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Spentex Industries Ltd.

BSE: 521082 | NSE: SPENTEX | Series: BZ | ISIN: INE376C01020 | SECTOR: Textiles - Spinning - Cotton Blended

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Annual Report

For Year :
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Director’s Report

Dear Members, The Directors are pleased to present the 23rd Annual Report together with the Audited Financial Statements for the year ended March 31,2015. Financial Results The highlights of the financial results for the year ended 31st March, 2015 are as under: ( Rs. in Crores) Particulars 2014-2015 Consolidated Standalone Net Sales (Turnover) 911.07 891.14 Other Income 17.94 16.66 EBIDTA 18.89 27.49 Financial charges 90.35 79.37 Depreciation 15.12 11.68 Profit/(Loss) before tax (PBT) (86.58) (63.56) Extra ordinary items (income)/ 1.37 1.37 Impairment loss @ Fixed Assets Exceptional Items - - Net Profit from Operations (85.21) (62.19) Prior Period Items - - Tax expenses 0.60 0.60 Net Profit/(Loss) (85.81) (62.79) EPS (9.56) (6.99) Particulars 2013-2014 Consolidated Standalone Net Sales (Turnover) 1142.94 1142.90 Other Income 16.49 13.87 EBIDTA 87.06 87.96 Financial charges 92.48 81.04 Depreciation 22.31 18.21 Profit/(Loss) before tax (PBT) (27.72) (11.29) Extra ordinary items (income)/ - - Impairment loss @ Fixed Assets Exceptional Items - - Net Profit from Operations (27.72) (11.29) Prior Period Items 0.57 0.57 Tax expenses - - Net Profit/(Loss) (28.29) (11.86) EPS (3.16) (1.32) Financial Analysis and Performance Review During the financial year 2014-15 the Company''s operations were adversely impacted due to sluggish demand, progressive decrease in yarn prices, high power cost in Maharashtra where the company''s plants are located ,and adverse cash outflow due to the liability of servicing term & working capital loans availed by the company led to non optimal utilization of plant capacities and consequent decrease in EBIDTA. The financial performance of the Company has been presented in two parts, as under: (i) Spentex Industries Limited (Standalone) excluding the performance of its subsidiaries and step-down subsidiaries. (ii) Spentex Industries Limited (Consolidated) including the performance of its subsidiaries and step-down subsidiaries. The Consolidated Financial Statements reflect the performance of Spentex Group of companies and are more relevant for understanding the overall performance of the Group. Segment-wise Performance Yarn Manufacturing During the year under review, your Company on standalone basis has manufactured 44930.63 MT of yarn as compared to 68941.08 MT of yarn produced during the previous year. Subsidiary Companies At the end of the accounting period under review, the Company has the following subsidiaries and step down subsidiaries : Subsidiaries Companies (a) M/s Amit Spinning Industries Limited (b) M/s Spentex Netherlands B.V (SNBV) (c) M/s. Spentex (Mauritius) Private Limited (The Company ceased to exist on 25th March 2015) Step down subsidiary Companies (a) M/s. Schoeller Textile Netherlands B.V. (STNBV) (b) M/s Spentex Tashkent Toytepa LLC. (due to breach of Investment Agreement by Republic of Uzbekistan with its Investors, its holding Company SNBV, has filed case in ICSID) (c) M/s. Schoeller Litvinov k.s. (Creditors taken over the subsidiary against their dues) (d) M/s. Botekos Plus s.r.o. (Creditors taken over the subsidiary against their dues) Pursuant to the provisions of Section 129(3) of the Companies Act, 2013, a statement containing salient features of financial statements of subsidiaries, associates and joint venture companies in Form AOC-1 is attached to the Accounts. The separate audited financial statements in respect of each of the subsidiary companies shall be kept open for inspection at the Registered Office of the Company. The Company will also make available these documents upon request by any Member of the Company interested in obtaining the same. Performance of Subsidiaries The details of turnover and overall performance of material subsidiary companies is as under: Amit Spinning Industries Ltd., India: During the year under review, due to market and financial constraints, the subsidiary could although manufactured 1,281.64 MT of yarn under own production and 1,112.65 MT of yarn on job work basis as compared to 5,123.08 MT of yarn produced under job work basis in the previous year, yet it could not fully utilize and leverage its capacity. It has been declared as a sick company by Board For Industrial and Financial Reconstruction (BIFR) under section 3 (1) (o) of Sick Industries (Companies) Act, since 2012 and has been awaiting approval of Debt Rehabilitation Scheme (DRS). The Company has its manufacturing facilities at Kolhapur, Maharashtra with capacity of 