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Nitta Gelatin India Ltd.

BSE: 506532 | NSE: KERALACHEM | Series: NA | ISIN: INE265B01019 | SECTOR: Chemicals

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Annual Report

For Year :
2018 2017 2016 2015 2014 2013 2012 2011 2010

Director’s Report

The Directors have pleasure in presenting the 42nd Annual Report and audited financial statements for the year ended 31st March, 2018.

The Statement of Accounts have been prepared in accordance with Indian Accounting Standards (IND AS) which have been made applicable to the Company w.e.f. 1st April, 2017 as per the Rules laid down in this regard. Accordingly, accounts of the Company have been restated w.e.f. 1st April, 2016 (being comparative year for the current financial year) as per the IND AS requirements.

FINANCIAL HIGHLIGHTS

(Rs. in Crores)

Particulars

For the year ended 31st March, 2018

For the year ended 31st March, 2017

Sales (including export incentives and net of Excise Duty, VAT/GST)

326.44

340.79

Other Income

4.37

9.36

TOTAL

330.81

350.15

Gross Profit before Depreciation

34.26

42.31

Deducting therefrom:

Depreciation

11.91

10.48

Provision for Tax -

- Current Tax

10.95

8.91

- Deferred Tax

(3.17)

2.43

Profit after Tax from continuing operations

14.57

20.49

Other comprehensive income (net of tax)

(0.70)

0.60

Total comprehensive profit for the year

13.87

21.09

Profit brought forward from previous year

14.68

3.87

Balance Profit available

29.25

24.36

for appropriation

Appropriations :

Dividend on Optionally Convertible Preference Shares

0.85

0.79

Final dividend on equity shares at 25%

2.27

2.27

Tax on dividend

0.64

0.62

Transfer to General Reserve

-

6.00

Balance profit carried forward to next year

25.49

14.68

Earnings per share (Rs.)

Basic

15.27

23.23

Diluted

15.27

23.23

DIVIDEND

The Board has recommended a dividend @5.4029 % p.a. for the year ended 31st March, 2018 on the 929,412 Optionally Convertible Preference Shares of face value of Rs. 170/- each, subject to approval of the members at the ensuing Annual General Meeting, .

Considering the Company''s performance and financial position for the year under review, the Board has also recommended a dividend of Rs. 2.5 per share i.e. 25% of the face value of Rs. 10/- per share on the Equity Capital for the year ended 31st March, 2018, subject to approval of the members at the ensuing Annual General Meeting.

Together with Corporate Tax on dividend, the total outflow on account of dividend will be Rs. 376.55 lakhs including Rs. 85.36 lakhs on Preference Shares (Rs. 85.36 lakhs for the financial year 201617), vis-a-vis Rs. 375.93 lakhs paid for the financial year 2016-17 (paid in 2017-18).

During the year, unclaimed dividend of Rs. 3.86 lakhs pertaining to the year ended 31st March, 2010 was transferred to the Investor Education & Protection Fund after giving due notice to the members. Besides, upon complying with statutory formalities prescribed under the IEPF (Accounting, Audit, Transfer and Refund) Rules, 23706 shares corresponding to 171 holdings (records) which represent holdings with respect whereof dividend was not claimed and paid for a consecutive period of seven years, were transferred to the account of IEPF Authority, maintained with National Securities Depository Limited (NSDL) and the fact of the same was also apprised to the Board (Agenda 252.08 I) at its meeting dated 03-02-2018.

SHARE CAPITAL

The Authorised Share Capital of your Company is Rs. 358,000,040/- (Rupees Thirty Five Crores Eighty lakhs and Forty only) (comprising of two crore Equity Shares of Rs. 10/- each and 929,412 Optionally Convertible (non-cumulative) Preference Shares (OCPS) of Rs. 170/- each). Nitta Gelatin Inc., (NGI) Japan had not exercised the option to convert the OCPS shares into Equity Shares at the end of 18 months from date of its allotment as per terms of the issue.

RESERVES

No amount is transferred to General Reserve during the year as transfer of profit to Reserve Rules for declaration of Dividend is no longer in force. The Company has provided for an amount of Rs. 17.04 crores towards impairment in value of investments made in Reva Proteins Ltd. on account of accumulated loses in the said Company caused mainly due to restrictions in effluent discharge which have impacted the capacity utilization levels significantly. Such impairment provision is adjusted in the credit balance in the Profit and Loss account as stipulated by transitional provisions of IND AS. Reserves as on 31.03.2018 comprises of Security Premium Reserve of Rs. 2895.90 lakhs, equity contribution on External Commercial Borrowings and Preference Share Capital Rs. 664.95 lakhs, Special Export Reserve of Rs. 79.00 lakhs, General Reserve of Rs. 7836.64 lakhs, credit balance in the Profit and Loss Account of Rs. 2549.05 Lakhs and other comprehensive income reserve of (Rs. 4.89) lakhs aggregating to Rs. 14020.65 lakhs.

PARTICULARS OF LOANS, GUARANTEES & INVESTMENTS

No Corporate Guarantee was provided during the year. However, the Company has received a request for providing Corporate Guarantee from Bamni Proteins Ltd. (Subsidiary Company) to the lenders towards its borrowings for working capital requirement to the extent of Rs. 750 lakhs and from Reva Proteins Ltd. (Subsidiary Company) towards its short terms working capital requirements to the tune of Rs. 500 lakhs.

