of yarn” based on the market requirements. And the production of these varieties had already been started and it is well received in the market. The profitability is also quite good as compared to cotton yarn.

(d) Risks and Concerns

Your Company has devised Risk Management Policy which involves identification of the business risks as well as the financial risks, its evaluation, monitoring, reporting and mitigation measures. The Audit Committee and Board of Directors of the Company periodically review the Risk Management Policy of the Company so that management controls the risk through properly defined network. Head of Departments are responsible for implementation of the risk management system as may be applicable to their respective areas of functioning and report to the Board and the Audit Committee. The details of risk management mechanism and key risks faced by the Company are enumerated in the risk management policy. Risk management policy is uploaded in the company''s website

(e) Internal control systems

The Company has in place a well established internal control procedures covering various areas such as procurement of raw materials, production planning, quality control, maintenance planning, marketing, cost management and debt servicing. Necessary checks and balances have been instituted for timely correction with an effective internal audit system.

Your company is certified ISO 9001: 2008 for Quality Management System Standards (Manufacture and supply of yarn) and ISO 14001: 2004 for Environmental Management System Standards (the systems). Further, your company''s laboratory is also certified by NABL.

(f) Human resources management

Employees are your company''s most valuable resource. Your Company continues to create a favourable environment at work place.

The company also recognizes the importance of training and consequently deputes its work force to various work related courses/seminars including important areas like Total Quality Management (TQM), Technical skills etc. The fact that the relationship with the employees continued to be cordial is testimony to the company''s ability to retain high quality workforce.

(g) Environmental Protection, Health and Safety (EHS)

EHS continues to receive the highest priority in all operational and functional areas at all locations of your Company. Systematic process safety analysis, audits, periodic safety inspections are carried out by expert agencies and suitable control measures adopted for ensuring safe operations at the site. Various processes as required for Pollution Control and Environmental Protection are strictly adhered to.

(h) Corporate Social Responsibility

Board of Directors of the Company has constituted Corporate Social Responsibility (CSR) Committee and devised a CSR policy to carry out CSR initiatives in line with the requirements specified under the Companies Act, 2013. Since the Company has no average net profit, there is no CSR Obligation for the FY 2016-17. However, Company has spent Rs. 1.23 lakhs towards unspent CSR obligation of previous year which the details have been given in the annexure to this report. The CSR policy has been hosted on the website of the Company

Extract of Annual Return

The extract of annual return in Form MGT - 9 has been annexed with this report and forms part of this report.

Number of Board Meetings

The details pertaining to meetings of the Board has been explained under Corporate Governance Report annexed with this report and forms part of this report.

Establishment of Vigil Mechanism

The Company has established a vigil mechanism for Directors and employees to report their genuine concerns. The policy has been uploaded on the Company''s website under the web-link:

Declaration by Independent Directors

Independent directors of the Company have submitted a declaration that each of them meets the criteria of independence as provided in Sub-Section (6) of Section 149 of the Act. Further, there has been no change in the circumstances which may affect their status as Independent director during the year.

Secretarial Auditors'' Report

Company appointed M/s B. K. Sundaram & Associates, Practicing Company Secretaries as Secretarial Auditors to conduct Secretarial Audit of the Company for the financial year 2016-17. The report of the Secretarial Audit for the financial year 2016-17 in FORM MR-3 is annexed to this report and forms part of this report. There are no disqualifications, reservations or adverse remarks or disclaimers in Secretarial Auditors Report.

Audit Committee

Details of Composition of Audit Committee are covered under Corporate Governance Report annexed with this report and forms part of this report. Further, during this year all the recommendations of the Audit Committee have been accepted by the Board.

Policy of Directors Appointment and Remuneration

Company''s policy on Directors'' appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under section 178(3) of the Act are covered under Nomination and Remuneration Policy and it is available in the web link of the Company Further, information about elements of remuneration package of individual directors is provided in the extract of Annual Return as provided under Section 92(3) of the Act, in prescribed form MGT-9 annexed with this report and forms part of this Report.

Independent Auditors'' Report

There is no qualification in the Independent Auditors'' Report except Independent Auditor has pointed out the delay in repayment of bank term loan principal and interest dues to the bankers. Your directors wish to state that due to cash flow constraints there was delay in repayment of bank term loan principal and interest dues which has been subsequently paid off.

Particulars of Employees

The information required under section 197 of the Act and rules made there-under with subsequent amendments thereto, in respect of employees of as shown below:

(a) Employed throughout the year and in receipt of remuneration aggregating to Rs.1,02,00,000 or more - Nil

(b) Employed for part of the year and in receipt of remuneration of Rs.8,50,000 or more per month - Nil Note : Remuneration includes salary and value of perquisites and nature of employment is contractual.