30,672 spindles. Spentex Tashkent Toytepa LLC, Uzbekistan (STTL) & Spentex Netherlands B.V, Netherlands (SNBV): During the period of investment, Government of Uzbekistan (GOU) changed certain laws and policies breaching the investment agreement and rendered operation of STTL not only unviable, but also expropriated its investment. SNBV (a subsidiary company), which had made around 99% investment in the equity of STTL, has initiated Arbitration Proceedings against GOU for its Investment Dispute Claim through its lawyers before International Center for Settlement of Investment Dispute (ICSID). Schoeller Litvinov k.s., Czech Republic: During the year under review, the step down subsidiary could not manufacture yarn due to adverse market conditions, crises in the European Union and financial constraints, the Company had filed application for liquidation at Czech Republic. The Company has manufacturing unit situated at Czech Republic with capacity of 59,000 spindles. (Creditors taken over the subsidiary against their dues) Management Perception on Opportunities, Risks, Concern & Outlook The persistent weakness of Indian Rupee, as compared to U.S Dollar and other European currencies provides an opportunity on short term basis to the textile industry to optimize its sales values and margins respectively on its exports. Spentex will continue to offer market driven quality product mix for progressively improving its operational profile. The Indian textile sector is also facing the challenges of technology backwardness especially in weaving and processing segments, lower productivity and high power cost which has an adverse cascading effect on the industry as a whole. With focus on Make in India, the Indian Textile industry is expected to become resilient and robust through various support measures likely to be announced by the government. The future outlook for the Indian textile industry looks promising, buoyed by both strong domestic consumption and increase in export turnover. Slow but potentially promising increase in demand of cotton yarn in domestic market and talk of economic reforms by the new Government as well as encouraging export promotion policy for textile sector have already improved market sentiments to some extent, with the strategic efficiency improvement and cost containment measures being adopted by the company, and with the continued support and co operation of the company''s bankers, your directors have confidence that sales volumes are reasonably expected to shore up with consequent strengthening of the margins in due course. Consolidated Financial Statements The Company is having six subsidiaries/step down subsidiaries . As per the Companies Act, 2013, the Company is not required to furnish the Balance Sheet and Statement of Profit & Loss and other documents of foreign subsidiary companies. These documents will however be available for inspection at the registered office of the Company during business hours. The Consolidated Financial Statements presented by the Company includes financial results of its subsidiary companies. The Consolidated Financial Statements of the Company prepared in accordance with the applicable Accounting Standards issued by the Institute of Chartered Accountants of India form part of this Annual Report. Share Capital The Company''s issued and paid up capital as on 31st March, 2015 stands Rs. 89,77,20,350/- divided into 8,97,72,035 fully paid up equity shares of Rs. 10/- each. During the year, under review, the Company has not issued any share(s). Further the Company has not issued any share with differential Voting Rights/Sweat Equity shares/under Stock Option Scheme (ESOS) earlier and during the year. The Company has issued 500 non-convertible debentures of Rs. 10.00 lacs each, however during the year under review, no debenture has been issued. The Company has no scheme or provision of money for purchase of its own shares by employees or by trustees for the benefit of employees. Hence the details under rule 16 (4) of Companies (Share Capital and Debentures) Rules, 2014 are not required to be disclosed. Directors Change in Directors or Key Managerial Personnel In terms of provisions of the Companies Act, 2013 read with Clause 49 of Listing Agreement, during the year, Ms. Kamal Kapur has been appointed as an Additional Director as a Women Non Executive Independent Director on the Board of the Company w.e.f 14th November, 2014 and holds office upto ensuing Annual General Meeting. She however being eligible for reappointment, Company has received an application from the Member for consideration of her appointment as Women Non Executive Independent Director on the Board in the ensuing AGM itself. During the year, under review, the Board of Directors have appointed Sh. Sharat Kumar Gupta as the Chief Finance