Details in respect of other loans, guarantees and investments covered under the provision of Section 186 of the Companies Act, 2013 are given in the notes on accounts for the Financial Year ended 31st March, 2018.

PERFORMANCE

The gross revenue from operations of your Company during the year under review was Rs. 326.44 crores. There was decrease in unit sales realisation per unit of Gelatin in line with the decline in Gelatin prices worldwide which impacted the gross revenue from operations. Though there was decrease in sales realization of Gelatin, an exception was with respect to Collagen Peptide where there was increase in unit sales price.

The District Administration of Thrissur District, where one of the plants of the Company is situated, had ordered reduction in drawal of water by 80% for the period commencing from February 2017 and until the onset of monsoon, as a fall out of deficient monsoon in January 2017. This has affected the operations of the Ossein Division of the Company in the Ist quarter impacting revenue. Though the Company could manage to sustain the operations of Gelatin plant by procuring Ossein from the local manufacturers, the resultant higher cost of operations has impacted the operational results of the Company in the said quarter. In addition crushed bone charging was stopped from 23rd October, 2017 to 15th November, 2017 due to sabotage on the outlet effluent pipeline leading to restriction in discharge of effluent water. A stone grinder (ural) was removed from the pipeline with the help of the Government and the local police.

During the year, approval was received from the Irrigation Dept., Govt. of Kerala for rerouting the effluent pipeline at Ossein Division which was passing through a private property and was subjected to frequent attacks by the agitators for disrupting the Company''s operations. Accordingly, the Company has rerouted the effluent pipeline by by-passing the private property, in the month of January 2018.

With some of the Gelatin plants not in full scale operation during the year and the resultant low demand for crushed bone, crushed bone prices have decreased by 13% during 2017-18 as compared to the previous fiscal. However, the per unit price realization has come down for Ossein by around 6%, DCP by 3%, Gelatin by 5% during the year due to lower crushed bone prices. The sales of Collagen Peptide had witnessed a revival; however supply of raw material - fish protein - on account of regulatory issues / clearances continued to pose a challenge to the Company in terms of customer serviceability. The strengthening of the Rupee against USD during 2017-18 as compared to 201617 has also contributed to lower sales realisation on exports.

Despite the reduction in prices as explained above, the total sales turnover could be maintained with improvement in volume of sales on all the products except Gelatin (sales volume of Gelatin has declined by 2% during the year).

The decrease in price of crushed bone (though its poor quality continues to be a major concern) has helped the Company in maintaining profitability during the year.

In the backdrop of this situation, your Company exercised close monitoring and strict control over each significant element of cost, and achieved appreciable savings. In respect of utilities, the usage of LNG has increased due to maintenance issues in wood fired boilers but at the same time, efficiency of wood fired boilers has improved. There was significant reduction in power cost also as a result of various cost control measures in both the Divisions of the Company. Though the price of LNG, firewood and furnace oil has increased during the year, cost control measures helped the Company to keep the costs under control. Factory overheads witnessed cost increase due to the comprehensive annual shut down taken in Gelatin Division during the year and the disposal costs incurred for clearing the settled sludge in the aeration tanks of effluent treatment plant of both the Divisions. Administration overheads could be maintained at last year levels by establishing appropriate controls.

With regard to finance cost, Company could effectively leverage low cost foreign currency loans though interest rates based on LIBOR has gone up to 2.30% from 1.30% during the course of the year.

The sales mix during the year was such that the Company could achieve a reduction in selling expenses such as freight charges on products, discount and commission on sales, etc. aggregating to a saving of Rs. 0.48 crores during the year under review.

As a result of the above, the operations of the Company for the year 2017-18 have resulted in a pre-tax profit of Rs. 22.34 crores (negative impact of Rs. 6.67 crores due to restatements on account of changes in accounting treatment as well as Ind AS Accounting adjustments) as against Rs. 31.83 crores (which included Rs. 4.08 crores towards restatement of foreign exchange gains made during the year 2016-17 on account of change in accounting treatment.), inspite of the disruption in operations in Ossein Division in Q1 of the financial year. The results of the financial year 2016-17 have been restated in accordance with IND AS Accounting Standards during the financial year 2017-18.

The products of your Company continued to enjoy robust market demand during the year under review. The entire sale of Ossein / Limed Ossein, 46.08% of the total sale of Gelatin and 47.80% of Collagen Peptide was through exports. Your Company has arrangements with its overseas promoter, Nitta Gelatin Inc., Japan to leverage their expertise and market insights in servicing its customers in a pro-active manner in line with the global standards of NITTA Group.

The major production facilities of your Company are the Ossein Plant at Koratty, Thrissur District and Gelatin / Peptide Plant at Kakkanad, Ernakulam District, Kerala. All the factories owned by the Company are being operated in strict compliance with the applicable standards / norms prescribed by the Statutory authorities including the State Pollution Control Board. The Kadukutty Panchayat in Thrissur District did not renew the factory license for its Ossein Plant at Koratty for the year 2017-18 and the Company have moved the matter before the High Court of Kerala. The Court has ordered status quo in the matter till final disposal of the writ petition filed by the Company. In addition, during the year Company has also applied for Panchayat Licence for the financial year 2018-19 which was also rejected by the Panchayat. The High Court has stayed the operation of the Panchayat''s orders upto 8th June, 2018. The last review of the effluent management system at Ossein Division by the National Environmental Engineering Research Institute (NEERI) has confirmed the efficacy of the system on the basis of which the Pollution Control Board has renewed the Consent To Operate upto 30.06.2018. Based on expert legal advice, the earlier court verdicts and the facts of the situation as explained above, the Company expects a favourable resolution of the matter.