Managerial Remuneration

Statistical Disclosures pursuant to Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (with subsequent amendments thereto) is annexed with this report and forms part of this report.

Related Party Transactions

Transactions entered with related parties have been explained in Form AOC -2 annexed with this report and forms part of this report. Further, Policy on dealing with Related Party Transactions has been uploaded on the Company''s website, under the web link:

Board Evaluation

The Board of Directors has carried out an annual evaluation of its own performance, board committees, and individual directors pursuant to the provisions of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015.

The performance of the board was evaluated by the board after seeking inputs from all the directors on the basis of criteria such as the board composition and structure, effectiveness of board processes, information and functioning, etc. as provided by the Guidance Note on Board Evaluation issued by the Securities and Exchange Board of India on January 5, 2017.

The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of criteria such as the Composition of committees, effectiveness of committee meetings, etc.

The Board and the Nomination and Remuneration Committee reviewed the performance of individual directors on the basis of criteria such as the contribution of the individual director to the board and committee meetings like preparedness on the issues to be discussed, meaningful and constructive contribution and inputs in meetings, etc.

In a separate meeting of independent directors, performance of non-independent directors, performance of the board as a whole and performance of the Chairman was evaluated, taking into account the views of executive directors and non-executive directors. The same was discussed in the board meeting that followed the meeting of the independent directors, at which the performance of the board, its committees, and individual directors were also discussed. Performance evaluation of independent directors was done by the entire board, excluding the independent director being evaluated.

None of the Independent directors are due for reappointment.

Familiarization Programme of the Independent Directors

Periodic presentations are made by Senior Management, Statutory and Internal Auditors at the Board/Committee meetings on business and performance updates of the Company, global business environment, business risks and its mitigation strategy, impact of regulatory changes on strategy etc. Updates on relevant statutory changes encompassing important laws are regularly intimated to the Independent directors.


The following are the details of deposits covered under Chapter V of the Act

i. Deposits Accepted from shareholders during the year (2016 - 17): Rs. 17.66 lakhs

ii. Remained unpaid or unclaimed as at the end of the year : NIL

iii. Any default in repayment of deposits or payment of interest thereon during the year: NIL

Company has duly complied with the provisions of section 73 of the Companies Act, 2013 read with relevant rules with respect to fixed deposits.

Cost Audit Report

Cost Audit Report for the FY 2015-16 in XBRL format was filed with MCA on 23.08.2016 vide SRN G09734229. M/s. S. MAHADEVAN &CO., Cost Accountants were reappointed as Cost Auditors of the Company for the FY 2016-17 and the Cost Audit report for the year 2016-17 in XBRL format will be filed with MCA well within the due date.

Though it is not mandatory, as a best Corporate Governance practice, by way of rotation in place of existing cost auditors of the Company M/s. S. MAHADEVAN &CO., Board on the recommendation of the Audit Committee, appointed cMa K.M. Krishnamurthy, Cost Accountant as Cost Auditor of the Company for the FY 2017-18. Board places before the members the resolution for ratification of remuneration payable to the Cost Auditor for the FY 2017-18.


During the year, Independent directors of the Company viz., Sri P. S. Ananthanarayanan (w.e.f 11.02.2017), Dr. V. Gopalan (w.e.f. 06.05.2017) and Sri N. Asoka (w.e.f 06.05.2017) were resigned from the Board due to their pre-occupations and other commitments. The Board places on record its appreciation and gratitude for the invaluable contributions made by these directors during their tenure as a member of the Board of Directors.

The other Independent Directors Sri S. Gnanasekharan and Sri Kameshwar M. Bhat were appointed at the 38th AGM of the Company held on 28.09.2014 for a term of five consecutive years and shall hold office up to the conclusion of the 43rd AGM of the Company.

Board has appointed Dr. V. Sekar (on 25.03.2017), Dr. R. Ramarathnam (on 06.05.2017) and Sri D. Balasundaram (on 06.05.2017) as Additional Directors (Non-Executive, Independent) and they shall hold office up to the ensuing (41st) AGM of the Company. Resolutions proposing their appointment as Independent Directors of the Company to hold office up to the conclusion of the 45th AGM of the Company included in the notice of the 41st AGM of the Company for members'' approval.

Non- Executive director Sri M. Rajamani retires by rotation this year and he desires not to get re-elected and in his place Sri. S. Sivakumar has been proposed for appointment as Non-executive director of the Company, liable to retire by rotation and the resolution is placed before the members for approval. Board recorded its appreciation for the valuable services rendered by Sri S. Rajamani to the Company during the tenure of his office.