Officer (CFO) of the Company in place of existing CFO w.e.f. 1st April, 2015. Sh. Ajay Kumar Choudhary and Sh. Kapil Choudhary are retiring by rotation in the forthcoming Annual General Meeting and being eligible, offer themselves for re-appointment. The Company is required to seek Central Government approval for payment of existing remuneration to Shri Ajay Kumar Choudhary, Shri Kapil Choudhary and Shri Sitaram Parthasarathy for a period of 3 years. In case of Shri Ajay Kumar Choudhary, approval is required to be taken w.e.f. 1st April, 2015 to 1st December, 2017 (till the date of his existing tenure of appointment), and in the case of Shri Kapil Choudhary and Shri Sitaram Parthasarathy approval has to be taken for the period from 1st April, 2015 to 31st March, 2018 Brief resume of the Directors proposed to be appointed/re-appointed, nature of their expertise in specific functional areas and names of the companies in which they hold directorship and membership/chairmanships of the Board or its Committees, as stipulated under Clause 49 of the listing agreement entered by the Company with stock exchanges in India, is provided in the Report of Corporate Governance forming part of the Annual Report. Number of Meetings of the Board Four meetings of the Board were held during the year. The detailed information of the meetings of the Board held during the year is mentioned in the Corporate Governance Report which forms part to this report. Declaration by independent directors All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. Annual Evaluation by the Board Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board has carried out an annual performance evaluation of its own performance, the directors individually as well as its Committees. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report. Remuneration Policy The Board has, on the recommendation of the Nomination & Remuneration Committee, framed a policy for selection and appointment of Directors, Senior Management and their remuneration. The Remuneration Policy is stated in the Corporate Governance Report. During the year, neither the Managing Director nor the Whole-time Directors of the Company received any remuneration or commission from any of its subsidiaries. The said policy has also been hosted on the website of the company. Directors'' Responsibility Statement Pursuant to the requirement of Section 134(3)(c) of the Companies Act, 2013, with respect to Directors'' Responsibility Statement, it is hereby confirmed that: (a) in the preparation of the annual accounts for the financial year ended 31st March, 2015, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the directors had selected such accounting policies 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 March 31,2015 and of the profit and loss of the company for that period; (c) the directors had 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) the directors had prepared the annual accounts on a going concern basis; and (e) the directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. (f) the directors 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 All related party transactions that were entered into during the financial year were on an arm''s length basis and were in the ordinary course of business. There were no materially significant related party transactions entered into by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict with the interest of the Company at large. Prior omnibus approval of the Audit Committee was obtained for Related Party Transactions for a period upto 31st March, 2015 and for the financial year 2015-16. The transactions entered into pursuant to the omnibus approval so granted were audited and a statement giving details of all related party transactions were placed before the Audit Committee for its review on a quarterly basis. The Company has framed a Related Party Transactions Policy for purpose of identification and monitoring of such transactions. The policy on Related Party Transactions as approved by the Board has been uploaded on the Company''s website. None of the Directors has any pecuniary relationships or transactions vis-a-vis the Company. Since all related party transactions entered into by the Company were in ordinary course of business and were on an arm''s length basis, form AOC - 2 is not applicable to the Company. Significant and Material Orders passed by the Regulators or Courts There are no significant or material orders passed by the Regulators / Courts which would impact the going concern status of the Company and its future operations. Auditors M/s. J C Bhalla & Co., Chartered Accountants, (Registration No. 001111N) have been appointed as Statutory Auditors of the Company at 22nd Annual General Meeting held on 11th September, 2014 to hold office