The National Green Tribunal(NGT) has passed an order dated 27.02.17, disposing different applications moved before that honorable forum challenging the operations of the Company as violative of the environmental regulations in force. The NGT while disposing of the application has concluded that on the analysis of the entire facts and materials that

- there is no material to establish that the industry has discharged sludge along with the treated liquid effluent into the Chalakkudy river.

- The sludge generated by the industry is non-hazardous and non-toxic.

- The effluent treatment plant is functioning efficiently and as of now the discharge of the treated effluent from the ETP to the Chalakkudy river has no adverse impact on the river water or the ground water.

However NGT by applying the precautionary principle to avoid any possibility of causing pollution to both air and water in the environment, directed the Company to install certain equipment to reinforce the effluent treatment process and technologies, besides adopting methods which help recycling of treated effluent and minimize the discharge into the river. The order also gave directions to the Kerala State Pollution Control Board (KSPCB) for amending some of the discharge standards.

The Order had detailed prescriptions for implementation in a time-bound manner. Whereas there were certain directions which needed a relook on a factual as well as practical consideration of the issues involved, the Company had filed a Petition before the Hon''ble Tribunal for a review of such directions. The Hon''ble NGT vide their Order dated 08.11.2017 allowed the review petition in part by way of modification of one of the directions, in view of practicality of implementation. The Company has subsequently filed a writ petition before the

Hon''ble High Court of Kerala pleading stay of operation of NGT orders dated 08.11.2017 for the remaining directions. The High Court has accepted a jurisdiction before it which was challenged by the Action Council and has stayed the operation of NGT Orders until further orders vide Order dated 14.03.2018. All the other directions which required implementation on the Company''s part have already been made except the one relating to installation of online monitoring systems for KSPCB which is expected to be completed by end July 2018.

The Company co-sponsored Japan Mela (organized by the Indo Japan Chamber of Commerce, Kerala) conducted in the 1st week of December, 2017 with a dedicated stall of the Company for display of materials relating to Nitta Gelatin Group worldwide. The Company''s major products including Gelixer and Agri products and CSR initiatives were displayed in the said Mela and received much public attention.

Operations Excellence fairs were conducted at the Ossein and Gelatin Divisions of the Company with active involvement from employees. Some of the nearby Panchayat members and Directors of the Company also participated in the fair which showcased the various types of products offered and also various initiatives pursued by the Company for the public at large.

MERGER OF SUBSIDIARY - REVA PROTEINS LTD.

The Subsidiary Company Reva Proteins Ltd. which began commercial production in the year 201213 could not be operated at planned capacity utilization levels due to restriction on discharge of treated effluent on account of non-commissioning of the marine discharge effluent pipeline as promised by the Gujarat Government. The delayed commissioning of the pipeline has resulted in accumulated losses for the Company for the past several years. Though the marine effluent discharge line was made operational during the year, after pressure testing and amendment in consolidated consent authorization as per marine norms as stipulated by Gujarat State Pollution Control Board, the high ammoniacal nitrogen content in effluent stream following the maintenance issues in marine effluent pipeline for discharge has also affected the capacity utilization levels for the year 2017-18 and significantly eroded the quantum of inventories and receivables with corresponding reduction in drawing power for working capital arrangement.

Under such circumstance, the Board of Directors of Reva Proteins Ltd. (Transferor Company) and Nitta Gelatin India Ltd. (TransfereeCompany) resolved at their meeting dated 03.02.2018 subject to required Regulatory approvals, to merge the activities of the former with the latter such that a total of 4,444,444 Redeemable Preference Shares of Rs 10 each, be credited as fully paid up Preference Share capital of the Transferee Company as consideration for the other share holders, in the following share exchange ratio;

-One Hundred (100) Redeemable Preference Shares of NGIL of INR 10/- each fully paid up for every One Hundred and Eight (108) Equity Shares of RPL of INR 10/- each fully paid up with the following terms:-

a. Such Preference Shares shall be entitled to a fixed dividend of 5% 6 months USD LIBOR as on the record date over a non-cumulative basis.

b. A right to exercise put and call option for repayment shall be given at the expiry of 5 years from the date of allotment subject to such approvals as may be required.

c. Such Preference shares shall be redeemable at par on the expiry of seven years from the date of allotment.

The Board of both Companies having approved the merger, it awaits clearance from Regulatory bodies - BSE / SEBI, besides the approval from the National Company Law Tribunal (NCLT).

CREDIT RATING

During the year, rating agency CRISIL has reaffirmed the rating of CRISIL A-/ and maintained outlook as Negative” for Long Term Instruments and retained CRISIL A2 ” rating for short term instruments.

AWARDS & ACCOLADES

During the year your Company was awarded:

a. the second prize in its category for Excellence in Cost Management instituted by the Institute of the Cost and Management Accountants of India for the year 2016; and

b. Best Corporate Citizen from NIPM for Green Initiatives and CSR.