Company''s Code of Conduct applicable to the board has been adopted by the board and all directors of the company have confirmed compliance with the Code of Conduct

Key Managerial Personnel

Members at the AGM held on 27.09.2015 approved the revision in the remuneration package of Chairman and Managing Director, Sri R. Selvarajan and Chief Financial Officer and Non- Executive director, Sri S. Vijay Shankar. Sri S. Vijay Shankar receives remuneration only in his capacity as Chief Financial Officer and do not receive sitting fees etc., in his capacity as non-executive director. In view of the unsatisfactory financial performance of the Company, CMD and CFO had forgone their increase in salary as a gesture.

Change in designations of Directors

Chairman and Managing Director Sri R. Selvarajan has tendered his resignation from the position of Chairman of the Company and expressed his willingness to continue as Managing Director of the company with effect from 01.06.2017. Board at its meeting held on 06.05.2017 accepted his resignation and on the recommendation of the Nomination and Remuneration Committee elected Non-Executive Director, Sri S. Devarajan as Non-Executive Chairman of the Company effective from 01.06.2017. Chairman and Managing Director Sri R. Selvarajan will be continued as Managing director of the Company with effect from 01.06.2017.


The auditors M/S M.S. Krishnaswami & Rajan, Chartered Accountants, retire at the ensuing annual general meeting. In accordance with the provisions of Section 139 of the Companies Act, 2013 read with the relevant rules, by rotation in place of retiring Auditors M/S M.S. Krishnaswami & Rajan, Chartered Accountants, on the recommendation of the Audit Committee your Company''s board is placing the resolution for appointment of M/s R. Sundararajan & Associates, Chartered Accountants (who confirmed their eligibility and willingness to accept office, if appointed) as statutory Auditors of the Company for the financial year 2017-18.

Particulars of Loans, Guarantees or Investments under Section 186 of the Companies Act, 2013

Details of loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in note 3.20 to the notes to the financial statements.

Disclosure as per Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Company has zero tolerance for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules framed there under. The Company has set up a Committee for addressing issues related to women and during the financial year 2016-17, there were no complaints received on sexual harassment.

Performance of Associate Company

Your Company has an associate M/s SPMM Healthcare Services Private Limited within the meaning specified under Section 2 (6) of Companies Act, 2013. M/s SPMM Healthcare services private Limited has recorded a total revenue of Rs. 3,74.39,022/- during the year 2016-17 as against Rs. 3,18,59,942/- in the previous year and profit after tax of Rs.17,97,013/- during the year 2016-17 as against Rs. 47,29,843/- in the previous year. A separate statement containing the salient features of the financial statement of the associate in FORM AOC -1 has also been annexed with this report as per the requirements of provisions of section 129 of the Companies Act, 2013 and forms part of this report.

Significant and Material Orders passed by the Courts Or Tribunals impacting the Company : NIL Material Changes and Commitments during the year, if any

There were no material changes and commitments between the end of the period under review and the date of this report which could have an impact on the Company''s operation in the future or its status as a “going concern”.

Annexure to this Report

The following are the annexure to this report:

1. Director''s Responsibility Statement in Annexure-1.

2. Conservation of energy, technology absorption, Research and development and foreign exchange earnings and outgo in Annexure -2.

3. Statement containing salient features of the financial statement of associate company (Form AOC - 1) in Annexure -3.

4. Form AOC - 2 in Annexure -4.

5. Extract of Annual Report (Form MGT-9) in Annexure -5.

6. Secretarial Audit Report (Form MR-3) in Annexure -6.

7. Details of CSR Expenditure in Annexure -7.

8. Particulars of Remuneration in Annexure -8.

9. CEO / CFO Certification in Annexure- 9.

10. Corporate Governance Report in Annexure -10.

Cautionary Note

Statements in the Directors'' report and the management discussion and analysis describing the Company''s objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results might differ materially from those either expressed or implied in the statement. Important factors that could influence the Company''s operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other related factors such as litigation and industrial relations.


Directors of your Company record their sincere appreciation of the dedication and commitment of all employees in achieving and sustaining excellence in all areas of the business. Your directors thank the Shareholders, Customers, Suppliers, Bankers and other stakeholders for their continued support during the year. Your Company''s consistent growth has been made possible by the hard work, solidarity, cooperation and support of the management team. The directors of your company thank State Bank of India, Karnataka Bank Limited and Axis Bank Limited, Central/State Governments and other government agencies for their support, and look forward to their continued support in future.

For and on behalf of the Board of

Kandagiri Spinning Mills Limited

Salem R. Selvarajan

May 06, 2017 Chairman and Managing Director

Director’s Report