until conclusion of 25th Annual General Meeting for a period of three years, as provided in Section 139 of the Companies Act, 2013, the said appointment is being placed for ratification at the forthcoming Annual General Meeting. The Company has received a confirmation from M/s. J C Bhalla & Co., Chartered Accountants to the effect that their appointment, if made, at the ensuing AGM would be in terms of Sections 139 and 141 of the Companies Act, 2013 and rules made there under and that they are not disqualified for re-appointment. Auditors Report The Auditors'' Report read with the Notes to Accounts is self-explanatory and does not call for any further explanation under Section 134 of the Companies Act, 2013, except for the responses in respect of some observations as mentioned here in below. Directors'' view on Auditor''s Observations Directors'' response to the various observations of the auditors made in their report, even though explained wherever necessary through appropriate notes to accounts, is reproduced hereunder in compliance with the relevant legal requirements: Note No. 14 of the Financial Statement qualified by Auditors Auditors stated that they are unable to comment on the recoverability of advance balance of Rs.19,040,000/-, included under the head Advance against expenses in Note No. 14 of the standalone financial statements, for which no provision has been made in the books of account. Note No. 41 of the Financial Statement qualified by Auditors The company has an investment of Rs. 204,469,921/- in and has amount recoverable amounting to Rs. 642,244,069/- to Amit Spinning Industries Limited (ASIL), a subsidiary, as on March 31,2015. The accumulated losses of ASIL, at the year end exceeded its net worth. There is also reduction in market value of the investment at the year end by Rs.184,537,898. In the opinion of the management, diminution in this long term investment is due to adverse business conditions in the past. ASIL has started generating EBIDTA and cash profits. In view of these developments, management believes that diminution in the value of investment is of temporary nature and that outstanding would be realised within a reasonable period of time. Accordingly no provision considered necessary in the value of investment held and amount due from ASIL. Note No. 42 of the Financial Statement qualified by Auditors The Company has an investment of Rs. 561,011,339 and Rs.9,323,779'' in its subsidiary Spentex Netherlands B. V. (SNBV) and its step down subsidiary Spentex Tashkent Toytepa LLC (STTL) respectively. Further it has Rs.''70,012,404 as export receivable from STTL and advances recoverable of Rs.95,070,902 in SNBV as on March 31st, 2015. During the period of investment, Government of Uzbekistan (GOU) changed certain laws and policies breaching the investment agreement and rendered operation of STTL not only unviable, but also expropriated its investment. All the assets and liabilities of STTL have been taken over by National Bank of Uzbekistan (NBU- Government of Uzbekistan) and existence of STTL has been liquidated as per bankruptcy laws. In view of this corporate guarantee given by company in respect of STTL liability for deferred payment to Tashkent Toytepa Textile (TTL) stand extinguished. SNBV, which had made around 99% investment in the equity of STTL, had filed request for Arbitration against GOU for Claim through its lawyer before International Center for Settlement Investment Dispute (ICSID). As per the schedule prescribed in the procedural order issued by ICSID, SNBV has filed the memorial on Jurisdictions and Merits on 30th June, 2014. Based on the claim lodged with ICSID, Board of Directors has decided not to make any provision for the aforesaid amounts. In addition to above claim, the company has sent notice to the GOU for indemnifying the further losses caused to company directly or indirectly on account of investment made in Uzbekistan. Note No. 44 of the Financial Statement qualified by Auditors Rs. 1,28,30,469 dues from Government Authorities against which company has filed an application for release with concerned authorities. The Company is making effort to recover the same and expects to reduce the outstanding dues significantly. The management is of the opinion that ultimately there would be no losses against these old balances and hence no provision is considered necessary at the stage. Note No. 4 of the Financial Statement without qualifying by Auditors, have drawn attention: The Company has not allotted shares against the share application amount of Rs.110,950,000/- which was brought in by the promoters in more than one installments under restructuring scheme approved by the Bankers. However, the company has not complied with the provisions of Section 42 of the Companies Act, 2013. Note No. 43 