The following prestigious certifications are retained by your Company:-

(a) European Directorate for the Quality of Medicines & Health (EDQM) Certificate for Gelatin Division

(b) HACCP Certificate for Ossein Division and Gelatin Division for food safety.

(c) ISO 14001:2015 for Gelatin Division for Environment Management System

(d) ISO 9001:2015 for Quality Management System of the Company.

(e) ISO 18001:2007 for Ossein and Gelatin Divisions of the Company.

(f) FSSC Certification for Food Safety Management System for Gelatin Division

(g) FSSAI Certification for manufacturing, import/export of Gelatin & Collagen Peptide

(h) WHO GMP Certification for manufacture of Gelatin & Collagen Peptide

(i) Halal/Kosher Certification for Gelatin and Collagen Peptide

(j) NABL Accreditation for in-house laboratory

(k) OSHAS Certification by NVTQC for Occupational, Health and Safety Standards for Gelatin Division

(l) Sanitary Certificate received from the Health Inspector, Public Health Centre, Kathikudam for Ossein Division vide Order dt. 20.02.2018 for satisfactory compliance of sanitary conditions based on verification. Company''s factory license was often rejected by the Panchayat citing non-receipt of sanitary certificate in the past.

HEALTH, SAFETY AND ENVIRONMENT

Compliance with relevant regulations and effective management of the related issues is an integral part of the Company''s philosophy and your Company stands committed to continually improve on these objectives. The Company, year on year, increases its focus on improving matters relating to Health, Safety and Environment.

1. Health and Safety

The Company is committed to promoting the health and safety of its employees. In addition to the Head (Safety) for the Company, each of the plants of the Company is having a Safety Officer and Safety Committees which include representation from workmen. The Committees meet regularly to review issues impacting plant safety and employee health. Regular health checkup of the employees is carried out through reputed hospitals. Various training programmes are conducted at the plant on health and safety issues including emergency preparedness, work safety, first-aid, etc. The Company is augmenting resources to further strengthen the level of safety at its plants. Our Ossein factory has received the OSHAS certification during the year, which is a testimony to the Company''s commitment in this area. During the year, the Company has also entered into an agreement with Nitta Gelatin Inc. (NGI) where by as part of services in the areas of Environment, Health & Safety, NGI shall provide qualified expertise for providing assistance to ensure safety of operations of the Company and its subsidiaries. Responsibilities of such qualified expertise shall include benchmarking, sharing information on incidences in group companies, establishing robust and standardized procedures and controls, audits, action item, review and follow up, developing appropriate key performance indicators and regular reporting to the Company, NGI and Company''s Subsidiary managements.

2. Environment

The Company continuously endeavors to improve on Environmental Management and through all activities demonstrate its commitment to protecting the environment. The factories of the Company are equipped with modern effluent treatment plants for treating and discharging treated water with parameters well within the norms laid down by the respective State pollution Control Boards. The emissions from the boilers and generator stacks are regularly monitored for compliance. With the commissioning of two biogas generators at its Ossein plant, substantial portion of the raw effluent from the production process is now being subjected to biomethanisation thereby reducing the organic load in the subsequent treatment process whereby generation of sludge is reduced considerably and the biogas generated is being used for meeting the Company''s energy requirements. Diffused Air floatation System for effective grease removal and removal of suspended solids, Primary Treatment System Reinforcement and ETP Automation for sound effluent management system, introduction of Chemical treatment and Activated Carbon System in Fresh Water Treatment Plant for improving the water quality and improving the process stability, addition of 3 nos diffused aerators in ETP System and commissioning of multi grade Sand Filters before final discharge point of treated water are some of the initiatives carried out during the year to ensure protection of the environment and sustainability of operations at Ossein Division.

M/s. National Environmental Engineering Research Institute (NEERI), a constituent laboratory of the Council of Scientific & Industrial Research, Govt. of India, inspected the plant for assessment of implementation status of their own recommendations in June 2016 and observed that the Company has complied with the implementation of all the recommendations of NEERI excepting one i.e. cleaning of weeds along the banks of Chalakudy river for want of approval from regulatory authorities for carrying out the activity. They have also observed that based on the physio - chemical analysis of various effluent samples of ETP, the final treated effluent being discharged into Chalakudy river conforms to the discharge Standards stipulated by the KSPCB for the Company and also the CPCB General Standards for Discharge. It was also confirmed that there is no adverse impact on the River water quality because of the discharge of treated water from the factory in to the river.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Your Company has formulated a well structured Policy aimed at providing focus and direction to the various activities on CSR. The Company is committed to identifying and supporting programmes aimed at:

- Empowerment of the disadvantaged / weaker sections of the society through education, skill development and the like;

- Provision of access to basic necessities like healthcare, drinking water & sanitation;

- Supporting environmental and ecological balance through afforestation, soil conservation, conservation of flora and similar programmes;

- Promotion of sports through training of sports persons;

- Rural development projects; etc

Total CSR expenditure incurred by your Company during the year was Rs. 43.50 lakhs meeting the statutory requirement of 2% of the average profit for the last three years.

- A CSR Committee has been constituted to act in an advisory capacity to the Board and Management with respect to policies and strategies that affect the Company''s role as a socially responsible organization.

- The CSR Committee monitors the progress of the projects and ensures that the implementation of the projects is in compliance with the CSR objectives and Policy of the Company.