of the Financial Statement without qualifying by Auditors, have drawn attention: As on March 31,2012, the accumulated losses of the Company had exceeded its net worth. Accordingly company in compliance with the provisions of section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 filed a reference with Board for Industrial and Financial Restructuring (BIFR). The Company''s operations were adversely affected in 2011-12 due to adverse Govt. policies and high volatility of Raw Material prices. Further, considering the change in scenario, recent performance and trends of the company as well as overall industry outlook, the management believes that losses incurred in the past would reasonably be made good, in due course. The financial statements, as such have been prepared on a going concern basis on the strength of management''s plan of revival including reorganization of business. Note No. 44 of the Financial Statement without qualifying by Auditors, have drawn attention: Trade receivables, advance balances and receivables amount aggregating to Rs. 6,371,477, Rs. 27,314,712, Rs. 17,869,256 respectively due from certain parties where payments are not forthcoming. Against the above, the Company has filed a suit for recovery. The Company is making effort to recover the same and expects to reduce the outstanding dues significantly. Based on outcome of the legal suit coupled with further negotiations with these parties, the management is of the opinion that ultimately there would be no losses against these old balances and hence no provision is considered necessary at the stage. Note No. 45of the Financial Statement without qualifying by Auditors, have drawn attention: The company has applied to Securities & Exchange Board of India (SEBI) seeking exemption for maintaining at least 15% of the amount of its debenture maturing during the financial year 2013-14 vide circular no 04/2013 dated 11-Feb-2013 issued by Ministry of Corporate Affair, which is still awaited. Note No. 46 of the Financial Statement without qualifying by the Auditors, have drawn attention: The outstanding balance as on 31st March, 2014 in respect of certain trade receivables, trade payables and loans & advances are subject to confirmation/reconciliation and consequential adjustment if any, from the respective parties. The management, however, does not expect any material variations. Cost Auditors Sh. Rajesh Goyal, Cost Accountant of M/s. K G Goyal & Associates, Cost Accountants (Firm Registration No.000024) has been appointed as Cost Auditors to carry out audit of the Cost Accounts maintained by the Company for the financial year 2015-16. Secretarial Auditor & Audit Report: Pursuant to provisions of Section 204 of the Companies Act, 2013, the Company has appointed M/s. Loveneet Handa & Associate, Practicing Company Secretary (having CP No. 10753 & Membership No. 25973) as Secretarial Auditor to carry out the secretarial audit for the financial year 2014-2015. The Secretarial Audit Report for the financial year ended March 31,2015 is annexed herewith as Annexure I to this Report. There are no qualifications or observations or remarks made by the Secretarial Auditors in their Report. Internal Auditors Pursuant to section 138 of the Companies Act, 2013 read with The Companies (Accounts) Rules, 2014, the Company has appointed Dr. Sunil Kumar Gupta as Internal Auditor of the Company. Internal Control Systems and Adequacy The Company has adequate system of internal control with regard to various business processes, financial reporting and compliance with applicable laws and regulations, etc. with clearly defined roles and responsibilities for all managerial positions. All operating parameters are continuously monitored and controlled. The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control systems, accounting procedures and policies at all locations of the Company and its subsidiaries. Based on the report of internal audit function, process owners undertake corrective actions in their respective areas and thereby further strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board. Extract of the Annual Return The details forming part of the extract of the Annual Return in form MGT 9 is annexed herewith as Annexure-2 to this Report. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo Company has implemented energy conservation methods and such action has resulted into major savings in energy consumption as well as in cost control. The information as required to be disclosed under Section 134(3)(m) of the Companies Act, 2013 read with Rule, 8 of The Companies (Accounts) Rules, 2014 is set out in the Annexure - 3 to this Report. Particulars of Employees List of the employees who have received remuneration exceeding the limit as stated in rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 read with the Companies(Particulars of Employees) Rules, 1975, as amended, shall be made available to any shareholder on a specific request made by him in writing on or before 30th September, 2015. Deposits The Company has not accepted or renewed any deposit during the year and there are no outstanding and/or overdue deposits as at 31st March, 2015. Particulars of Loans, Guarantees or Investments Details of loans, Guarantees and Investments covered under the provision of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements. Corporate Social Responsibility In accordance with the provisions of Section 135 of the Companies Act, 2013, the Corporate Social Responsibility (CSR) Committee of the Board has been constituted on 28th May, 2014, inter alia, to formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the Company and monitor the same from time to time. The composition of committee is disclosed in Corporate Governance Report forming part to this report. The CSR policy has also been hosted on the website of the company Risk Management A Risk Management Committee has been constituted to oversee the risk management process in the Company as required under the Companies Act, 2013 and Clause 49 of the Listing Agreement. The details of Committee and its terms of reference are set out in the Corporate Governance Report forming part of the Board''s Report. The Risk Management Policy has also been hosted on the website of the Company Vigil Mechanism The Company has framed and implemented a vigil mechanism named as Whistle Blower Policy to deal with instances of fraud and mismanagement, if any. The details of the Whistle Blower Policy are provided in the Corporate Governance Report and also posted on the website of the Company. During the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Dividend During the year under review, the Company has no distributable profits hence your Directors do not recommend payment of any dividend. Transfer of Reserves During the year, the Company has not transferred any amount to reserves. Material changes between the date of Board Report and end of Financial Year There have been no material changes and commitments, if any, affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of the report. Human Resources/Industrial Relations The Company and its management value the talent, commitment and dedication of its employees and acknowledge their contribution. All employees in the Company work as a team and integral part of the family, sharing their ideas and concerns through discussions, Town Hall meetings and intranet network installed across the units. Industrial Relations scenario at all units continues to be healthy and enthusiastic. Information Technology Information Technology continues to be an integral part of your company''s business strategy. The Company is working on SAP platform integrating all its units located at different places/locations, its business processes, financial parameters, customer transactions and people, effectively on real time basis. Change in the nature of Business There is no change in the nature of the business of the company. Corporate Governance and Management Discussion and Analysis As stipulated under Clause 49 of the Listing Agreement entered with the Stock Exchanges, a report on Corporate Governance is attached separately as a part of the Annual Report and the Management Discussion and Analysis (MD & A) is also included in this report so that duplication and overlapping between Directors'' Report and a separate MD & A is avoided and the entire information is provided in a composite and comprehensive manner. Listing of Shares Presently Company''s shares are listed and traded at the BSE Ltd., Mumbai (BSE) and National Stock Exchange of India, Mumbai (NSE), for which annual Listing Fee has been paid by the Company, till 31st March, 2016. Conclusion Your Company enjoys leadership position in domestic market with strong competitive advantage in the export segment. However due to sluggish market and consequent losses in the recent past, the Company is currently in consolidation mode. We shall, however continue to explore the opportunities to make investments and progress to further strengthen our leadership position. Acknowledgments Your Directors take this opportunity to thank the Financial Institutions, Banks, Central and State Governments authorities, Regulatory authorities, Stock Exchanges, stakeholders, customers and vendors for their continued support and co-operation, and for the trust reposed by them in the Management. Your Directors also wish to thank all the employees of the Company for their commitment and contributions. For and on behalf of Board of Directors Sd/- Place: New Delhi Ajay Kumar Choudhary Dated: August 13, 2015 Chairman

Director’s Report