-The CSR Policy can be accessed on the Company''s website www.gelatin.in. The CSR projects undertaken by the Company are in accordance with Schedule VII of the Companies Act, 2013. Annual Report on CSR activities is annexed herewith as Annexure I.

POLICY FOR DETERMINING MATERIAL SUBSIDIARIES

In view of the change in the definition of Material Subsidiary, Reva Proteins Limited which was a Material Subsidiary until 2015-16 was not a Material Subsidiary as per the LODR Regulations 2015. In accordance with LODR Regulations, the Company''s policy on materiality of Subsidiaries specifying the criteria for determining the Material Subsidiaries is available in the Company website www.gelatin.in. There has been no change in the nature of business of subsidiaries during the year under review.

As per the above criteria, the Company has no Material Subsidiary as of today.

SUBSIDIARY COMPANIES

BAMNI PROTEINS LIMITED

The annual production during the year in this Subsidiary Company was 2580 MT of Ossein and 6000 MT of Di Calcium Phosphate as against 2324 MT of Ossein and 5885 MT of Di-Calcium Phosphate during the previous year.

The operation of this Subsidiary for the year under review has resulted in a post-tax profit of Rs. 82.51 Lakhs (Rs. 71.96 lakhs in the previous year), other comprehensive loss of Rs. 5.35 lakhs (Rs. 2.82 lakhs in the previous year) and total comprehensive income of Rs. 77.16 lakhs (Rs. 69.14 lakhs in the previous year). Pre-tax profit during the year under review where Rs. 114.61 lakhs as against a pretax profit of Rs. 111.35 lakhs during the previous financial year.

REVA PROTEINS LIMITED

At Reva Proteins Ltd., owing to restrictions in the quantum of discharge of treated effluent, there has been considerable under utilization of capacity in the Ist Qtr. of the financial year. The clearance of the Consent to authorise and operate for Reva Plant by the Gujarat State Pollution Control Board was received in the month of June 2017 after the commissioning and high pressure testing of the effluent pipeline was completed in January 2017. In addition, the high ammoniacal nitrogen content in effluent stream following plant stoppages due to the maintenance issues in marine effluent pipeline for discharge has also affected the capacity utilization levels for the year 2017-18. Arising out of the above, the financial year 2017-18 witnessed a net loss of Rs. 1270.81 lakhs and a cash loss of Rs. 1029.89 lakhs as against a net loss of 871.87 lakhs and a cash loss of Rs. 620.72 lakhs during the previous financial year. Other comprehensive income during the current year was Rs. 1.27 lakhs as against Rs. 0.49 lakhs for the previous year. The annual production during 2017-18 was 1091 MT of Ossein, 450 MT of Dry Limed Ossein and 1519 MT of Di Calcium Phosphate as against 1909 MT of Ossein, 1096 MT of Dry Limed Ossein and 843 MT of Di Calcium Phosphate during the previous year. Your Company has proactively undertaken a comprehensive scheme for revival of the Subsidiary including merger of the same with the Company.

In accordance with Section 129(3) of the Companies Act, 2013, a consolidated financial statement of the Company and all its Subsidiary companies has been prepared, which is forming part of the Annual Report.

The statement containing the salient features of the financial statement of both the subsidiaries under first proviso to Sub-section (3) of Section 129 of the Act in form AOC I is attached as Annexure II.

In accordance with fourth proviso of Section 136(1) of the Companies Act, 2013, the Annual Report of the Company containing therein its standalone and consolidated financial statements has been uploaded on the website of the Company, www. gelatin.in. Further as per the fourth proviso of the said section, the annual accounts of the Subsidiary Companies and the related detailed information have also been uploaded on the website of the Company, www.gelatin.in.

Annual accounts of the Subsidiary Companies and related detailed information shall be made available to the shareholders of the Company and Subsidiary companies seeking such information at any point of time. The annual accounts of the Subsidiary Companies shall also be made available for inspection by any shareholder at the Registered Office of the Company and Subsidiary companies concerned. Hard copy of details of accounts of subsidiaries shall be furnished to any shareholder on demand. Further, pursuant to Indian Accounting Standard (Ind AS) 110 issued by the Institute of Chartered Accountants of India, consolidated financial statements presented by the Company include the financial information of its Subsidiaries.

STATUTORY AUDITOR’S REPORT

Emphasis of Matter on the accounts of the Company referred to in the Auditor''s Report is explained in detail in Note No. 3.04 (a) of the Notes forming part of accounts for the year and hence no further comments are necessary.

SECRETARIAL AUDITORS’ REPORT - EXPLANATION TO OBSERVATIONS OF AUDIT

As prescribed under Section 204(1) of the Act, the Company has received the Secretarial Audit Report including a statement therein refering to complaince of applicable Secretarial Standards. The observations made therein and the corresponding explanations are given below:

Sl No

Observation

Our explanation

1

As per the provisions of FSSA Act read with Rules, quarterly return needs to be filed within 10 days from the end of each quarter. On analysis of the quarterly Returns filed by the Company, it is found that there are delays in filing those Returns which are stated herein below;

Being in an initial phase, there often required multiple entries before the data finally got uploaded in the respective site. The delay was also due to the fact that the quarterly Returns introduced during the year 2017, had warranted uploading of the backlog Returns for previous periods.

Qtr

Due Date

Actual date of filing

Delay in No. of days

1

July 10th 2017

06-01-18

180

2

October 10th 2017

14-02-18

127

3

January 10th 2018

19-03-18

68

4

April 10th 2018

14-04-2018

4

Company is advised to file quarterly Returns in time since any delay in filing will invite penalties.

2.

With respect to creation of Charge for Rs 6 crores with YES Bank Limited, Company has filed the Form CHG-1 with Ministry of Corporate Affairs with 88 days of delay. Company is advised to closely monitor the same in future whenever credit facility is granted by Banks/Financial Institutions.

The delay was due to the delay in documentation by the Bankers.

3

With respect to cessation of Alternate directorship of Mr. Raymond Merz, Company has filed Form DIR-12 with Ministry of Corporate Affairs with a delay of 23 days.

The delay is admitted. Each successive attendance and absence (when original Director himself attends the meeting)of the Alternate Director, is warranting a filing in MCA portal. This is one such return where there was a delay. Care shall be taken to avoid such delays in filing, in future.

COLLABORATORS

The Collaborators of your Company continue to be the relentless source of support and guidance for the Company in each of its key initiatives. Their patronage in areas of financial support, product development, marketing, quality improvement and training of personnel has contributed significantly to the growth of the Company. NGI, Japan has not only subscribed to the Optionally Convertible Preference Shares for an amount of Rs. 1580 lakhs issued by the Company in full, but also provided term loan assistance to the Company at attractive rates of interest. NGI, Japan has provided guidance and considerable financial support for the scheme of revival of the Subsidiary, Reva Proteins Ltd. Kerala State Industrial Development Corporation Ltd., the other promoter is also equally supportive to each and every development concerning your Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The information as required under Section 134(3)(m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is attached as Annexure III.

PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Act read with Rule 5(1) of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in the Annual Report as Annexure IVA to this report.

The Annual Report excluding the details of employees receiving remuneration in excess of the limits prescribed under Section 197 of the Act 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is being sent to the shareholders of the Company in terms of first proviso to Section 136(1) of the Act 2013. The annexure is available for inspection at the Registered Office of the Company during business hours and any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Company.

INTERNAL CONTROL SYSTEM

ADEQUACY OF INTERNAL CONTROL SYSTEMS

The Company has in place well defined and adequate internal controls commensurate with the size of the Company and the same were operating effectively throughout the year. The internal control systems operate through well documented Standard Operating Procedures, policies and process guidelines. These are designed to ensure that transactions are conducted and authorized within defined authority limit commensurate with the level of responsibility for each functional area. The Company''s accounting and reporting guidelines ensure that transactions are recorded and reported in conformity with the generally accepted accounting principles.

The Company has engaged a professional firm of Accountants with long years of experience to carry out the internal audit function. The Company has not placed any limitation on the scope and authority of the internal audit function. The internal audit function evaluates the efficacy and adequacy of internal control systems, its compliance with operating systems and policies of the Company and accounting procedures at all locations of the Company. To maintain its objectivity, effectiveness and independence, internal audit is being carried out on a quarterly basis and reports thereon, along with the remarks of the process owners on each of the observations of audit are placed before the Audit Committee of the Board. The Audit Committee reviews each of the internal audit reports as a separate item of agenda along with the internal / Statutory Auditors and the management representatives wherein the Committee gives their advice / suggestions on the audit points. Based on the report of the internal audit as well as the observations of the Audit Committee the process owners undertake requisite corrective action in their respective areas thereby further strengthening the control systems. Action Taken Reports are also reviewed by the Audit Committee for each actionable item. The minutes of the Audit Committee are reviewed by the Board of Directors.

INTERNAL CONTROLS OF FINANCIAL REPORTING

The Company has in place adequate financial controls commensurate with the size, scale and complexity of its operations. During the year, such controls were tested and no reportable material weakness in the design or operations were observed. The Company has policies and procedures in place for ensuring proper and efficient conduct of its business, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial information.

The Company has adopted accounting policies which are in line with the Accounting Standards and the Companies Act. They are in accordance with the Generally Accepted Accounting Principles in India. Changes in policies, if required, are made in consultation with the auditors and are approved by the Audit Committee.

The Board is of the view that appropriate procedures and controls are operating effectively and monitoring procedures are in place.

RISK MANAGEMENT POLICY

The Board of Directors of the Company has entrusted the management of the Company to evaluate and manage various risks faced by the Company and appropriately apprise the Board periodically. Accordingly the management has constituted a Risk Management Committee comprising of Senior Management Personnel to develop and implement a Risk Management Policy including identification therein of elements of risks which in the opinion of the Board may impact the operations of the Company. The Board of Directors shall review the evaluation of risks and the mitigation measures taken by the Company in managing such risks to sustain the operations of the Company for the foreseeable future. Some of the key risk areas identified for mitigation and corrective action include crushed bone availability and pricing patterns, impact of high cost crushed bone on the yield levels, safety and security policies of the Company, succession planning for key executives, impact of the National Green Tribunal''s Orders impact, significant litigation against the Company having material financial impacts, moves of competitors, water scarcity for operational requirements, emergence of alternate substitutes for the products of the Company, adverse forex rate fluctuations, risk of losing premium commanded by the Company due to emergence of alternate Halal certifications etc.

MATERIAL POST BALANCE SHEET EVENTS

The business model of Bamni Proteins Ltd., Subsidiary of the Company, with which the Company had a job processing arrangement till the end of the financial year 2017-18 is set to change as an Independent manufacturer and seller w.e.f. 01.04.2018. This change was necessitated to avoid the impact of GST on processing charges which was introduced w.e.f. 01.07.2017. This business model change is expected to have an impact on the turnover of the Company as well as the profitability of the operations of the Company.

APPLICABILITY OF COST AUDIT REQUIREMENTS

As per the Company''s (Cost Records and Audit) Rules 2014, the Company''s products are not covered under Cost Audit and for the products for which the maintenance of cost record is required, since the relative turnover in respect of the products listed in the said Rules is less than threshold limit of Rs. 35 cr. maintenance of cost records is also not mandatory.

RESPONSIBILITY STATEMENT OF DIRECTORS

To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134 of the Companies Act, 2013:

a) that in the preparation of the annual accounts for the year ended 31st March, 2018, the applicable Indian Accounting Standards have been followed along with proper explanation relating to material departures, if any;

b) that they had selected such accounting policies as mentioned in Note 1 of the notes to the Financial Statements and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March 2018 and of the profit of the Company for the year ended on that date;

c) that they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) that they had prepared the annual accounts on a going concern basis;

e) that proper internal financial controls laid down by the Directors were followed by the Company and such internal financial controls are adequate and were operating effectively; and

f) that they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

RELATED PARTY TRANSACTIONS

The Company has formulated a policy on Related Party Transactions which is in line with the relevant provisions of the Companies Act and as well as SEBI (LODR) Regulations. The said policy as approved by the Board is available in the Company website www.gelatin.in. As per the said policy, prior omnibus approval of the Audit Committee is obtained on a quarterly basis for all the Related Party Transactions which are of a foreseen and repetitive nature. All Related Party Transactions actually taken place are subsequently reviewed by the Audit Committee on a quarterly basis in comparison with the conditions of omnibus approval and are recommended to the Board for approval. Additionally material Related Party Transactions foreseen in the year ahead, were got approved by the members also. Particulars of contracts of arrangements with Related Parties referred to in sub Section 1 of Section 188 read with Rule 8(2) of the (Companies Accounts) Rules, 2014 are attached in Form No. AOC 2 as Annexure V.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Management Discussion and Analysis Report for the year under review as stipulated under SEBI (LODR) Regulations is presented in a separate section forming part of this Annual Report.

CORPORATE GOVERNANCE

The Company has complied with the corporate governance requirements under the Companies Act, 2013, and as stipulated under the SEBI (LODR) Regulations. A separate section on corporate governance under the Regulation, along with a certificate from the auditors confirming the compliance, is annexed and forms part of the Annual Report.

CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Financial Statements have been prepared in accordance with the provisions of Schedule III of the Companies Act, 2013 and Indian Accounting Standards (IND AS) 110 and other applicable Accounting Standards issued by the Institute of Chartered Accountants of India and the provisions of the SEBI (LODR) Regulations and form part of the Annual Report.

DIRECTORS

Dr. Paul Antony IAS, who was Director and Chairman of the Company with effect from 27.09.2016 ceased to hold office on 03.02.2018 consequent on intimation by The Kerala State Industrial Development Corporation Limited (KSIDC) whose nominee the office of the Chairman continues to be, for the Company. Mr. T. K. Jose IAS who succeeded to office continued till 28.02.2018, when Dr. K. Ellangovan IAS who is also Principal Secretary, Dept. of Industries and Commerce & Dept. of NORKA, was nominated as the Chairman of the Board. Besides, Mr. Raymond Merz had again replaced Mr. Hiroshi Nitta as Alternate Director to Mr. Koichi Ogata.

Mr. Hiroshi Nitta, Nominee of Nitta Gelatin Inc. was appointed as Alternate Director wef. 09-052017 and ceased to be so wef. 29-07-2017. Mr. Koichi Ogata was appointed as Director in casual vacancy wef. 09-05-2017 and Mr. Raymond Merz who was appointed as Alternate Director to Mr. Koichi Ogata (29-07-2017) ceased to be so wef. 03-02-2018. Earlier, Mr. Seichi Nishikawa ceased to be a Director wef. 09-05-2017.

Mr. Sajiv K. Menon, Managing Director was reappointed as Managing Director wef. 01-04-2017 for a period of three years. Similarly, Mr. Takeo Yamaki Whole-time Director ceased to be so wef. 01-04-2017, while Dr. Shinya Takahashi got appointed as Whole-time Director wef. 09-05-2017.

Your Directors extend a warm welcome to Dr. K. Ellangovan IAS as Chairman of the Board and place on record the appreciation for valuable guidance and support extended by the Directors /Chairman who ceased to be Board members during the year, besides welcoming the other entrants to the Board of Directors during the year.

NOMINATION AND REMUNERATION COMMITTEE

The Board of Directors has constituted a Nomination and Remuneration Committee (NRC) consisting of the following person:-

1. Mr. A. K. Nair, Chairman

2. Mr. K. L. Kumar, Member

3. Dr. K. Cherian Varghese, Member

The terms of reference of the NRC are as follows:-

1. The NRC shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director''s performance.

2. The NRC formulates the criteria for determining qualifications, positive attributes and independence of a director recommending to the Board and also a policy relating to the remuneration for the Directors, Key Managerial Personnel and senior management personnel meaning thereby employees of the Company who are members of core management excluding Board of Directors. This would comprise all members of management one level below the Executive Directors, including all functional heads.

3. The NRC formulates the Remuneration policy to ensure that:—

- the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate personnel as are herein referred at (2) above of the quality required to run the Company successfully;

relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and remuneration to Whole-time Directors, Key Managerial Personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the Company and its goals.

During the year the NRC has met once.

KEY MANAGERIAL PERSONNEL

Rule 8(5)(iii) of Companies (Accounts) Rules, 2014 prescribes that Report of Directors should contain details of Directors and Key Managerial Personnel. Therefore, in addition to the details of Directors hereinabove given, it is brought to the notice of shareholders that Mr. P. Sahasranaman and Mr G.Rajesh Kurup continue as Chief Financial Officer (CFO) and Company Secretary, respectively.

BOARD EVALUATION

The Companies Amendment Act 2015 prescribes that there shall be a meeting of Independent Directors during each of the financial years. Accordingly, the meetings both of the Independent Directors followed by that of the Board had during the beginning of the year 2017-18, made an evaluation of the performance of the Directors / Independent Directors respectively and found them to have the requisite qualification, expertise and track record for performance of their duties as envisaged under Law.

All the Directors on the Board continued thereafter, until there was change in the office of Chairman during the last quarter consequent on change in nomination by The Kerala State Industrial Development Corporation Limited. There shall therefore, be meetings conducted during the course of the financial year 2018-19 by the Independent Directors and generally by the Board where there shall be evaluation of performance by the Directors on the Board so reconstituted.

MEETINGS

The Board of Directors met 5 (Five) times during the financial year 2017-18. The details of the Board meetings and the attendance of the Directors are provided in the Corporate Governance Report. The intervening time gap between the two consecutive meetings was within the period prescribed under the Companies Act, 2013.

COMPOSITION OF AUDIT COMMITTEE

The Audit Committee has Mrs. Radha Unni as Chairperson, with Mr. A. K. Nair, Mr. K. L. Kumar and Dr. K. Cherian Varghese as members.

More details on the Committee are given in the Corporate Governance Report.

VIGIL MECHANISM

The Company has established a vigil mechanism for Directors and employees to report genuine concerns, while providing for adequate safeguards against victimization, providing direct access to chairperson of Audit Committee, the details regarding which have also been given in the Company''s official website.

DISCLOSURE UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013.

Your Company has always believed in providing a safe and harassment free workplace for every individual working and associating with the Company, through various interventions and practices. The Company always endeavors to create and provide an environment that is free from discrimination and harassment including sexual harassment.

A four member Internal Complaints Committee (ICC) is constituted with three lady employees and one lady NGO member. ICC is responsible for redressal of complaints relating to sexual harassment, as envisaged under the provisions of Act and Rules. Hitherto no complaints were received by ICC.

PREVENTION OF INDISER TRADING

The Company has adopted a Code of Conduct for Prevention of Insider Trading with a view to regulate trading in securities by the Directors and designated employees of the Company. The Code requires pre-clearance for dealing in the Company''s shares and prohibits the purchase or sale of Company shares by the Directors and the designated employees while in possession of unpublished price sensitive information in relation to the Company and during the period when the Trading Window is closed. The Board is responsible for implementation of the Code.

STATUTORY AUDITORS

At the Annual General Meeting dated 24th June, 2017 M/s. Walker Chandiok & Co. LLP (WCL LLP) Chartered Accountants (Firm Registration No. 001076N / N500013) were appointed as Statutory Auditors of the Company to hold office for a period of 5 years until the conclusion of the financial year 2021-22. As envisaged under the Company Law Provision, the appointment of M/s. Walker Chandiok & Co. LLP (WCC LLP) as Statutory Auditors for the year 2018-19 is being put up for ratification by members at the ensuring Annual General Meeting which would be subject to their continuing to conform to the eligibility norms prescribed under Section 141 of the Companies Act, 2013 and the Rules, thereon..

SECRETARIAL AUDIT

Pursuant to the provisions of the Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the Company has appointed Mr. Abhilash Nediyalil Abraham. (CP No. 14524, M No. 22601), Company Secretary-in-Practice to undertake the Secretarial Audit of the Company. The Secretarial Audit Report is annexed herewith as Annexure VI.

EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return in Form MGT 9 are annexed herewith as Annexure VII.

ACKNOWLEDGEMENT

Your Directors are thankful to the esteemed shareholders for their continued patronage and the confidence reposed on the Company and its management. Your Directors place on record its sincere appreciation for the support and assistance extended by the State Government and The Kerala State Industrial Development Corporation Ltd. They also take this opportunity to extend their whole hearted gratitude to M/s. Nitta Gelatin Inc., Japan, for their timely and valuable guidance and inspiration. Your Board places on record its sincere appreciation for the significant contributions made by employees across the Company through their dedication and commitment. On this occasion, your Board thanks all the customers, suppliers, bankers and other associates for their unstinted co-operation.

For and on behalf of the Board of Directors,

Sajiv K. Menon Dr. M. Beena, IAS

Managing Director Director

(DIN : 00168228) (DIN: 03483417)

Kochi

04.05.2018

Director’s Report